Jenesa Jeram says social impact bonds have the potential to revolutionise public services

Jenesa Jeram says social impact bonds have the potential to revolutionise public services

Jenesa Jeram*

It is a mighty feat of politics that a government budget delivered well can keep commentators occupied for weeks.

The Budget sets the terms of debate, pulling into sharp focus areas that receive additional funding, have had funding cut, or remain fiscally neglected by government.

Such laser focus misses the big picture.

One of the greatest reforms the Government is expected to make this term was barely mentioned this budget. That is the reform related to social services.

The Government needs to refocus the way the public sector funds and delivers social services. Under the current system, there is little accountability for either achieving outcomes or for ensuring cost effectiveness.

In a speech made earlier this year to the Institute of Public Administration, Finance Minister Bill English described some of the expected reforms, including changes to the budget process. Among these changes is greater purchasing of outcomes rather than inputs, testing for spending effectiveness, and reprioritising funding to the providers that get results.

Such changes are already familiar in the welfare sector. In fact, according to a recent article in Bloomberg, New Zealand has been ahead of the curve in its investment approach. The article claims “New Zealand has moved the furthest toward applying data to a range of social services. Whereas much of the world considers social service reform as simply cutting services, New Zealand is using data to inform how to spend taxpayers’ dollars most effectively."

From the data already gathered, policymakers can tell how much different population groups can cost the state according to certain life outcomes. For instance, data analytics have shown that a child under five who has grown up in certain conditions can be around five times more likely to be on a long term benefit by the age of 35, and seven times more likely to be in prison by age 21.

But gathering evidence and data on populations is only the first step. In order to truly get value for taxpayer money, and ensure effectiveness of services, there must also be greater evidence and accountability of the service providers themselves.

We have seen this recently with the Auditor General’s inquiry into Whanau Ora. The programme of strengthening families and empowering local communities has been commended across the political spectrum as a promising initiative. However, the Auditor General’s report has found that after four years in operation, there is still little clarity about what Whanau Ora aims to achieve, and what outcomes have resulted. This is despite $42.3 million spent in total on administration (including research and evaluation).

This is not a problem confined to Whanau Ora. Few social services – public or private – collect adequate data and feedback on their operations. The Productivity Commission’s draft report on social services found that government agencies generally do not know about the effectiveness of the social services they provide. Nor is there proper evaluation (or evaluation is not given proper weight in decision making).

It is therefore hard to compare different programmes based on effectiveness and cost, and leaves little ground for social service providers to compete. There is no yardstick for what constitutes an effective social service.

In our latest report, Investing for Success: Social Impact Bonds and the future of public services, The New Zealand Initiative has explored one model with potential for increasing public sector accountability, while incentivising the achievement of results.

The model is called Social Impact Bonds (SIBs). SIBs – sometimes called ‘social bonds’ in New Zealand– are a form of performance-based contracting that shifts the financial risk of funding and delivering social services to the private sector. Taxpayers’ money is only spent if programmes are successful and achieve set outcomes.

In other words, the Government only pays for what works.

The Ministry of Health is currently developing a pilot for the concept which has already attracted significant interest from the charities and philanthropic sector.

It works by enabling private investors, private service providers, and an intermediary to partner together to fund and deliver agreed social outcomes. The contract will have funding arrangements that are fully or partially linked with successfully achieving these outcomes. If successful, investors will receive their principal back, as well as a return.

Overseas, early success stories are emerging. For instance, the first SIB to be implemented, known as the Peterborough Prison SIB, focussed on reducing the reoffending rate of released prisoners. The results for the first cohort of prisoners released showed an 8.4 percent reduction in recidivism compared to the national average. In Australia, general government processes have been encouraged to reform, due to the greater emphasis SIBs place on outcomes, transparency and contracting. In other words, SIBs have been a positive example for other government processes to follow.

SIBs address concerns about improving outcomes, as well as spending taxpayers’ money responsibly. Accountability is built into the model, as payments to investors are based on the achievement of outcomes. An independent monitor must verify that service providers are achieving quantifiable results.

Incentives for innovation are also built into the model, due to only being financially rewarded for successful outcomes. There is also often more flexibility and freedom in SIB contracts, compared with other government contractual arrangements.

Performance-based contracts such as SIBs have the potential to revolutionise the way public services are delivered. The emphasis on measuring outcomes can form the evidence base and data-collecting infrastructure to be used more widely in public services.

This will allow decision-makers to compare the cost and effectiveness of competing social services, and may even improve the quality of services overall due to the competition imperative.

Finally, where programmes have been successful, the Government may choose to bring these services to scale, spending taxpayers’ money on innovative and proven models. SIBs shifts financial risk to the private sector, but the potential for spill-over benefits remain.

2015 is the Year of Evaluation: a global initiative to improve government policy and programmes by applying an evidence-based approach. New Zealand’s collection and use of population-based data has already transformed the welfare system, and is internationally acclaimed. If the same information can be gathered on what outcomes these social services achieve (and appropriate choices then made), New Zealand’s social service system could be truly world leading.

