Overcoming three obstacles to Social Impact Bonds — or not?

Social Impact Bonds seem to be a popular idea; you can hardly turn a corner in the UK public service sector without bumping into someone talking them up as the next evolutionary stage of the public-private partnership, and they appear to be pretty popular in the States, too. But to judge by the number of articles offering advice on overcoming the obstacles to making them happen, they’re clearly not getting the traction that their advocates believe they should be. Here’s another example at Apolitical, by one Rachel Wooldridge of the consultancy Ecorys, in which she identifies three such obstacles, and suggests ways around them.

Obstacle 1: Not knowing enough

Gaining the knowledge needed to develop a SIB does take time, and commissioners should build in time and resource to upskill staff. While commissioners usually need to account for this in their budget, governments and other large funding bodies can kick-start the process to help commissioners draw on support to address a gap in their knowledge…

Translation: don’t sweat it, just hire a consultant!

Obstacle 2: Getting buy-in from key people

We have found that where commissioners struggle to get buy-in from these stakeholders, it’s because they have an ideological or ethical opposition to SIBs (seeing them as a form of the privatisation of public services) or because they do not understand them.

The proposed solution here is to “get the key people involved right from the beginning”, though how that’s supposed to counter those ideological or ethical objections — other than perhaps through sheer persistence and momentum — isn’t explained.

But now we come to the meat of the matter:

Obstacle 3: Balancing different stakeholders’ needs

Commissioners and sector experts have told us that they often struggle with knowing how to approach investors because they don’t know what rate of return investors might expect on their investment and how this will impact on how they price outcomes.

It’s hard to see how this obstacle can ever be truly transcended, due to the inherent structure of the SIB model, wherein the commissioner only pays if the provider delivers results. The services in question are not easily quantifiable tasks with a clear solution, like filling in the potholes in a road, and anyone close to the front line in such sectors is going to be well aware of that — with the result that they’d likely be very cautious about making promises of results that they aren’t certain they could keep. And the last thing that investors looking for a reliable return want to encounter is caution or uncertainty. If both the provider and the investor see SIBs as a risky proposition, it’s hard to see how you’re ever going to get one off the ground.

Wooldridge takes a slightly different view, however:

We’ve been told by sector experts and commissioners that smaller providers have shied away from the market because of the SIB language and narrative. Commissioners have told us that holding “market engagement” days can help mitigate this issue because they are able to talk through the rationale for the intervention and what they hope to achieve.

By being prepared for these potential challenges, commissioners should be better placed to develop a SIB. But perhaps there is a bigger lesson here. Often underpinning these challenges is different stakeholders’ lack of understanding about SIB language — their focus is on the financial instrument, rather than an approach that can focus efforts on achieving better outcomes.

The argument here appears to be that potential providers are unduly concerned about the financial framing of SIBs, and Wooldridge closes with a recommendation that commissioners “reframe the narrative away from SIBs and towards social outcomes contracts” — which does seem something of a tacit admission (especially in light of Obstacle 2, above) that the SIB concept is inherently noxious to some stakeholders.

Perhaps Wooldridge is right, and some deft narrative engineering might repackage the SIB concept to a point where it becomes more palatable to all concerned. But one has to wonder whether the problem is truly with the packaging, rather than with the product itself. After all, if SIBs could be shown to be effective for both investors and service providers, they’d surely be an easy sell, no matter what label was applied to them — but as recent research has shown, while SIBs look great in principle, there’s still scant evidence for their utility in practice, particularly from the most important perspective of all, namely that of service users themselves.