PLY: Interesting crunchy reading from across the world…
Mike Baird Is On A Winner With Social Impact Bonds Et Al
SMH
Here’s the problem. There’s a growing gap between the cost of all the services we expect governments to provide and the revenues available to pay for them. It’s estimated the gap between demand for services and what governments can provide will reach $US54 billion or 3% of GDP by 2025.
Already the federal government’s social services bill at over $150 billion accounts for more than a third of the Federal budget. It’s not sustainable. So, if we want to build an Australia in which coming generations have the same opportunities we do, with comparable access to education and health care, a workable justice system, functioning public infrastructure and a social safety net of last resort at least, something’s gotta give.
The good news? Raising taxes is not the best answer, or even a good answer. Social impact investing is showing great potential around the world to save billions in spending on problems from homelessness to health care, recidivism and joblessness, by literally paying dividends to those who invest in successful efforts to overcome these problems.
Social impact investing, explained Sir Ronald Cohen who headed the G8 taskforce on it, “harnesses the forces of entrepreneurship and capital and the power of markets to do good”. The taskforce reckoned that US$1 trillion of private sector investment could be unleashed to tackle entrenched social problems if capital markets were to factor social impact into their risk and return equations.
In Australia the NSW government is to be congratulated for making a modest but excellent start with its experiment in social benefit bonds. This is one form of social impact investing whereby investors buy bonds in a social program and the government uses the cash to pay the charity or community group which runs it. If the project’s goals are met, which means the government saves money, the government repays the bondholders from the savings. The greater the success, the higher the yield to investors.
Response To “The Payoff of Pay-for-Success”
Mark Hand & Margo Johnson – SSIR
“The future of PFS,” argue V. Kasturi Rangan and Lisa A. Chase, “lies in aligning with impact-seeking investors, not return-seeking investors.” Should it? Or should Pay-For-Success (PFS) designers continue to make an effort to bring return-seeking capital to the table? Based on the principles of the organizational theory of robust action, we believe efforts should be made to attract return-seeking investors—but only as long as their criteria of success (financial return) doesn’t sideline the success criteria of other actors including governments, service providers, and particularly the end beneficiaries affected by PFS contracts.
The authors are right to point out that while initial energy for PFS came from its promise to unlock return-seeking capital, in practice it has been impact-focused capital that has allowed contracts to get off the ground. The common explanation for this reassertion of impact capital, and one echoed by Rangan and Chase, is one of incentive alignment: impact-seeking capital often comes with lower return on investment (ROI) expectations, greater sensitivity to political considerations, and an IRS-mandated requirement to stay focused on impact. Return-seeking investors’ incentives, so the argument goes, are simply not aligned in this way.
Response To “The Payoff of Pay-for-Success”
Mark T. Fliegauf – SSIR
In their insightful article, “The Payoff of Pay-For-Success,” Kasturi Rangan and Lisa Chase highlight the promise and potential pitfalls of an emerging trend in government procurement: pay-for-success contracts (PFS), and more specifically, social impact bonds (SIBs). While their analysis is confined to PFS and SIB contracts in the United States, their conclusions are applicable beyond North America.
Based on findings from Germany, I agree with Rangan and Chase’s assessment about the “critical and enabling” role of philanthropy and public funding in developing PFS contracts and SIBs in the next few years. The dearth of venture and primarily “return-seeking” capital in these contracts, however, has the positive effect of preventing unintended consequences that may accompany the infusion of such capital.
See also Tracy Palandjian & Jeff Shumway’s response here and George Overholser’s response here.