Polity by Rob Salmond


Decrypting “social investment”

It looks like next week’s budget will feature a lot of talk about the social sector. There’s whispers of big budget boosts in health and education, as well there might be with per-person health spending falling in real terms over the past few years.

My guess is Bill English will wrap a lot of this up with terms like “social investment,” partly as a way of cloaking some poor policy choices with the label of some good policy choices.

The actual “investment approach to social policy” is a good idea, I think. The government does a lot of nerd work to identify people whose lives will really suffer if they’re left, unassisted, languishing on a benefit. Investing more today in these people – through free courses, mentoring, and so on – has the potential to radically improve their lives, and to save the taxpayer money down the line, too. So the government spends more today to help everyone out tomorrow. Good plan.

It’s not a new idea. ACC has been doing this stuff for ages, investing in injury prevention ads and courses and so on. Non-injuries are much cheaper to fix than injuries. From memory, that got a big boost under Helen Clark. What National has done, I think rightly, is extend that approach to welfare.

What it should now do is apply more of the same thinking to health, where up-front investment in population-wide, preventative health programs like healthy living education for kids or quit smoking programs for grown-ups pays off big down the line.

To me, this is the real meaning of “social investment” when it gets bandied about. Certainly last week’s Deloitte / NZIER report on social investment was mainly about this kind of program.

The investment approach isn’t a panacea, of course. And there are always questions to answer. For example: where does the government get the money they need for the up-front investments in helping high-risk people out?

If the money doesn’t come in any way at the expense of other people who rely on public services, fine. 

But if you take funds away from some lower-risk people to fund the extra investments, that’s not good. It isn’t the lower risk person’s fault that they’re lower risk, and they should not be punished because of it. In fact, doing that can create a dangerous “moral hazard” problem, where it becomes in a low risk person’s interest to appear high risk and get extra stuff.

Second, what is the government going to do with the savings it makes? That’s an age-old ideological debate: the right would rather give it away as tax cuts; the left would rather use savings to help more people.

Overall, I like the investment approach. I think the left should embrace it as well. But at the moment the government is working very hard to bring all kinds of other, worse policies under this umbrella, too.

For example, “social bonds” sure sounds like social investment, right? I mean, a bond is a form of investment and everything.

But they’ve got nothing to do with each other.

Social bonds are actually a form of outsourcing, where the government pays some other organization to deliver a particular social outcome, and pays them a bounty if they succeed. Outsourcing has a long, chequered history in social services in New Zealand. See, for example, Serco. The two big problems with it are: 

  1. The outside firm has a big incentive to lie to the government about whether it met its goal, and it has a huge information advantage over the government about what’s going on.
  2. The firm and the government have a joint incentive to present the public with a rose-tinted view of the outsourcing. The firm’s incentive is obvious. The government’s incentive is to appear competent, look like they’re delivering, and win votes.

Outsourcing for social outcomes risks a situation where firms lie, governments let them lie, and the public loses. It’s not a good idea, whether it’s dressed up as a “social bond” or a “private prison.” Accountability for social outcomes lies with elected officials, and that’s where it should stay.

There are also a set of pilot programmes dotted around the country called the “social sector trials,” trying to find new ways to deliver social services. Some call that social investment, too. But it’s got little to nothing to do with the investment approach. It’s just “some experiments.” I think trying new things is a reasonable idea, so long as you’re doing it properly. And, in this case, there’s evidence emerging that lots of the trials didn’t work.

Most stupidly, government Ministers are constantly talking about their massive multi-billion dollar “investments” in social sector agencies. Again, that’s got nothing at all to do with the investment approach – it’s just another name for “their budgets.” Nice try.

Having said that, I suppose the two things are at least somewhat related: It sure it harder to pull off a per-person “investment approach” when the overall per-person “investment level” is static or falling, as we have been in health and education recently.

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