Why social investment bonds could be the coalition’s big idea - Richard Prebble

OPINION

No sooner had I written that our politicians do not give big speeches than Nicola Willis gave a big speech. The speech’s big new idea got little coverage.

The minister is out of practice. It is unreportable jargon for the minister to say that the Government is forming a new “social investment agency” that will make “smarter use of data, evidence and analytics”.

“A social investment fund [will] commission outcomes for vulnerable New Zealanders, and to work with community, non-government organisations and iwi providers.”

The minister might have been reported if she had said: “Today I am announcing a social investment fund to enable the Government to partner with the community to tackle complex social issues. Since 2013 Australia has been successfully using social investment bonds to tackle issues ranging from homelessness to recidivism.”

In New South Wales, the Newpin Social Benefit Bond aims to improve outcomes for children in out-of-home care. The return to investors is calculated on the estimated savings generated by the improved outcomes.

The state is hopeless at parenting. Keeping families intact is better for children and cheaper for the taxpayer.

National wants to use social investment bonds to measure outcomes. The National Party manifesto says the fund will start with public money.

New Zealand politicians regard just spending money as a success. Labour boasts it spent an extra billion dollars on mental health. The minister admitted he had no idea where the money went. There is no data that the extra spending made any difference.

Agreeing in advance what is a success but also what is a failure must improve the quality of spending. The room for improvement is massive. The minister said in her speech that the taxpayer is spending $70 billion a year on social issues. It is clearly not working.

There is also no shortage of social issues such as recidivism that are very expensive.

I recall being told by police that a crime wave in Gisborne was caused by just two families. Multiple agencies were involved with the families at great cost to the taxpayer.

The idea of targeting complex and expensive social issues has merit. Even more meritorious is deciding in advance what is a success.

A challenge will be the three-year election cycle. The Newpin contract was for over seven years. For social investment bonds to succeed there needs to be bipartisan support.

Labour must now regret its decision to abandon Bill English’s approach to social spending which was focused on measuring outcomes. A responsible opposition would give at least qualified support to social investment bonds.

Part of the reason social investment bonds are successful is because of the participation of private investors. They bring new money to fund new approaches and bring the disciplines of business. People are much more careful when it is their own money at risk. Involving private capital would also reduce the possibility of wacky schemes being funded.

In social investment projects private investors have identified that social workers are crucial to success. The schemes have often rewarded social workers better than the state.

The New Zealand Initiative published ‘Investing for Success: Social impact bonds and the future of public service’. The paper suggested well-designed projects tackling social problems could be crowd-funded.

In Rotorua, homelessness has been devastating. A social investment bond supported by iwi and the council to tackle homelessness might well attract funding. It must be better than waiting for a government solution.

National has promised to start small. Why not start big? More than half of the 189,000 people on Jobseeker have been on the benefit for more than a year. The cost of the benefit is just the start. There is also the loss of tax revenue that Jobseekers would have paid if in work.

I once chaired the cabinet committee on employment. Ministers studied the data. The common denominator for long-term unemployment was leaving school with no qualifications. Probably still true.

Ministers asked the community for proposals to teach the unemployed job skills. Success was measured by how many got employment.

The Access scheme was very successful. One course taught welding. A young man who had never had a job sent me his pay slip. He was earning more than an MP.

The Access scheme died when the subsequent government allowed the education system to offer Access courses and changed the criteria of success to include going on another Access course. The long-term unemployed went from one useless course to another.

The Access scheme demonstrates the potential of social investment and the risks.

Why not use social investment bonds to get the long-term Jobseekers into work? The measure of success would be employment.

The social benefits of getting 100,000 Kiwis back into work would be massive.

It could be the coalition’s big idea.

- Richard Prebble is a former Labour Party minister and Act Party leader. He currently holds a number of directorships.