On Tuesday, Oct. 1, social innovation scholars Gary Painter and Chris Fox held a public dialogue on “social impact bonds,” or SIBs—a new way to fund public services that has been making waves on both sides of the Atlantic.
“This is a radical model,” said Fox, a policy professor at England’s Manchester Metropolitan University (MMU). “Government usually pays for outputs; it doesn’t pay for outcomes.”
SIBs use up-front capital from private investors to deliver social services tied to desired outcomes. In a three-way relationship, government, investors and public service providers enter into a formal contract. Government only pays for the services if clearly defined results are achieved. If outcomes fall short, investors lose their stake.
Fox has been studying SIB-funded projects in the United Kingdom, while Painter, who directs the USC Price Center for Social Innovation, has been tracking them in the United States.
Their 2018 book Payment by Results and Social Impact Bonds: Outcome-Based Payment Systems in the UK and US, co-authored with four other scholars, documents the landscape.
Creative Disruption
Speaking before an attentive audience of USC Price students and faculty in Dauterive Hall’s lower-level atrium, Painter and Fox gave an overview of the still-emerging model.
Since Britain launched the world’s first SIB in 2010, 121 others have been tried in 24 countries. According to Painter and Fox, 169 more are underway across 35 countries, 100 of them in the United States alone.
The researchers reviewed early SIB milestones.
The model emerged primarily in response to the 2008 recession, Fox explained. “Government was looking to do more with less,” he said, “and also shake up the public sector and bring about some creative disruption to encourage new providers and investors to come in.”
The first SIB addressed recidivism at Peterborough Prison, a privately-run correctional facility in east England. The UK Ministry of Justice contracted with local charities and nonprofits to provide post-release support for male offenders who had served under-one-year sentences. The investor—Britain’s Big Lottery Fund—recovered its initial £5 million investment with high interest when the program met its two-year target of 7.5-percent drop in re-convictions.
The first SIB in the United States also targeted recidivism. When that Rikers Island pilot failed to reach its three-year re-conviction target in 2015, Goldman Sachs and Bloomberg Philanthropies absorbed the program’s $9.6 million cost—not New York taxpayers.
The high-water mark for SIBs to date, according to Painter, involved a 2014 Belgian workforce mentorship program that was such “a fabulous success” that half-way through the two-year contract, the government partner scaled up the pilot across the system.
Painter and Fox went on to describe their current research, in collaboration with USC Price doctoral student Hillary Olsen. The new work asks whether the SIB “is really an innovative financial tool.” If so, it should “bring new capital in to fund social services that wouldn’t otherwise have been there,” Painter said. Measuring a counterfactual is not easy, he cautioned. Their new paper also investigates if and how SIBs, in practice, promote social innovation by moving new ideas through the design, pilot, interventions and diffusion stages.
Partnering Across the Pond
More USC-MMU collaborations are sure to follow. During the event, Painter announced a formal partnership between the two universities. The alliance will promote SIB-focused research and educational opportunities, including student and faculty exchanges, he said.
After the discussion, members of the audience engaged the two experts with their own questions:
Is there any other way to measure SIB success than numbers?
Could international aid organizations be enlisted to set up SIBs for developing countries?
USC Price professor Christine Beckman, sitting in the audience, inquired about alternative ways of measuring success given the prohibitive costs of randomized trials.
Painter and Fox addressed each with concrete examples when possible. The last question— Are more expensive, multi-sector problems inherently less suited to SIBs?— underscored the need for more research.
“You’ve identified a tension within the mechanism,” Painter told the audience-member. “The more stakeholders you put in the room, the more complicated it gets to come up with a contract.”
“The SIB rhetoric,” he concluded, “is around tackling these complex issues, but the financing mechanism may or may not be well-suited to tackling this full complexity. But it could be suited to handle pieces. That’s part of the ongoing research we’re talking about tonight.”
On the future of the partnership:
“Hopefully, there’s more to come next year as a result of our partnership with Manchester Metropolitan University.”
-GARY PAINTER