Social Impact Bonds as a Catalyst for Change (And Not a Step Towards Privatization) Guest Blog

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By Mark Hlady

Non-profit organizations, governments, and investors are excited about the potential for social impact bonds (SIBs) to help address some of our most complex and pressing social challenges (e.g., homelessness, childhood wellbeing, healthcare, etc.).

SIBs have the potential to catalyze a shift in social sector care from remedies to prevention – taking action on the phrase, “an once of prevention is worth a pound of cure”. A SIB motivates new investment in prevention by demonstrating the link between social benefits and positive economic results – thereby allowing preventive programs to operate that otherwise may not.

The advantages of the SIB model are well understood:

  • § Thought-leaders including MaRS, Social Finance, and McKinsey & Company have advocated for SIBs
  • § Premier Redford of Alberta campaigned for leadership of the PC Party with a platform that included a commitment to implement SIBs
  • § Human Resources Minister Diane Finley described SIBs as a “win-win-win” for service providers, government, and investors

However, we have been unable to apply SIBs in Canada due to a number of real and perceived challenges. The newness of the vocabulary associated with SIBs has resulted in a somewhat confused public conversation to this point. The main challenges for SIBs can be grouped into two categories: practical and philosophical.

Practical challenges

  • § Measuring and valuing interventions,
  • § Designing viable interventions,
  • § Creating legal and financial vehicles, and
  • § Facilitating deep collaboration

Philosophical challenges

  • § Understanding SIBs in relation to our current system of public services, and
  • § Agreeing on expectations for the use and limitation of SIBs.

With any new idea, practical challenges exist. As the pilots of SIBs in other jurisdictions have shown, we can work these out.

The philosophical challenges are pertinent first; our commitment to the SIB model hinges on what we fundamentally believe is the best path to a healthy and sustainable society. Some of most outspoken opponents of the SIB model have been Margie Mendell and the National Union of Public and General Employees (NUPGE). Both opponents argue that SIBs are a step towards privatization, and that this privatization will decrease the quality of services provided.

To advance the discussion around SIBs in Canada, we need to understand how they will actually function in our current publicly funded health and social systems. Let us take a closer look at three aspects of SIB functionality:

1. Social impact bonds do not privatize social services. SIBs are meant to fund programs that otherwise would not exist. SIBs do not replace existing services. The savings associated with a SIB are realized by slowing the growth of acute care delivery (e.g., operating fewer prisons, carrying out fewer emergency medical procedures, providing fewer people with social assistance); in other words, saving money by creating a healthier society.

A valid argument is made around the difficulty of realizing cashable savings from slower future growth, but that is a practical challenge, not a philosophical one (we will address this in a subsequent article). There is also an argument made around job elimination from a lower requirement for correctional service and healthcare workers, however in Canada we are expecting a shortage of workers in these spaces, not a shortage of jobs.

Most simply, we can understand that SIBs are not alleviating the work of government to provide basic services, but rather creating a situation in which less basic services are required.

2. Social impact bonds are part of a broader solution. SIBs are meant to catalyze a shift in spending from acute care to preventive care and support a transition to results-based budgeting (by supporting development of new data systems).

Medical doctors and academics alike have been calling for a greater emphasis on preventive care since the 1960s, but we have lacked the tools for execution. Well-intentioned governments have been unable to prioritize preventive spending because money has been required for high-cost acute service delivery. Unable to invest in prevention, the need for acute services has only risen and we have been caught in a cycle of reactionary spending.

The SIB model injects new money in the system to break out of this cycle. Once we have created an ecosystem of preventive programs the SIB model is no longer needed. The SIB model acts as a priming mechanism to enable a broader shift in policy and identify what preventive programs are most effective at achieving the results we desire. This catalytic use of the SIB model should further alleviate concerns of privatization.

3. SIBs support a series of discrete interventions. Once we accept SIBs as part of our broader solution we can further rationalize our concern of system privatization by realizing that we are already comfortable with organizations delivering discrete private services throughout the public system without privatizing the system (e.g., family physicians, equipment suppliers, consultants, certain outpatient centres, certain dental and eye care).

In conclusion, we should not see SIBs as a step towards privatization. SIBs support programs that otherwise would not exit, provide a mechanism to break our cycle or reactionary spending, and exist as a discrete service within our broader publicly funded health and social systems. We should then see SIBs for what they are – a tool to create results-based budgeting and a healthier society.

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