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SIBs: The reality of "return-based outcomes"

by John Palethorpe

The government doesn't want to fund social care programmes any more. That's not precisely what they've said, but the announcement that they will be offering Social Impact Bonds (SIBs) implies that they believe that social care issues in NZ society should not or simply cannot continue to be funded with taxpayer money. Or at least not be funded without somebody, somewhere making some money out of it.

With stark growth in inequality and a politically-motivated antipathy towards raising taxes, their solution to funding social care is to open up the sector to investors. The theory says this unlocks the reserves of capital held by the richest for the benefit of society. However, in order to get those at the top to be interested in those at the bottom, it's necessary to offer them some more of what they already have: Money!

SIBs require the investment of capital from the private sector. The offered bonds have a fixed rate of return, much like other purely financially-based government bonds. The return on the investment is only delivered if the predetermined outcomes of the project are achieved.

These outcomes are determined between the investor, the government commissioning board and the contractor engaged to deliver the services. Should the outcomes not be achieved, the investor loses their money. Should the targets be reached, the government pays the investor their money back plus the additional fixed rate of return. That additional money is derived from the future cost savings of successful social services projects. Basically, it comes from the taxpayer.

In the UK, the pilot SIB was based around offender management and reoffending rates among ex-prisoners. That's pretty clear-cut and one that's easily quantifiable in terms of success or failure. However, the first SIB that National is offering is not in the area of offender management. Instead it's focusing on New Zealand's mental health services. Which is about the point that people have started to ask questions.

Firstly, how do you calculate if a social intervention programme targeting mental health services users is successful? The same question for substance abuse, chronic illness, disability and issues relating to the breakdown of families. How do you accurately calculate the "future savings" an intervention will have, and how on earth do you translate that into an investment dividend funded through taxpayer money?

Secondly, the focus on garnering investment capital, unlocking the "potential" of the investment market in the social services sector, ignores the method by which the services will be delivered. The chief solution is outsourcing: tendering a contract to the lowest bidder who will deliver an approximation of services in order to profit from that contract. If you're packing cans of tomatoes, you can skimp on the materials for packing, or buy slightly lower grade tomatoes. You just cannot do that when dealing with social services. Or can you?

Jonathan Coleman, well known for his empathetic and caring stance on social issues, has stated that with the creation of a profit incentive, the investors and the contractors will be encouraged to get better outcomes for their clients. Which is alright if you ignore the fact that the private sector actively seeks to maximise profits from its employees while at the same time paying them the lowest wage possible. And while Coleman protests that the Government won't be making profit, somebody will. And they'll be making it from the most vulnerable in society.

Let's wind back to the return-based outcomes. These will be contractual, with set targets for each level of financial return. This essentially makes clients within the system fixed cost units. The better the numbers reported back to the Government are, the better the financial result for both the provider and the investor. Which doesn't at all mean that the actual lives of the people using the service has been improved. 

Take, for example, Serco's role in Mt Eden prison. While Corrections minister Sam Lotu-liga insists it's good value for money, the UN report that it has the highest level of inmate-on-inmate violence in New Zealand. The reporting of the success of Mt Eden, and the new Serco run prison in South Auckland, falls to Serco itself. Who watches the watchmen? Oh.

In the UK, outsourced assessment of disability capability to ATOS and the resulting financial sanctions have led to deaths. A woman in a coma was told to find work. An ex-serviceman amputee with terminal lung cancer was told to find work. And each declaration of fitness to work was a positive outcome recorded in fulfillment of the contract ATOS had with the Government. This letter from M.J Black should be shared widely amongst those pondering what the Social Impact Bond driven social sector would look like from the inside. It's not social,  it's not secure and there is very little real benefit on display.

Which returns us to the question of what success will look like, or more disturbingly, what the contractors will do to meet their service level agreements. Consider, also, the possibility that investors may also hold shares in the companies to which the services are outsourced. In that situation, the Government will effectively pay the same person twice. Is that effective? Is that economically sensible?

We already live in a country where corporatism seems to have replaced capitalism, where the interests of those in power are more closely aligned with donors, who also happen to be the new beneficiaries of the opening up of social security to their profiting.

Relationships Aotearoa should have provided an illustrative lesson in the impossibility of profiting from family hardship and social strife. Some things are not designed to turn a profit, because the social profit they bring simply cannot be calculated and contracted. 

At the centre of social security should be those who require its services, not the profit margins of those who seek to scrounge from the benefits that a common duty of care provides. It is a measure of our common humanity, and a recognition that life is not as equal, fair and justly rewarding as it should be. It's measured in support, warmth and kindness, not cold accountancy. It is, and should always be, about our bonds with each other, rather than our Government's bond with an investment broker.

John Palethorpe blogs regularly at The Shinbone Star.

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