Education featured Healthcare Labour Poverty

Danny Cavanagh: What wrong with Social Impact Bonds?

KJIPUKTUK (Halifax) – The Invisible Heart, a documentary film exploring social impact bonds (SIB), is currently debuting in theatres across Canada.  I was on a panel during the Halifax screening last week.

What are social impact bonds?

Social Impact Bonds (SIB) are an investment product designed to raise private capital to pay for social services. With social impact bonds governments repay investors only if the programs improve social outcomes, for example, lower unemployment or prison recidivism. Return on investment (ROI) is tied to the success of a program.

The first social impact bond was launched in Peterborough (UK) eight years ago. Since then, this new form of investment has spread around the world promising to address social problems while offerings investors an attractive return on its investments. The Ontario government is currently working on its first Social Impact Bond.

This form of financing already occurs in various countries, including the United States, Britain and Australia.

Under this model, private investors put up funding to public service agencies to deliver social programs. They are repaid as specified goals and outcomes are reached.

The approach has been tried in Justice and corrections, skills training, public health, child welfare, services for seniors, early childhood development, education, homelessness, supports for people with physical disabilities, and mental health to name a few.

In my opinion, these bonds are a get-richer scheme by the wealthy to look like they are doing good things while at the same time getting huge returns on their investment, at times as high as 22%.

With a social impact bond, private investors and governments enter into a contract where private investors’ money pays for what our governments should be paying for, and that is a form of privatization of public services that we are opposed to.

When a funder or group of funders look to administer all aspects of a social impact bond project, including hiring the organization that is actually delivering the service, that usually means it costs taxpayers.

When decisions about how the service will be delivered are in the hands of the funder’s organization, whose first priority will be making money for its investors, then again, we will oppose those ideas. The rationale on SIB to deliver outcomes encourages experimentation and there is almost no evidence that SIBs encourage innovation. In fact, most SIB-funded projects are based on well-established models.

Our social safety net is based on our values. I think we as societies are judged by how we collectively treat the most vulnerable members of society and SIB’s undermine those values. So, when everything is spun on good intentions, and the fundamental intention of SIB’s is really about making a profit for investors – that’s an issue. When we see investor profits placed ahead of the most vulnerable people in our society cloaked as compassion and responsibility – that undermines our values as a society and we oppose that.

Another potential outcome of a SIB is that those wealthy private investors who eye the huge profits of SIB’s as a way of making more money may now choose not to donate to that local community organization because it sees an opportunity as a private investor to up its profit.

Social Impact Bonds have a lot of appeal for governments because they think they can dump their responsibility to fund public services and take credit when it works in hopes of re-election. The fact that SIBs increase administrative costs and reduce public accountability couldn’t matter less to these governments.

We need to start thinking more critically about the things that matter to us. A good example is how in the past governments and right-wingers have said over and over that we should not worry, things will get better for workers and their families. That has not happened.

An example of how this works in practice… One of the first Social Impact Bond projects funded by the Canadian government was basic skills training for up to 400 students, delivered by community colleges in four provinces. While the Canadian government provided up to $2.75 million, and only a bit more than $1.1 million went to the colleges delivering the program. In other words, the extra costs that come with Social Impact Bonds ate some 60% of the funding.

I would suggest that you look up the Invisible Heart and watch the short documentary on SIBs which tell the story on the good, the bad and the ugly of SIB’s. It is worth the watch at the link:

Danny Cavanagh is the president of the Nova Scotia Federation of Labour.


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