Social Impact Bonds: Putting Profit before People

"Treating social and public health services like they’re just another option for an investment portfolio is risky for everyone."  — Michelle Gawronsky, MGEU President

Winnipeg (27 July 2017) — The Manitoba Government and General Employees' Union (MGEU/NUPGE) is warning Manitoba residents that Social Impact Bonds are not the magic bullet supporters claim they are. If they are widely used to fund social and public health services it could place many of the services people rely on at risk.

Today, Manitobans access their social and public health services (think mental health and disability supports) and social services (think homeless or domestic abuse shelters; child welfare agencies) through:

a) professionals and care providers who work directly for government, and

b) professionals and care providers who work for non-profit community agencies.

This two-pronged approach to meeting the needs of Manitobans is managed and funded through a mix of provincial and city taxes, along with private and corporate donations.

Services of not-for-profit agencies too complex and important to be driven by market forces

The departments and organizations who provide these services answer to their funders on an annual basis, presenting needs assessments, strategic plans, and evaluation methods and results. This cooperative partnership of government departments and not-for-profit agencies is often referred to as our ‘civil society,’ and is the envy of the rest of the world.

It’s a system that assumes there are some needs and services that are simply too complex and too important to be driven by market forces. Together, we look after each other by pooling our resources and doing what it takes to keep as few people as possible from falling through the cracks.

Social Impact Bonds turn public services into a way to make a profit

Advocates of Social Impact Bonds (SIBs) aren’t content, however, with our current system. They assume when there is opportunity to make a profit, we should always take it.

SIBs are a difficult and many-layered financial concept to explain, much like hedge funds — so an example is probably the best way to describe how they might work.

Let’s say the Province told an inner city youth drop-in centre that they would no longer receive annual funding from the government. Instead, they needed to create a business plan with concrete costs, timelines and measures – like “for $500,000 over three years, high school graduation rates in the neighbourhood will go up by 30% within that period.” They would submit this plan to a government-appointed, arms-length body who would then attempt to “sell” the plan to investors.

If the centre has a good reputation in the city, investors might see it as a good bet — because if the agency succeeds, not only will the Province pay them back their initial investment, they’ll also pay them a healthy profit.

Now, at first blush, you might say, "sounds good." As long as it does its job, the agency gets its money, the government only pays for measurable success, the investors are rewarded for taking the risk, and the community is better for it. But helping people is not as cut and dry as making a profit.

Danger that who gets help may depend on whether or not it is profitable

What if in order to meet their goals and stay afloat, the centre had to focus more and more on those youth who were most promising, at the expense of those with higher risks and needs? What if gang recruitment went up at the same time as high school graduation did? Now what? Another business plan, another way to potentially profit off of social challenges?

Or what if the agency didn’t succeed to meet the exact measurements within the exact timeline and is forced to close its doors?

"Treating social and public health services like they’re just another option for an investment portfolio is risky for everyone," said Michelle Gawronsky, MGEU President.

Wherever SIBs have been tried, in Canada and around the world, the results keep coming back the same: putting profit over people never pays off in the end.


NUPGE

The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 370,000 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

 

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