New study on Social Impact Bond details the flaws

Social Impact Bonds “exploit the most vulnerable, poorest and others dependent on public services and the welfare state” so investors can make a profit. — Dexter Whitfield

Ottawa (15 Sept. 2015) — A new study on Social Impact Bonds provides a detailed analysis of why this new form of privatization should worry anyone who supports public services.

The study is called Alternative to Private Finance of the Welfare State: A global analysis of Social Impact Bond, Pay-for-Success & Development Impact Bond Projects, by Dexter Whitfield of the Australian Workplace Innovation and Social Research Centre at the University of Adelaide and European Services Strategy Unit. This study and analysis of projects around the world confirm what the National Union of Public and General Employees (NUPGE) and others have been arguing for some time — Social Impact Bonds are nothing more than a buy-now-pay-later scheme to privatize public services.

As the report put it, “Social impact bond projects are a venture capital model applied to the provision of social services, health, education and other public services.”

Social Impact Bonds cost more

Contrary to what proponents like to claim, Social Impact Bonds do not provide additional resources for public services. They are a loan from investors who want to be repaid at market rates.

Social Impact Bonds come with higher transaction costs due to the consultants, accountants, lawyers and evaluators needed to set up and administer contracts. Then there are the subsidies. Britain alone has spent over $1 billion on tax breaks, grants, subsidies and guarantees for Social Impact Bond and Social Enterprise projects.

No Innovation

The study debunks the claim that Social Impact Bonds will encourage innovation. Instead, investors will want to use proven methods to increase the likelihood they will make a profit. The only innovation is a new way for investors to profit at the public expense.

Social Impact Bonds increase inequality

The report points to several ways Social Impact Bonds increase inequality. They “exploit the most vulnerable, poorest and others dependent on public services and the welfare state” so investors can make a profit. And while individual Social Impact Bond projects may do some good, they don’t address the causes in the way that quality public services can.

There is an alternative

The report argues that there are much more effective solutions for the problems Social Impact Bonds claim to address. Public services and community organizations have a far better track record than privatized services when it comes to innovation and meeting the needs of the most vulnerable. The report also points out that when businesses are pushing for more spending, governments have been quick to respond.

Instead of wasting resources coming up with new privatization schemes, the report argues it’s time to recognize the ability of public services to address needs like early intervention or prevention.

More information:

Alternative to Private Finance of the Welfare State: A global analysis of Social Impact Bond, Pay-for-Success & Development Impact Bond Projects

Privatization by Stealth: The Truth about Social Impact Bonds

NUPGE

The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 360,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. NUPGE

Occupational Groups: 

Issues and Campaigns: