I love how clearly Larry Summers articulates our economic crisis:
LS: The principal problem for the United States economy over the near to medium term continues to be lack of demand. Demand, unfortunately, is heavily in the control of fiscal policy, which requires congressional action for important actions, and monetary policy, which depends on the Fed. So there are limits to what the Obama administration unilaterally can accomplish.
The New York Times has a wonderful article on Mitt Romney’s life in Cambridge and at Harvard’s law and business schools. The articles remind me of a series that the Boston Globe several years ago, which I post below as well.
I think Jodi Canton does a wonderful job of describing how hard working and dedicated to his career and studies Mitt Romney was during his three-year-long joint degree studies at Harvard. But during the process, she makes the HBS appear much more rigorous and daunting that I have found it. Perhaps in Romney’s day, being grilled was a huge and scary deal. But today it is stressful and uncomfortable only — and by no means the frightening endeavor that Canton makes it seem. The cold call, discussion-based classroom experience incentivizes student to prepare – lest they appear stupid. But with 10% of the class receiving a “3,” the lowest mark, and 20% receiving a “1,” the highest mark, while the majority receive a “2,” that incentive is weak and forces you to study only so much. Driven people drive themselves to succeed regardless of environment, and I think Mitt Romney’s driven nature (note that I do not endorse his candidacy or politics, but only admire his drive) speaks more of him than of HBS.
“The Making of Mitt Romney”
http://www.boston.com/news/politics/2008/specials/romney/
“At Harvard, a master’s in problem solving”
http://www.nytimes.com/2011/12/25/us/politics/how-harvard-shaped-mitt-romney.html
More information on the metrics for the second social impact bond project announced by Civil Society Minister Nick Hurd involving problem families in Birmingham, Hammersmith and Fulham, Leicestershire and Westminster.
The new bond for projects with problem families is likely to be more complex. The consultants A4e Insight have been hired by the Office for Civil Society to develop the metrics and will produce an initial report by Christmas. Edward Hickman, director of the firm, says that before any project can go ahead, it must be able to quantify a way of improving families’ lives and the improvement must generate sufficient savings for the local authority. Those savings must also be “cashable”, he said – capable of being turned into hard cash that will be used to pay back investors.
Andy Robinson, assistant chief executive of Leicestershire County Council, one of the local authorities involved, says there are likely to be a number of metrics. “There are a range of outcomes that might benefit the council,” he says. “They might include a reduction in police visits, a decrease in eviction rates, or a rise in school attendance.”
Source:
Third Sector
Analysis: Can social impact bonds help to create a better society?
1 November 2011
http://www.thirdsector.co.uk/news/1101352/analysis-social-impact-bonds-help-create-better-society/
I came across a paper on social impact bonds by the Young Foundation in the UK that describes a “Public Sector SIB” where local authorities borrow in capital markets to finance a social program and are repaid by the national government is the social program meets predetermined outcomes.
This is an interesting variant on the social impact bond structure that was implemented in Peterborough, UK. There, funding was raised from foundations and other philanthropic sources, rather than the capital markets; the intermediary was Social Finance UK, a nonprofit, rather than the local government; and the payer was the local, rather than the federal, government.
The obvious advantage of borrowing from capital markets by floating municipal debt is that capital markets offer access to much more money than philanthropies have at their disposal. And capital markets can not only fund larger and many more interventions, but also offer rating by pricing the risk of the social impact bonds. In this sense, the pay-for-success contract actual does become a bond — whereas now the bond is a misnomer for a contract contingent on outcomes.
Perhaps the largest disadvantages to using local governments rather than third-party intermediaries as the project manager revolves around risk and management. The Peterborough model transfers risk from government — that is, from taxpayers — to the funders of the intervention. If the intervention does not achieve the predetermined outcome, then funders do not get paid. In the model described by Young Foundation (and they describe other models as well) local taxpayers retain the risk of intervention failure because the bond must be paid, yet the federal government payments are contingent on outcome. In fact, because mutual funds are large purchasers of municipal debt, and people’s retirement portfolios often sit with mutual funds, taxpayers are hurt three times: from the failed intervention that aimed to improve their social welfare; by having their taxpayer dollars diverted to payment for a failed intervention; and from whatever effects this may have on their retirement portfolio.
Second, although whichever party bears this payment risk faces the greatest incentive to organize the program in a way that best achieves outcomes, the local government may not be the best suited to accomplish this program management. Local governments typically work with service providers on a regular basis and understand the existing landscape of service delivery well. But not every local government has the capacity to discover and understand new types of interventions, orchestrate complex delivery of services in a new way, or oversee service delivery in a new way that forces providers to prioritize outcome over process compliance. Outsourcing of programmatic content and project management is one of the things the innovative social impact bond scheme is testing.
