This week the Minister for the Third Sector announced his intention to make Social Impact Bonds the most talked about funding mechanism for government social projects. We are delighted to make this early intervention to support the Minister with his ambition.
Social Impact Bonds are a nice idea, wrapped inside a bubble of positive determinism, shrouded in hyperbole. Strangely, however, advocates of SIBs seem reluctant to confront and take on the arguments put forward by their critics. This is a shame, as evolving and responding to this criticism would surely strengthen the model. SIBs have much to learn from the lessons of the Private Finance Initiative (PFI), wider experience of Payment by Results (PBR) models, conventional grant-making and procurement from charities and social enterprises, and the proliferation of targets and incentives in public services over several decades.
Perhaps, however, SIB champions might take inspiration from some of the greatest contemporary thinkers and use their ideas to inform the design and delivery of SIBs over the coming years? What can SIBs learn from the Nobel Prize winners, airport bookshop business section bestsellers, and the economic thought leaders of our time? Here’s some ideas…
The John Kay Oblique Impact Bond
In a world characterised by complexity and uncertainty – one in which it’s arrogant and unimaginative to believe that our goals can be achieved directly – charities get paid for delivering outcomes they never intended. Investors receive returns from public budgetholders in entirely unexpected parts of the system as, for example, the work of a mental health charity in Portsmouth delivers savings for a prison in Gloucester.
The Dave Brailsford and Angus Deaton Angry Birds Bond
In a world where we can never really be 100% sure that what works over here would also work over there – so one in which Randomised Control Trials (RCTs) can’t really tell you what would have happened without your intervention – charities simply use trial and error to get slightly more successful at what they already do. Investors put the money up for charities to try new things and – if they work better than before – then charities can pay the investors back from the savings they make from being able to do better with less.
Thomas Piketty’s Equality Bond
In a world in which returns to investors have tended to exceed growth rates over the long-term – and in doing so deliver a world of ever increasing inequality – financiers put up the money for charities to deliver savings for public budgetholders. Everyone wins! But critically, this model ensures the good cause wins more than the investors, by capping their returns at 49% of profits. So yes, everyone wins. But those in need win more than the rich.
Mariana Mazzucuto’s Entrepreneurial State Bond
In a world in which the public sector plays a significantly underestimated role in shaping and creating markets – and providing the high risk finance and technology behind many of our greatest innovations – the Treasury takes on the role normally assigned to the private investor in the conventional SIB model. This money funds services, in this case provided by a public sector body, while savings to the Exchequer, under this model, are returned to the Exchequer.
Richard Florida’s Flat White Bond
In a world in which a particularly creative, innovative subgroup of the working population are the main drivers of growth and the creation of value, investors raise bonds to help charities buy up property in areas of high deprivation. Social enterprises attract the creative classes through the provision of flat whites, beardcare accessories and Cambodian street food. The value of the property rises, existing communities are priced out, the charities sell up, the investors earn a return and the creative classes move on to the next area. Everyone wins. Well, nearly everyone.
Frederic Laloux’s Evolutionary Bond
In a world where current organisational command and control models are broken and dysfunctional, investors put up the money for more soulful, consciously purposeful, less hierarchical, self-organised social enterprises to deliver services without any targets or metrics whatsoever. Investors are paid back in the next life.
Yanis Varoufakis’ Perpetual Bond
In a world in which the answer to too much debt is more debt, SIBs are rolled out across all government departments and local authorities. As investment streams into public services, the economy booms and the quality of people’s lives improves dramatically across the country. After more than a decade, everyone is markedly better off but the public sector is overwhelmed by unsustainable debts to investors. As investors refuse to accept defaults and write-downs, the only solution is more debt.
Paul Mason’s Postcapitalist Bond
In a world where the digital revolution transforms capitalism as we know it – as many commodities can be reproduced at zero marginal cost – investors buy 3D printers for every citizen in the UK. People can then simply print out their own hip replacements, mobility vehicles and social care. This allows councils to radically transform themselves into distributed co-operative platforms and investors are paid back in bitcoins.
The Complexity Bond
In a world where we recognise the fundamentally dynamic and uncertain interdependence of complex adaptive systems, investors put up the money for charities to deliver services with the aim of making savings for a public budgetholder. Later, when it becomes evident that it’s impossible to attribute specific impacts to isolated interventions, the taxpayer gives up and just pays the investor back anyway. This has in fact already been done with the London homelessness impact bond where the taxpayer paid up even though there was no outcome data available for some of the outcomes.
Clayton Christensen’s Disruptive Bond
In a world where established businesses tend to create ever more sophisticated products at the higher end of the market – and are thus vulnerable to new market entrants ripping up the market from below – SIBs will suddenly find themselves disrupted and replaced with a new, lower cost, simpler financial instrument, called a “grant”.