By Tom Baker*
It was scarcely mentioned during the election campaign, but we will undoubtedly be hearing more about “social investment”.
As the National Party’s election platform stated, it will be the “organising framework” for funding and delivering social services. The finance minister, Nicola Willis – who is also public service minister and minister for social investment – will be central to delivering on the policy.
At its core, social investment is about the “productive” potential of public spending on social programmes – spending that yields gains in the future, rather than simply supporting consumption or remedying problems in the present.
But it’s also a policy from the past, with National promising to “bring the social investment approach back to life”. It is resuscitating work started under the previous National government led by the then prime minister John Key and finance minister Bill English.
Their embrace of social investment marked a change in National’s typically sceptical view of social spending and some of its recipients, particularly welfare beneficiaries.
Yet it was still resolutely focused on the budget bottom line. It prioritised funding that would achieve positive social outcomes while reducing future public spending, or “forward fiscal liabilities”. As Bill English put it, “What works for communities works for the government’s books.”
There was criticism at the time of the policy’s unreliable forecasts of fiscal liability. And it was questioned whether long-term fiscal savings were even compatible with achieving positive social outcomes.
Political opponents wondered whether the kinder face of social investment was simply a cover for cutting back social services.
It remains to be seen whether the new government has adapted its social investment approach to address those doubts. The small amount of detail available suggests there may be a stronger emphasis on attracting private investors – with two initiatives deserving close scrutiny.
The social investment fund
According to National’s campaign promises, a social investment fund will support social services that “intervene earlier and more effectively”. The government will provide initial funding and will reallocate money from services that receive “disappointing social impact evaluations”.
But the most radical idea is to open the fund to private investors: “If private capital can be better deployed to help change the lives of more New Zealanders, we will not be afraid to use it.”
Without more detail, it is hard to know how private investors might be motivated to contribute, beyond simply wanting to make a philanthropic donation. The non-profit Share My Super scheme already does exactly this.
But why would the government pay investors – even socially minded ones willing to accept below-market rates – a return on money it could borrow more cheaply itself?
In Canada, for example, the Social Finance Fund does not fund services directly. It pools government and private investor money, which is then lent to non-profits and other “social purpose organisations” on favourable terms. This is fundamentally different to National’s proposal.
Social impact bonds
National is also pledging to revive social impact bonds (SIBs), last implemented by the Key-English government. The bonds will be used to fund and deliver social services, beginning with transitioning families from emergency housing.
SIBs are financial instruments involving investors, service providers and the government. Investors provide upfront funding. If the service provider achieves specified outcomes, the government repays the investors, plus a profit margin.
Since the first SIB-funded service began in 2010, over 230 have been established worldwide. But the international evidence is lukewarm on their effectiveness.
A recent meta-analysis of 32 SIBs found that, for all the talk of being innovative, there is “little evidence that outcomes from SIB-funded programs are significantly different compared to more traditional programs”.
After 13 years of intense global policy experimentation and evaluation, this should be a serious concern for those advocating for new SIBs in New Zealand.
Complicated and hard to scale
In the early stages of SIB development, I spoke with around a hundred professionals implementing them across the English-speaking world, including those involved in the previous National government’s SIB pilot programme.
The first local SIB pilot needed to be restarted after its launch, then lasted only 18 months out of a planned six-year term.
The second pilot, which recently completed its six-year term, reportedly achieved positive outcomes for its clients. It enrolled 607 of the 1,000 clients it was projected to serve, and the development process started in December 2013.
By any measure, this is a huge amount of time and effort for relatively few clientele.
Internationally, this experience is more the norm than the exception. What was clear from my interviews several years ago is now increasingly public knowledge: SIBs are a tremendously complicated way to procure social services and they are difficult to scale up.
Those involved, including investors, regularly conclude there are easier ways to achieve their respective goals.
Back to basics
There is a lot to recommend National’s focus on social investment: attention to preventive social services that deliver tangible outcomes could do much good.
But there is a risk the new government may not heed the lessons of its predecessor.
Focusing its social investment agenda on narrow fiscal outcomes, and courting private investors, could undermine National’s stated goal of “doing what works” to “change the lives of New Zealanders with the greatest needs”.
Given Christopher Luxon’s preference for leading a “back to basics” government, there may be a simpler solution: a properly resourced public sector to fund, monitor and evaluate the delivery of social services. That just might do the trick.
*Tom Baker, Associate Professor in Human Geography, University of Auckland. This article is republished from The Conversation under a Creative Commons license. Read the original article.
25 Comments
The government is a sovereign currency issuer and so neither taxation nor borrowing finance its spending. The government has the ability to create any amount of this currency at no cost if it chooses to as issuing bonds or paying interest on reserves is purely voluntary and taxation only deletes currency again after its spending.
