On Rocket Science and Social Impact Bonds

19 Aug On Rocket Science and Social Impact Bonds

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Famously, rocket science is hard – an axiom demonstrated all too keenly by the years and years of delays to the launch of public flights for Richard Branson’s space tourism project, Virgin Galactic, and the fact that the project has already sadly suffered one fatal crash. All new innovations are subjected to a long period of learning and refinement, and so it is with Social Impact Bonds (SIBs).

Like Virgin Galactic, SIBs have been the victim of hype, not helped by their deceptive name. But there is something in the idea that is incredibly powerful and deserves persistence. At West London Zone, we are determined to learn as much as possible from the early pioneers of SIBs so that we can add to the growing body of cases showing the idea delivering on its potential.

The basic idea of a SIB is that social sector programmes are paid for by the government once improved outcomes have been realised for the citizens using them, and that investors fund the work in the meantime. Two relatively recent contributions to the body of learning have been the The National Audit Office (NAO) report into Payment by Results (PbR), and the conclusion of the first ever SIB in the US (pdf), both of which we have analysed closely. We share our broad reflections here.

The USA’s first ever SIB was intended to reduce re-offending amongst youth offenders at Rikers Island Prison. The chosen intervention, Moral Reconation Therapy, didn’t work there, and re-offending didn’t go down relative to the control group. As a method of social research, this was a success – they tested something expensive ($7.2m) and now they know for sure it is not effective in that place, and they should try something else. It was also a success for the taxpayer, who has been saved paying for an expensive failure. From the perspective of the young people in the study, and wider society, it was a failure – the problem of reoffending has not got any better. It was also a failure for Goldman Sachs, who were hoping to get their money back with interest (although their losses were limited to $1.2m, because they were underwritten by Bloomberg Philanthropies to the tune of $6m).

There is lots to learn from the Rikers Island SIB. For example, it attempted to import a proven evidence-based intervention from one context into another. The fact it didn’t work underscores the importance of mobilising local assets in social change – a key tenet of West London Zone. It was also using a single intervention. At West London Zone, we expect to have a wide array of service provides, spreading risk – a key principle of any investment, social or otherwise. More recent UK SIBs have also moved away from the model of 100% outcomes payments that Riker’s Island relied upon, in favour of a mixed payment model that combines a proportion of upfront payment alongside the outcome payment.

The NAO report published recently in the UK makes some recommendations that would even chime in the Riker’s Island example. The report analyses four PbR schemes, which is only a proportion of the whole, and only one of these is a SIB (see here for the difference between SIBs and PbR). Whilst it criticises the lack of a central repository of learning from the schemes, it serves as a powerful summary of lessons learned in itself.

The report provides six possible reasons why PbR might be a good idea: cost-effectiveness, innovation, outcomes focus, risk transfer, user responsiveness, and accountability. We are designing our SIB to make the most of all of these. Our SIB will allows us to:

  • bring about efficiencies by enabling shared data collection and monitoring within and between social sector organisations and public sector bodies;
  • test an innovation in the way public and social sector services are delivered;
  • align social sector delivery organisations and public sector commissioners around the same set of outcomes for the same set of young people;
  • transfer some of the risk of social initiatives not working from the taxpayer (or another financier of social change, such as a foundation) onto private social investors;
  • enable small, locally-based social sector organisations to focus on working with young people to make them safer, healthier and happier, rather than adhering to the sometimes restrictive requirements of public commissioners and funders; and
  • ensure accountability at all levels for outcomes rather than just for activities.

Geoffrey Canada, founder of Harlem Children’s Zone in New York, which served as much of the inspiration for West London Zone, famously declared, “it’s not rocket science we’re doing here – it’s harder than rocket science.” We’re living that challenge daily and there is more to come.

Nigel Ball, Director of Social Investment

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