• Opinion
  • April 1, 2019
  • 8 minutes
  • 1

Why social impact bonds won’t fix society’s toughest problems

Opinion: SIBs are appealing for government but they have serious drawbacks

This piece was written by Neil McHugh, Stephen Sinclair and Michael J. Roy. For more like this, see our public private partnerships newsfeed.


Social and public policy involves making difficult decisions about how best to allocate scarce resources, often with a view to deciding how best to improve the condition of certain groups, particularly the most vulnerable in society.

Imagine, then, that a creative new financial innovation appeared to offer the promise of a triple win — improved social services, at reduced public cost, while also generating private profits for investors.

This is the narrative that surrounds Social Impact Bonds (SIBs). In theory, SIBs are a form of “payment by results”, enabling governments to lever external investment to fund social programs, but only paying providers if specified outcome measures are met.

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Unsurprisingly, the promise of SIBs appeals to policymakers across traditional political lines, and up to 132 are under development or currently operating across 25 countries. Enthusiasm to adopt and apply SIBs to all manner of challenging problems remains undiminished — and is growing — despite the fact that evidence of their effectiveness is thin on the ground and contested.

This led us to ask: when might SIBs actually be suitable for use in social policy? And what is the basis for the widespread enthusiasm for them? These are the questions we take up in our recent article — Social innovation, financialisation and commodification: a critique of social impact bonds.

Technical vs. transformative interventions

Social policies cover a wide variety of “interventions”. When considering the appropriateness of SIBs, a helpful heuristic distinction to draw is between technical and transformative interventions.

Technical interventions are intended to prompt simple responses. They encourage relatively uncomplicated changes in behaviour that can be easily measured, such as counting increased service use. A project that aims to increase vaccination rates would fall into this category. In the world of SIBs, The Delmarva Young Blood Sustainability project is an example, as it aims to increase blood donations in Delaware, US.

The SIB model is dependent not only on measuring outcomes, but also on being able to assign cause and effect to a particular policy intervention. Consequently, SIBs may be suitable for funding interventions that aim to effect technical changes on very specific behaviours in relatively simple conditions.

A truly transformational intervention only succeeds by meaningfully engaging with service users

On the other hand, transformative interventions aim to generate more substantive social changes. Transformative interventions are required to address complex and wicked social problems, such as health inequalities or urban regeneration. One example of a SIB which is ostensibly directed to addressing a complex problem is funding diabetes prevention in Israel.

However, rather than supporting the kind of innovative, transformational change in the social environment and capabilities which are required to reduce obesity (which is the major risk factor addressed), this SIB targets diabetes through a relatively simple lifestyle intervention.

A truly transformational intervention only succeeds by meaningfully engaging with service users. This involves working in partnership with individuals and communities to develop interventions: meeting the actual needs of beneficiaries rather than doing things to them. Yet service users are often on the periphery of SIB stakeholder relationships, if they are engaged at all.

Commodification of service users

The transformation that SIBs effect is not in the underlying social conditions, nor an individual or community’s capability to respond to challenges, but rather in the status of service users.

Although portrayed as “customers”, service users are a peculiar form of customer: lacking independent purchasing power and consumer sovereignty. In fact, the market-oriented approach which SIBs exemplify does not empower service users as customers at all but treats them as revenue sources — as commodities.

A related symptom of this financialisation process central to SIBs is that they reduce complex social conditions to measurable metrics, as these are required for contracts which base payments on meeting specified outcomes. This focus on what is observable and readily measurable is a distortion of policy, and fails to recognise the importance of social relations in successful interventions.

SIBs also heighten perverse incentives and unintended consequences, such as “creaming” and “parking” of clients — where those with less need are treated first and best as they are quick wins most likely to contribute to meeting targets. One SIB which exemplifies this is the Caritas Perspektive initiative in Bern, Switzerland, which aims to reduce unemployment among asylum seekers and migrants, and which prioritises support towards those regarded as having the greatest employment potential.

So what needs to be done?

SIBs appear to offer the utopian promise of an apolitical, “ideology free”, technocratic fix to policymaking. Yet in reality they exemplify how commodification and financialisation have come to dominate social policy and society in general, with markets reaching into almost every facet of everyday life.

SIBs are the archetypal “solution looking for a problem”

Also — ironically for a policy innovation that relies on measuring outcomes — the effectiveness of SIBs remains unclear. SIBs are the archetypal “solution looking for a problem”.

Despite these limitations, SIBs continue to be enthusiastically marketed to policymakers around the world. There might be a specific useful role for SIBs in funding technical interventions aimed at fostering discrete changes to simple social conditions.

But effective social policies require interventions that empower, and are answerable to, service users. In contrast, SIBs are accountable to funders. Their failings and negative consequences should be taken as a sign of the limits to the role that the market ought to play in addressing complex social problems.

SIBs show that a distorted faith in the capacity and effects of financial incentives has not only failed to solve but actually exacerbated many social problems. Failure to recognise this has very real implications, and risks damaging the very fabric of our society. — Neil McHugh, Stephen Sinclair and Michael J. Roy

(Picture credit: Unsplash)

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