In a previous blog based on my latest advisory trip to Japan, I noted that Japan is currently ‘translating’ the SIB model in order for it to be implemented in a way that is appropriate to its specific social, economic, political and cultural context. I have encouraged Japanese colleagues not to simply think that SIBs are and always will be what they currently look like. Instead, they should approach it creatively, making it work better for all. There is a risk that an innovation, such as SIBs, may be abandoned because of disillusionment with early versions of it, which may not have fulfilled the creative potential that may be on offer. Here, I describe four reasons why I think current SIBs have only scratched the surface of what may be possible.
In the UK, we have become rather lazy with our terminology. I often hear people swap ‘commissioner’ for ‘outcome payer’. In doing so, there is a real risk that we limit the way we think about who outcome payers can or should be. Apart from public bodies, who else may be interested in paying for outcomes? What types of outcomes may they be interested in paying for?
If outcome payers are ever only going to be public sector commissioners, then we need to question whether SIBs are indeed channelling ‘new’ or ‘different’ funds. After all, if all outcome payments to investors are ultimately made by public sector commissioners, then the monies will only ever come from direct taxation.
Read any publication or attend any conference on SIBs, and you will head the refrain: “SIBs have high transaction costs”. Again, rather than simply accept this as an immutable fact, I challenge the market to design these costs out of future SIBs. We have good evidence that this is possible, at least for some types of transaction costs. For example, we know that vested commercial interests can cause some intermediary organisations to develop SIBs that are unnecessarily complicated. Similarly our evaluation of the Essex County Council SIB found that when the various players are more concerned about minimising risks to themselves, they can end up with a contract that is too complicated and therefore imposes ongoing costs. As our experience in Essex shows, these can be designed out of a SIB even after it has gone ‘live’.
Who bears the risks?
An attraction of SIBs is that we introduce a new group of stakeholders called ‘social investors’ into the picture, who have higher risk appetites and are socially minded. However, the fact that 7 out of the 10 SIBs in the US have over half of their values guaranteed by philanthropic organisations really causes us to question who is really bearing the risk? Are we attracting the ‘right’ types of investors into the market or are we distorting the market to suit certain types of investors? In addition, there is also evidence that some social investors can try to pass on some of the risks to service providers, for example, by providing part of the capital as a loan rather than as revenue. We must therefore be clear about who bears what risks, and whether these models are true to the ideal of the SIB aspiration.
Is it all about savings?
In a blog I wrote last year, I argued that SIBs do not have to be about savings, and showed different ways of constructing alternatives. SIBs are about social outcomes. To reduce social outcomes to only those that generate financial savings for the public purse is highly limiting. This, again, draws attention to the limitations of thinking of ‘outcome payers’ only as ‘commissioners’. Even amongst commissioners, financial savings do not have to be the only motivator. We need to ask ourselves the question: “Outcomes for whom?” when we design SIBs. If we never ask service users what success looks or feels like to them, then what message are we sending out about SIBs? Whose interests do they serve?
Current SIBs have barely scratched the surface of what may be possible. Rather than allowing them to ossify into what they currently look like, we should challenge ourselves to keep pushing the creative potential of the idea of a SIB. In the process of doing so, we must never lose sight of outcomes and how they can be meaningfully defined.
Dr Chih Hoong Sin, Director, Innovation and Social Investment