By Chris Warren.
There is a theory in American politics that any idea that both sides hate –or both sides love– is probably worth implementing. Agreement is almost extinct; liberals and conservatives alike are on watch for things to fight about. How surprising that social impact bonds may be one of the extremely rare moments when everyone holds hands and sings.
Stay with me here. This is not going to be some way-out there analysis that makes even the policy wonks’ eyes glaze over. In its basic form, social impact bonds (SIB) are something the average taxpayer can understand and should give serious attention to. They are a relatively new way of paying for public programs where all the risk is assumed by private investors. How it works is private investors front the money for a public social service initiative, which is usually managed by a private non-profit group. The project must meet quantifiable goals. If it does, the government pays off the investors, with a modest amount of interest (that’s their profit). If the project fails to meet goals, the taxpayers are released from the debt and the investors are on the hook for the entire loss.
SIBs were started in the United Kingdom just a few years ago and are quickly getting attention elsewhere. To be sure, there are holes in the plan and I have complete faith in my government’s ability to screw up a good idea. But the theoretical appeal is hard to overlook. Where the method has been tried, the results were promising in both program outcomes and cost control. The biggest advantage is that the system only pays when it is successful. The hands-on task of running the programs are delegated to private parties who, unlike the government, do not get guaranteed funding no matter how sloppy and ineffective they are. They must produce measurable results or lose investor support.
Most social programs should not exist as publicly funded entities in the first place, but if their existence is a foregone conclusion, then the least we can do is make sure we actually get something for our money. It’s surprising that liberals have been embracing SIBs because the structure of the plan reduces government to the simple role of bill payer. It would necessarily cut down the number of pubic employees and those who remain would have to produce results, a concept very few public sector workers are familiar with.
Social impact bonds offer both liberal and conservative factions something to be happy about. Liberals will see their many of their coveted social programs maintained and funded. Conservatives will get the fiscal responsibility and private sector efficacy that is so important to them. The big wild card is if the government can pull this off without mucking it up in favoritism and graft and gaming the rules. Having a great plan isn’t helpful if no one sticks to it.
In a time when nobody agrees with anybody outside of their respective political cult, social impact bonds is one small bridge between the huge divide. Public programs seldom achieve their end goals and SIBs might be the only end run around the unbreakable cycle of traditional inefficient tax funded programs and the unaccountable, overindulged public employees who run them. It’s too soon to say if social impact bonds are the solution to many yet-unsolved problems, but given the government’s vast history of failure, letting private sector money and methods give it a shot is a low risk step in the right direction.