Paper source:
Geoff Mulgan, Neil Reeder, Mhairi Aylott & Luke Bo’sher
Social Impact Investment: the challenge and opportunity of Social Impact Bonds
The Young Foundation March 2011.
http://www.youngfoundation.org/files/images/11-04-11_Social_Impact_Investment_Paper_2.pdf
I recently came across and short and interesting interview with Dr. Judith Rodin, president of the Rockefeller Foundation. I roughly capture and comment on two Dr. Rodin’s points below. The full interview is here: http://www.bbc.co.uk/news/business-15102389.
If you look at the problems in the world … it’s estimated that there are trillions of dollars in need. It’s very clear that when we did the catalogue that there are really only billions of dollars of money in government aid and philanthropy that are the traditional sources of trying to solve some of the world’s problems… At the same time we were beginning to understand that capital markets were developing funds with what we called double bottom line mandates…
I think that this quote captures an interesting shift in the social contract between businessmen and citizens in general and the governments under which they operate. The way I understand the original social contract is that people unite under governments, and agree to surrender to it some rights and resources, and the government agrees to resolve for those people a set of collective problems that they alone cannot address, such as providing for a common defense. When the Great Depression drastically undercut social welfare, not just in the United States but also abroad, the government took a much larger role in creating and sustaining social safety nets — we now taxed everyone much more and redistributed welfare to a greater extent.
We now seem to be moving away from looking to governments and international development agencies for safety nets and economic development assistance. Most of the funding and technical acumen still resides within governments. But people seem to be increasingly looking toward non-governmental solutions – whether by giving to NGOs as a way to assist with acute crises like in Haiti and Chile, or by preferring double-bottom line solutions like microfinance (through Kiva and others) rather than waiting for the IMF or USAID.
High net worth individuals are acutely aware of the growing inequality in Asia and other developing countries. They want to give back in ways that are consistent with the ways in which they gave money … For those who would like to figure out how to use their financial acumen and have social impact within the same set of vehicles … impact investing is becoming a great idea.
I take away from this quote that economic and social development by businessmen will look drastically different from that done by international development agencies and NGOs. Already, as I sit in classes at Harvard Business School where we discuss impact investment and social businesses, I see a focus on financial health of socially responsible enterprises at the expense, at least in my mind, of focus on the social impact of those businesses’ activities on their target populations. Whereas financial return is measured using complex instruments, validity of the logic model for the social impact seems to suffice for many business investors when evaluating social return.
A cute story about an early public awareness and mass philanthropy campaign from a professor of French and American history.
http://www.nytimes.com/2011/12/23/opinion/christmas-seals-and-mass-philanthropy.html
Here is from the August 2011 article from the Cabinet Office:
A major trial of an innovative new way to fund intensive help for families blighted by anti-social behaviour, crime, addiction and poor education was announced by Nick Hurd, Minister for Civil Society today.
Liverpool and Essex are also looking to trial a related Social Impact Bond initiative to support vulnerable adolescents and their families with the objective of preventing care entry
We expect the Social Impact Bond pilots to be funding intensive interventions from spring 2012.
The Rt Hon Iain Duncan Smith, a British MP, spoke about social impact bonds at the Social Market Foundation conference last week. He mentioned the Peterborough UK social impact bond, as well as Steve Aos’s research in Washington State about estimating per-dollar social returns. Some interesting news:
Many of you will be aware of the reoffending Social Impact Bond in Peterborough – the first of its kind anywhere in the world.
We are also in the middle of procuring for the Innovation Fund, which will enable investors to back innovative projects which help disadvantaged young people.
This is about getting in there before people have left school, targeting kids from the age of 14 and up and tackling the root causes of disengagement from education and employment.
And the Cabinet Office is currently leading innovative pilot projects with four local authorities, looking at how social investment can be used to help turn around the lives of some of the most troubled families.
More on Steve Aos’s research here: http://www.wsipp.wa.gov/topic.asp?cat=18
MP’s comment here: http://www.dwp.gov.uk/newsroom/ministers-speeches/2011/15-12-11.shtml
Roundup of great obituaries to Vaclav Havel on the web.
David Remnick, who spent many hours with Havel, writes in his New Yorker
http://www.newyorker.com/online/blogs/newsdesk/2011/12/living-within-the-truth-vaclav-havel.html
Dan Bilefsky, who covers Eastern and Central Europe, and Jane Perletz, who has covered Indonesia and Pakistan, write in the New York Times
http://www.nytimes.com/2011/12/19/world/europe/vaclav-havel-dissident-playwright-who-led-czechoslovakia-dead-at-75.html
And, my favorite, a reprint of Timothy Garton Ash’s 1989 piece on the Czechoslovakian revolution in the New York Review of Books
http://www.nybooks.com/articles/archives/1990/jan/18/the-revolution-of-the-magic-lantern/
The McKinsey recently-launched Innovation Navigator profiled my friend’s project in NYC to crowdsource ideas for greening New York.
Project: http://nyc.changeby.us/#start
McK’s Innovation Navigator: http://mckinnovate.com/
Description:
“The Innovation Navigator aims to make it easier for everyone to learn about the people, places, and management strategies driving government innovation. Navigate around the publicly sourced case studies in the map. Become part of the discussion and submit your own.”
Michael Belinsky 