The new government should front up to it's responsibilities and stop looking to others for solutions.
Agree. But you would have to accept higher public debt as a result. The politicians, public servants, and the broader population have been programed to believe increasing public debt is bad for the economic health of the nation. It's one of the reasons why we have infrastructure deficits.
@J.C, I am at odds about public debt.
My interpretation is that public debt is not money creation directly per se.
When a govt issue bonds, private citizens and business provide the funds (either are borrowing or existing cash) in turn acquiring said bond paper.
Its the private sector that creates the money where applicable.
So this is new money but not by the govt per se.
Please enlighten me.
You are partly correct in that public spending does not create money in a conventional sense. I recommend the following read using the example of the U.S.
In How Public Spending Creates Money, we focused on a simple, straightforward way of understanding the monetary system. In essence, Congress spends money by writing checks to recipients and the Fed clears the checks. This is the most helpful way of thinking about the process, though it is not the conventional way (and is often considered a controversial departure from convention for many). This section will delve into the mechanics of money creation and how to understand it, from the conventional perspective.
https://ourmoneyus.org/money-creation-through-public-spending/
This comment should not pass without rebuttal. It presents a false model of the modern economy. Nearly all OECD economies made monetisation of government spending illegal when their central banks were granted independence from the 1980s on, including the US and NZ. And taxation does not delete currency; this is a myth promoted by MMT types. Taxes plus borrowing fund governments, by deliberate choice after over 1000 years of monetary mayhem..
However the final sentence is accurate and can be accommodated within the modern monetary framework of independent, inflation targeting central banks (the one and only policy point on which I support the current government) and appropriate taxation and borrowing, where the weasel word, appropriate, needs to do a lot of work – this is because times change and what may be appropriate in one era may not be in the next.
Some things cannot be valued in money.
The life-supporting facets of our planet, for example.
Care and love, ditto.
The putch towards commodifying all things (The Commons) has run its course, and no amount of re-jigging will bring growth back. But the pursuit of growth is still the overarching System, and (via Meadows et al) the overarching System is devouring all others in an attempt to survive. Same happened towards the end with Rome (currency-devaluation; separating politically)
There is even less blood in the private/voluntary stone, than there was in the halcyon 70s; indeed the pressure has been coming on since then, this is just another ratchet. What we are looking at, is a System in its death-throes - including the now-bankrupt university 'business model' - and the question is: What comes next?
Yes. There is almost no blood left in voluntary and particularly because of the increasing fractionalisation of this space. All charities will become social entrepreneurs, as the head of a certain org once said to me.
We need to talk about business models in general. There is a lot I could say about those, as someone who has spent nearly a decade working on alternative ones. I like the "post-growth" work being done on these. I find being involved with the old ways of thinking/ being / investing makes me feel bad. It's fear-based.
We haven't even tapped the surface of looking at Māori business models yet, because I suspect the multi-structural formats they bring (i.e. what's often called triple bottom line reporting or social enterprises) is another key to the new world being built as seedlings.
Thanks for bringing this back into the mix, Tom. I've been working on and off in this space since it was first brought in. I generally agree with the principles behind it but the practice is nowhere near what's needed because it requires a complex systems approach and very few people can do this in my experience. Instead, it starts to become about KPIs and "money saved" based on weak research associations, when what it needs to be doing is tackling structural issues.
You're right - Govt is not a business, and trying to bring in private investors is not going to help us achieve social outcomes. Otherwise they'd already be funding charities to do this.
The biggest evidence of this issue is that the new Govt are removing the consent education out of schools, which (contrary to what Winston thinks) is actually about helping young people identify abuse and coercion, and teaching young adults about consent, relationships and (for the eldest students) how to manage peer pressure around things like porn. It only briefly touches different types of sexuality. This programme was designed to help reduce our sexual assault and family violence rates, which contribute hugely to social harm and high costs to Govt across a person's lifetime.
I know. It's so sad. But that's the issue - inability to make structural impacts over a longer timeframe based on a few votes.
The only people I could see benefitting from this programme being removed are the people whose children will no longer realise through school that they're being abused or groomed by someone they know, and that what's happening to them isn't 'normal'.
Maintaining existing power structures. Funny, that. On-brand for this Govt.
Last night we watched a documentary about widespread and extreme poverty in the UK. I believe their conservative governments introduced the wonderful concept of outsourcing social services to the private sector. So excited to see how we’ll engineer a totally different outcome in NZ.
The three spatial perspectives on governance: governance up (e.g., supranational laws and treaties etc.); governance down (e.g., devolution of money/power to those most directly affected) and governance sideways - the latter being defined as:
Shifting the government interface with its public from state to non-state or private institutions, through processes such as outsourcing, marketization and privatization.
