1. What Are Social-Impact Bonds? - NYTimes.com Page 1 of 2
FEBRUARY 8, 2011, 9:35 PM
What Are Social-Impact Bonds?
By DAVID LEONHARDT
My column this week describes a new strategy for improving the performance of
government programs. In short, private investors — typically foundations — pay the costs
of a new program in its early years, and the government later repays the investors, often
with a bonus, as long as the program meets its goals. If it fails, taxpayers pay nothing.
In his budget next week, President Obama will propose seven pilot programs, costing up
to $100 million, along these lines. He will refer to the financing mechanism as pay-for-
success bonds. The British government is already testing such a program, under the name
social-impact bonds. (Gordon Brown’s Labour government started the program, and
David Cameron’s Conservative government has aggressively adopted it.) The New York
City, the state of Massachusetts and other local governments are also considering the
idea.
On Wednesday, the Center for American Progress, the Democratic-leaning Washington
research group, will release a paper on these bonds. It’s written by Jeffrey Liebman, a
Harvard economist and former official in the Obama administration’s budget office.
The paper includes a good description of the problems with the way most government
programs are now run:
The traditional approach to government funding of social programs constrains
innovation by prescribing the delivery model to be used rather than the objective to be
met. For example, job training and education are areas of the federal budget where
dozens of narrowly purposed programs have proliferated.
Other social service programs are funded through block grants to states, under the theory
that “states know best” and are the “laboratories of democracy.” But, like the federal
government, most states pay insufficient attention to program results and performance in
administering social services.
This insufficient attention to objectives and performance measurement means that
unsuccessful programs can persist for years. As demonstrated by the recent Head Start
evaluation, which found that few program benefits persisted to the end of first grade,
even large important programs can receive funding for decades without the kind of
rigorous evaluation necessary to reveal that the program delivery model needs to be
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2. What Are Social-Impact Bonds? - NYTimes.com Page 2 of 2
reformed.
Meanwhile, innovative programs with promising results have a hard time securing
government funding because the proof-of-concept process is slow and innovation
necessarily entails a risk of failure.
The full report has more, including a useful diagram on page 11.
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http://economix.blogs.nytimes.com/2011/02/08/what-are-social-impact-bonds/?pagemode=... 2/9/2011