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‘Social impact bonds are well-intended, but they bloat bureaucracies’

When I first heard about “social impact bonds,” where private investors loan money to pay for social services and then are paid “success fees” for behavioral improvements, I thought they were overly complex and unnecessary. If social programs are not effective, just change them. It is inefficient to inject another layer of bureaucracy and oversight that social impact bonds seem to require.

Lynn Hume, a reporter at The Bond Buyer, covered a recent U.S. Senate hearing on social impact bonds that was chaired by Virginia Senator Mark Warner (click here for a video recording of hearing). Hume wrote:

Federal lawmakers’ first look at so-called social impact bonds resulted in more questions and concerns than support on Thursday.

During the first congressional hearing on this financing tool, Sen. Mark Warner, D-Va., chairman of the Senate Budget Committee’s Government Performance Task Force, said social impact bonds ‘have some value’ because they bring private investors, and therefore private discipline, into a financing scheme that is designed to finance social programs.

But other task force members, including its top Republican, Sen. Kelly Ayotte from New Hampshire, and Sen. Angus King, an Independent from Maine, had concerns, saying this kind of financing seems complex and costly.

Transforming the social order

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity…”

A Tale of Two Cities by Charles Dickens

I view the new proposals for “social impact bonds,” financial instruments that try and address the problems of society’s underclass, as the latest iteration of “the epoch of belief” that Dickens was writing about. These ”social impact bonds” (SIBs) are monies raised from private investors and charities that pay rich annual yields and return principal only if prescribed social goals are met.

The pilot program for social impact bonds is an effort to reduce recidivism at the UK’s Peterborough Prison. The British Parliment describes the project:

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