National Update October 2011

The NSW Government announced on 5 September 2011 that it is to trial a tender process for private investors in foster care and prisoner post-release programs, whereby investors may make a return on their investments if they yield budget savings for the Government.

This announcement is the direct result of lobbying by the Centre for Social Impact (CSI) with financial support from JB Were and the Macquarie Group. The financial interest of large finance houses in pushing public policy arrangements such as this comes as no surprise. The Macquarie Group has three decades experience behind it in overseeing for-profit private investment in public programs. Known as the "millionaire's factory", the Macquarie Group has made its mega-bucks by designing infrastructure projects (tolled bridges and tunnels are its specialty) that screw consumers. It uses its philanthropic foundation to mask its rapacious corporate greed.

Having invested profitably in public infrastructure, why should the Macquarie Group not spread its tentacles into foster care and prisoner post-release programs?

Social Impact Bonds have been highly controversial in the UK. but have been introduced by the NSW Government with virtually no public debate. Innovative ideas in foster care, or disability, or mental health, that arise from users of services, or parents and carers, or residents, rarely get the ear of governments, despite years, indeed decades, of trying. If an innovative idea comes from a charity or service provider, it will be considered more favourably. But if it comes from private investors, then, apparently, all you need to do is ask.

The thinking behind Social Impact Bonds is that private sector investors can weave positive social impacts if they are offered incentives to apply their financial investment “expertise” to communities, through a “payment for results” framework. The deep flaw in this thinking is the naive assumption that social goals (in this case, reduced demand for foster care and lower re-offending rates among former prisoners) can be orchestrated by programs and investors if the incentives are right. This is not the case. Social relationships are the key to reduced demand for foster care and lower re-offending rates, and the people who might make these relationships happen are not private investors. They are people in civil society - family and friends, neighbours and communities, mentors and teachers.

Many such people have worked tirelessly for decades to get governments to recognise that managerial approaches in foster care do not work. But governments have relentlessly persisted with failed programs .... until a proposal for private investment with a return for budget savings comes along. It is offensive that private returns from budget savings should flow into the likes of the "millionaires factory" when individuals and groups have been calling for radical change in foster care for years, with no expectation of any financial reward.

That governments have listened to ivory tower academics and investors on a topic of such sensitivity and complexity as foster care, and not listened to voices in civil society who are immersed in the relationships that potentially make a difference, is contemptuous of those individuals, families and communities.

The assumption that positive social impacts can be leveraged by getting the incentives right for investors to make profitable returns is a further triumph for shallow managerial thinking on the part of governments and public policy academics, for whom social well-being can apparently be adjusted upwards or downwards by manipulating this or that program lever or amending this or that set of incentives. This assumption is fundamentally wrong.

Further details of this CSI intervention with the NSW Government are available at Social Impact Bonds.

Vern Hughes is Director of the Centre for Civil Society.