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The New Zealand Initiative’s latest report, Investing for Success: Social Impact Bonds and the future of public services can be downloaded here.

*Jenesa Jeram is a Research Assistant at The New Zealand Initiative. This is the Initiative's weekly column for interest.co.nz.

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Oh lets run the Govn like it is a business, which it isnt, more far right wing mantra. Now sure there are some really questionable "new" inititives that were supposed to have improved things but appear to have not. However just because some efforts failed to fix things does not mean the entire system needs an overhaul.

Yes.
More life time experience from our twenty-something know-all interviewing her neoliberal text.
Maybe the following balance of life experiences will educate her more successfully .
One can only hope!

National needed to justify to their constituents actually paying more for social welfare, so if Act have been persuaded based on "measurable targets", then so be it. I was actually amused that the Nats have put more money into poor families, and also into Working For Families in a way that Labour would have been proud of, given that the Nats so derided WFF when it came into being. They always should have put more money in of course, but given Act are endorsing it here shows how good at PR the Nats are.
I'm happy to gloss over that Bill English should surely have always known that leaving kids in poverty would make them far more likely to end up unemployed and as clients of the justice system. So if he needs to pretend to have just discovered this fact when most of the rest of us have known it for decades, then again, so be it. Neither he nor Key apparently want the legacy of a dysfunctional unequal society at their hands. So they are making some baby steps towards alleviating the situation. The privatisation angle is mostly a red herring.

A business is a collective that provides a service to consumers.

You say that government isn't a business..... sadly you're right.

What is more concerning is the move to foist off the financial burden and the initiatory risk onto the unaccountable private sector, in a puff of magic phrases.

Will we see a massive drop in taxation to accompany this reduction in agency spending? I think not.

Instead we'll see the rise of private institutions rented out to the government. Nice fat contracts, but with services cut to the quick, and more observed in the absence that in the implementation.

the _real_ hard point of the article.... is what do the consumers and shareholders expect from their government company? In respect to social services, what is a "success"? More leisure? Forcing everyone into working to be free? Forcing compliance to approved norms? Better GDP for rising populations?
My idea of social success includes freedom and independence, and plenty of unmanaged natural resources (aka "untouched nature"). For many others these all the epitome of anarchy and chaos and strikes right to their fear of security and personal hierarchy - what is the point of untouched nature if you can put it in a glam mag or show ownership?

I was talking recently to a person from Norway, after commenting about how so many people are just government slaves with no true freedom. She couldn't understand that as she says in Norway everyone is happy and has lots of freedom. I said if I want to set up a martial arts club/university with a shooting range, how would I go about it. Her response "we don't allow that kind of thing in Norway"

Its already being run like a business steven and has been since the 1990s. I'd say its likely in a better financial state than many corporations.

Of course managemnt consultants such as the author are bound to recommend institutional change and transformation. Its a purely rational strategy. Guess who are going to get the contracts?

You may be right, if UK experience under the conservatives is a guide. Today in the Telegraph, re the National Health Service:
How nursing agencies making billions are bleeding the NHS dry

http://www.telegraph.co.uk/news/health/news/11642267/How-nursing-agencie...

So, can we conclude from this that whoever's commissioning and paying for this bollocks sees a lovely big bloodsack of taxpayer subsidies that they want to get their fangs into?

I really don't see that acquiring real-outcome data, and feeding that back into funding and delivery modes, is all that controversial? After all, tertiary education has been in this mode since the late 1980's, and education is about nothing if not long-term outcomes....

It seems the government is going to try these social bonds in my psychiatric field. Now I am not against the private sector. We use them all the time. It is not some Ministry guy who repairs the plumbing, runs the fire detectors etc.

I have seen the private sector used in community care receiving multiples of $100,000 for the care of one person. These contracts are very opaque. Nobody really knows if they are value for money. The suspicion is the private providers game the system to get the easy well paying clients while dumping the difficult people back into the public system, which is always the carer of last resort.

How does the saying go "buyer beware -Caveat emptor". For social bonds the taxpayer is the buyer. So watch out for excuses for why the taxpayer shouldn't know what is happening.

If the private sector demand confidentiality on the grounds of 'commercial sensitivity' then the contracts should be shelved.

All government departments have been working to an outcome model for well over a decade - I recall having to transition a business I ran in CG back in 1998/99. Check out any departmental vote statement of intent you like, e.g.,

http://www.dia.govt.nz/SOI/2011/operating-intentions.htm

And here's TSY reporting on the outcome model to the OECD in 2002;

http://www.oecd.org/newzealand/43513908.pdf

There is nothing new in the neoliberal idea of hollowing out the public services in favour of the private sector. What is interesting however is the new opportunity for government to delay its borrowing to pay for such services. With traditional bank deposits/savings being destroyed by QE - you have to guess this is just another calculated step in the overall plan;

http://en.wikipedia.org/wiki/Financialization

It's got nothing to do with raising the performance of a particular social services sector.