Social investment fits into the latter means of governance, and seems to be the best definition of it that I've come across.
I feel not enough consideration has been given to governance down (devolution). For example, the US has privatized prisons whereas we could instead choose to devolve the money and power in the Corrections portfolio to a pan-iwi/hapu organisation, given Māori are those most directly affected by the prison system.
I just think we need to take that next step beyond all the historical settlements and start looking within our society for new opportunities for Māori to express tino rangatiratanga. So much business/organisational talent with the iwi/hapu networks which we desperately need to tap in to where the social services are concerned..
So much business/organisational talent with the iwi/hapu networks which we desperately need to tap in to where the social services are concerned..
YES Kate. I agree with this. There are some great things being done through iwi partnerships with Te Puni Kōkiri, HUD, MBIE (certain funds) and others, for example. Investment in these areas becomes a win/win/win. I would put this challenge alongside the same one as how we get more female-led companies. The underlying structural challenges are very similar. There is SO much talent out there.
I worked decades in social services and mental health. It's a disaster. High cost and lousy outcomes. No concept of long term actual benefit. With providers both government and NGOs mostly concerned with continuing in existence, patch protection, and self promotion. I include the Maori groups in that.
My experience is that the more pious an organisation presented itself, the most self interested they were.
Or claiming "non profit" but acting very commercially nasty.
It was a tragedy that the Bill English approach was vaporised. Mainly by the industry in my view.
So, do the things you know work, and only those. Repeat "know". Issue stop notices for the rest. Which is probably most of it.
Watch the virtue signalling outrage then. But the need to meet is people, not organisations.
As for the bonds thing, it's a side issue. And I can't see what they add anyway.
Hopefully the new govt post detailed information on the layabouts. I think there was a decided lack of detailed information on beneficiaries, excluding super annuitants, from the previous Labour govt.
Had a home service perform some work in the last week or so. A bloke at least 60 and decidedly not too mobile. He had two layabouts start to learn the job, both of whom lasted around a day. The one frequently on his cell phone and the other after an hour or so enquired about when smoko was. Old school. Took smoko on the trot.
There are two main issues that I can see. One: The failure of the family & Two: the failure of our education systems. These two failures combine to create 90% of the social chaos that we currently live with as a society.
The family has been down-written, under-valued & ignored legally for decades. A functioning family with a mother & father both actively within the unit, is a must for creating normal healthy kids. I am not saying it is perfect, but it is a necessary fundamental if we want to succeed as individuals & as a nation. Sadly, many children are born not into a family, more a place of accommodation with a single parent(who is often still a child themselves) often totally reliant on state financial support to survive. Some even set out to achieve this goal in their naivety.
Education has also been failing us for equally as long as families have been failing, which dates back to when the socialist ideology gained control of both the education & welfare authorities within our state systems. Today, after more than half a century of continuous failure, we find ourselves with enormous mental health issues, which co-exist alongside the relational dysfunctionality that has now reached pandemic proportions, especially amongst our least equipped, for reasons said above.
These two crucial failures in our societal make-up have crippled hundreds of thousands of New Zealanders as seen in the simple stat of the 350,000 working aged people receiving benefits of one form or another. I say again, this is a catastrophic dropping of the ball which affects every New Zealander in one way or another.
The reliance upon government to manage our families does not work. The best people to manage families are our families & their communities, therefore we need to support families, not individuals. The individual is not a family. The individual is a part of the family. And while we all love to be an individual, we cannot flourish or indeed survive as a successful individual for any great length of time without family support. We were created to be a part of a family, a community, a region, a nation, a planet, & whilst those key ingredients may change over time as we grow up [ we do grow up don't we?] they are still by far the best groups for us to attain our desires & dreams.
PS: It would also help enormously if all people become responsible for their own well-being, as much as is possible. If all that fails, then we will have to rely on the government to step in & help & we are all too aware of their shortcomings, aren't we?
Wrong John,thanks.
For a while now I've been confounded by the policy whereby the state will pick up the cost of a portion of early childhood "education". Supporting a profit driven, private enterprise model.
Yet for those families/parents who decide that a stay at home parent is their preference, there is no equivalent state investment.
Child raising has been commodified and that, to me, is a serious worry for the future.
I figure the world over, states are picking up (some of) the cost of childcare as they want women in the workforce. If most households have two incomes, then wages can be suppressed (kept low) - yet the tax collected per household remains roughly the same.
Just a hunch.
Hopefully they'll dump the Police Commissioner and get tough on criminal activity.
I've got a relative who was caught doing 156km/hr in an 80km/hr zone. His punishment was to have a politically correct visit from a couple of policemen who told him it wasn't kosher, lose his licence for a month and then have it posted back to him.
And it wasn't his first brush with the law for speeding.
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