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This weekend I was engaged in an intense debate with a well respected practitioner concerning his development of Poverty Impact Bonds on one of the many online social networks in which to which I regularly contribute.
Poverty Impact Bonds is a sister concept of Social Impact Bonds which is defined by Social Finance "a contract with the public sector in which it commits to pay for improved social outcomes. On the back of this contract, investment is raised from socially-motivated investors. This investment is used to pay for a range of interventions to improve the social outcomes. The financial returns investors receive are dependent on the degree to which outcomes improve".
It is proposed that investments by private sector entities e.g. Pension Funds in the early stages of a project will yield a return to society via the achievement of a tangible social outcome e.g. school leavers completing five GCSE's the US equivalent of a high school diploma. This lowers the government's overall public sector cost with a proportion of the projected public sector spend on social intervention being rewarded to Social Impact Bond investors.
Poverty Impact Bonds which is still in its conceptual stage of development will use a similar methodology however its prime purpose will be to direct private investor funding to alleviate child and family poverty.
The use of Social Impact Bonds is being pioneered in the United Kingdom with a pilot project initiated at Peterborough Prison investing £5M from private investors to reduce re-offending rates by 7.5% over a six year period. Investors will receive a payment representing a proportion of the cost of re-offending. This approach to social intervention is supported by esteemed organisations such as the Young Foundation whose track record in the development of innovative approaches in the social sector e.g. The Open University is unquestioned.
In the United States the current administration is proposing to spend $100M on seven pilot projects using Social Impact Bond which they have re-branded as pay-for-success bonds.
The Social Impact Bond model appeals to my rational instincts but I am concerned of the application of market instruments to social issues. I am also skeptical as to its validity as an instrument to measure or reward social performance. Market instruments have not had a marvelous recent history with our recent financial crisis fueled by the use of sophisticated financial instruments such as derivatives which may be applied to Social Impact Bonds as its use is normalized within financial markets. Market forces are by nature impersonal with social intervention by nature involves personalization the two approaches are philosophically independent.
That aside many charities exist due to the goodwill of volunteers that provide their time and talent to contribute to the greater good of society. In my own case I raise funds for Help for Heroes a UK based charity that is growing, effective and transparent, established by individuals seeking to relieve the social, physiological, psychological impact of war. Help for Heroes to date has raised over £87M in funding without recourse to financial markets. This has been achieved by identifying a need and capturing the latent energy of the public to commit to an inspirational program.
This is of course not a new phenomenon the volunteers past and present at the real army the... Salvation Army who save lives every moment via through counselling, shelter and a hot cup of soup since 1860's.
Aristotle in his writings in Politics on the nature of man surmised that rational men do have an invested interest in the greater good of society that transcends the imperative of wealth creation:
"Again, how immeasurably greater is the pleasure, when a man feels a thing to be his own; for surely the love of self is a feeling implanted by nature and not given in vain, although selfishness is rightly censured; this, however, is not the mere love of self, but the love of self in excess, like the miser's love of money; for all, or almost all, men love money and other such objects in a measure. And further, there is the greatest pleasure in doing a kindness or service to friends or guests or companions, which can only be rendered when a man has private property."
Being a rational economic man I perceive an underlying danger of the proposed use of Social Impact Bonds will contribute to a withdrawal of individuals seeking to volunteer and spontaneous charitable giving for the following reasons:
Whatever happened to sweet charity...
Poverty Impact Bonds is a sister concept of Social Impact Bonds which is defined by Social Finance "a contract with the public sector in which it commits to pay for improved social outcomes. On the back of this contract, investment is raised from socially-motivated investors. This investment is used to pay for a range of interventions to improve the social outcomes. The financial returns investors receive are dependent on the degree to which outcomes improve".
It is proposed that investments by private sector entities e.g. Pension Funds in the early stages of a project will yield a return to society via the achievement of a tangible social outcome e.g. school leavers completing five GCSE's the US equivalent of a high school diploma. This lowers the government's overall public sector cost with a proportion of the projected public sector spend on social intervention being rewarded to Social Impact Bond investors.
Poverty Impact Bonds which is still in its conceptual stage of development will use a similar methodology however its prime purpose will be to direct private investor funding to alleviate child and family poverty.
The use of Social Impact Bonds is being pioneered in the United Kingdom with a pilot project initiated at Peterborough Prison investing £5M from private investors to reduce re-offending rates by 7.5% over a six year period. Investors will receive a payment representing a proportion of the cost of re-offending. This approach to social intervention is supported by esteemed organisations such as the Young Foundation whose track record in the development of innovative approaches in the social sector e.g. The Open University is unquestioned.
In the United States the current administration is proposing to spend $100M on seven pilot projects using Social Impact Bond which they have re-branded as pay-for-success bonds.
The Social Impact Bond model appeals to my rational instincts but I am concerned of the application of market instruments to social issues. I am also skeptical as to its validity as an instrument to measure or reward social performance. Market instruments have not had a marvelous recent history with our recent financial crisis fueled by the use of sophisticated financial instruments such as derivatives which may be applied to Social Impact Bonds as its use is normalized within financial markets. Market forces are by nature impersonal with social intervention by nature involves personalization the two approaches are philosophically independent.
That aside many charities exist due to the goodwill of volunteers that provide their time and talent to contribute to the greater good of society. In my own case I raise funds for Help for Heroes a UK based charity that is growing, effective and transparent, established by individuals seeking to relieve the social, physiological, psychological impact of war. Help for Heroes to date has raised over £87M in funding without recourse to financial markets. This has been achieved by identifying a need and capturing the latent energy of the public to commit to an inspirational program.
This is of course not a new phenomenon the volunteers past and present at the real army the... Salvation Army who save lives every moment via through counselling, shelter and a hot cup of soup since 1860's.
Aristotle in his writings in Politics on the nature of man surmised that rational men do have an invested interest in the greater good of society that transcends the imperative of wealth creation:
"Again, how immeasurably greater is the pleasure, when a man feels a thing to be his own; for surely the love of self is a feeling implanted by nature and not given in vain, although selfishness is rightly censured; this, however, is not the mere love of self, but the love of self in excess, like the miser's love of money; for all, or almost all, men love money and other such objects in a measure. And further, there is the greatest pleasure in doing a kindness or service to friends or guests or companions, which can only be rendered when a man has private property."
Being a rational economic man I perceive an underlying danger of the proposed use of Social Impact Bonds will contribute to a withdrawal of individuals seeking to volunteer and spontaneous charitable giving for the following reasons:
- Is it the intention to monetize the "free labour" of volunteers?
- Will individuals who make charitable donations receive suitable ROI if the project is successful?
- If therefore the "free labour" of volunteers is now monetised are they not due a ROI for their effort?
Whatever happened to sweet charity...
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