Does knowing the cost of government provision of services encourage innovation and investment? According to the G8 Social Impact Investment Taskforce report — Impact Investment: The Invisible Heart of Markets — it does:
“Greater transparency about the fiscal value of achieving specific social outcomes would help enormously, by showing social innovators where opportunities exist to do better. We would like to see other governments consider doing something similar to the UK’s, which recently posted on the Cabinet Office website its cost of addressing some 640 priority social issues.”
The report contains eight examples (p16-17):
The UK Cabinet Office may be congratulated on its achievements with “transparency of fiscal value”, but it seems the taskforce is unaware of Australia’s long and more extensive history in this area. The Productivity Commission’s Report on Government Services has for almost 20 years published extensive data on social indicators and costs across the eight Australian states and territories (table below from the 2013 report).
Delivering on Impact, the Australian companion report by Impact Investing Australia, calls for governments to “publish cost to public of service provision in key service areas” (p40) as one of its “practical steps for government engagement in impact investment”. The report does not acknowledge or suggest how to build on the Productivity Commission cost data.
Perhaps they would take up the challenge of open contracting, where tendering, performance and completion of all government contracts are routinely published in order to reduce corruption and enhance citizen participation and outcomes?
Fallacy 1: programs have a 100% success rate
The Peterborough SIB is considered successful after reducing reoffending events by 8.4% compared to a national comparison group.
Fallacy 2: cost = saving
The figure of £21,268 a year is “the yearly average costs of a first time entrant to the criminal justice system”. It is very difficult for the government to recoup any of this money if the person does not enter the criminal justice system — as the bulk of these costs are fixed, they would have to sack court clerks, judges, prison wardens, sell property, reduce the pay of the minister, etc. Some public spending services are purchased for each individual as they are required, so a reduction in demand will result in a reduction in spending. Justice is not one of these areas.
Fallacy 3: you can identify a first-time entrant into the criminal justice system before they enter the criminal justice system
Some teachers or parents may be able to do this fairly accurately, but any widespread attempt by a service provider will necessarily deliver services to a number of young people who either would not have entered the system and also fail to deliver services to a number of young people who do enter the system. The more reliable option is to wait until these young people have entered the criminal justice system, in which case they have already incurred a proportion of what these costs claim to represent.
Fallacy 4: governments will be eager to pay for a 15% internal rate of social return
They could probably generate more social return by funding children’s birthday parties. Just because it’s good for the community doesn’t mean government should pay. The argument needs to be better than that.
Fallacy 5: you could succeed in ‘rehabilitating 1000 youth offenders’
Just think for a moment about how you might define a youth offender, and then how you might know when they have successfully been rehabilitated. If they’re an offender because they’ve already been convicted of an offence, are they rehabilitated if they haven’t offended again over a set period of time, or if they are offending less frequently, or if they say sorry and they’ll never do it again? Anyone who talks about services that “fix” people has no experience in defining social outcomes and how they should be measured.
Fallacy 6: government payments to the SIB mirror SIB payments to investors
There is an assumption that the flow of government payouts to the SIB has a 1:1 ratio with the flow of payouts from the SIB to investors. Most have a ratio of 1:1.5 to 1:3, with the Newpin bond investors committing $7 million compared to a maximum government payment for the program of over $50 million (a 1:7 ratio). While government will be expected to pay the value agreed for all successfully achieved outcomes, investors are needed only to cover the costs of working capital until sufficient government payments start to flow.
The argument continues:
“Across countries, the revenues of social sector organisations should come to reflect more closely the social value they deliver, and a more coherent market will emerge as a result. If we get this right, we can unleash the world’s next wave of entrepreneurial innovation.” (p16)
This is a bold statement and not without merit. But if we’re going down this path, we need to get it right. We need to understand and accurately portray our current situation before we get our well-meaning investors excited about how they’re going to change it for the better. If we’re going to ask governments to publish more information, let’s figure out what we need it for so we can obtain data that is useful and meaningful in a format that respects the user’s time. For example:
- Machine-readable data — saves social purpose organisations (and potentially their investors) hours of cutting and pasting from PDFs. Barack Obama’s a fan!
- Longitudinal datasets that allow the modelling and simulation of individual journeys through the system. Both the funding of new datasets and publishing existing data would be hugely valuable.
- Calculating and publishing lifetime costs of specific individual trajectories through our public service systems. This involves better data collection, management and linkage capacity than currently exists, but it’s worth working towards.
- Publishing or returning aggregated reporting data from outsourced services so that service providers can compare their own data and understand how they differ.
So is social impact investing all hype? Not for the people of Shoalhaven investing in solar power. Not for the people of Yackandandah who have secured a future supply of fuel in their community. And not for the patients treated at the beautiful Chris O’Brien Lifehouse. There are many amazing partnerships between social purpose organisations and investors that are creating real benefits for their stakeholders.
Let’s not do these social impact investments a disservice by publishing and pursuing misinformation.
More at The Mandarin: Partnerships for public good: social benefit bonds in NSW