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A recent article about social impact bonds written by Caroline Fiennes of Giving Evidence and published in the Stanford Social Innovation Review (April 3, 2013) makes several interesting points about the Peterborough SIB. Caroline writes that the success of a SIB can be evaluated on three levels – whether investors should be repaid according to the selected intervention and evaluation, whether the intervention works, and whether the bond structure works. She argues that the structure of the Peterborough SIB can help assess the project using the first measure of success, but not using the latter two measures. This is, she says, because the evaluation of the intervention is insufficiently rigorous.

Caroline’s thinking follows a clear logic of looking at a process and asking how we should evaluate the process and how we should evaluate the outcomes of the process. (An excellent process may produce poor outcomes, and a faulty process may nevertheless give rise to outstanding results.) The application of this logic to social impact bonds is complicated, however, by the fact that the process and outcomes at hand are innovations. As such, both the process and the outcomes may change drastically from the SIB’s first application in Peterborough to subsequent applications. And difficulties specific to producing public policy innovation create additional costs and risks for the first application of a process that may be replicated at lower costs elsewhere. Therefore, I believe that findings of fault in a process or an outcome for the first application of an innovation are not indicative of future success of either the process or the outcome – let alone the innovation. These questions, perhaps, should be asked and answered across a set of applications.

Caroline notes these concerns when she says that “The best cannot be the enemy of the good.” But I believe that sentence understates the particular difficulties of a public policy innovation, and I expand on that statement here.

On the one hand, despite Caroline’s throughout measures of success, she is actually asking too little of the SIB program. SIBs are being piloted in the context of a larger, global conversation around how to create a social finance marketplace. Participants in this conversation are asking questions in addition to the ones Caroline proffered. Can we create a financial mechanism that attracts profit-seeking investors and directs money toward socially-desirable outcomes? Can we create sustainable intermediary organizations for this marketplace? And, broader still, is the social finance marketplace a viable goal, and what components of that marketplace are necessary? A theoretically ideal design of a pilot project should be aware of all these questions, as they determine actions taken by policymakers, investors, intermediaries, nonprofits, and so on.

On the other hand, Caroline is asking too much of this first pilot project. The first measure of success that Caroline outlines, whether investors should (and implicitly, are) repaid, is insufficiently tested by one project. Is the Peterborough repayment structure appropriate for similar projects? Is the contact, as written, appropriate? Will investors pull out of the project part-way if it becomes clear that service providers are failing? Will investors sue if disagreements over outcomes arise? These issues are best answered across multiple contacts, of which Peterborough is first.

The second measure, whether the intervention works, also cannot be sufficiently measured in the Peterborough SIB. Even if the project relied on a randomized controlled trial, the result would not guarantee that the program outcomes could be replicated in other prisons. Good social science, and good policy, certainly do not rely on a single randomized controlled trial. Further, a costly randomized controlled trial may have answered in the negative the question of whether a cost-effective SIB program can be created.

The third measure should similarly be expanded beyond “does this structure work.” What structure is most appropriate? Are different structured appropriate for different governments or different topic areas? Answers to these questions are informed by the process evaluation conducted by RAND, and are decided by the structure replicability.

The reality is that innovation in public policy is difficult. It faces many hurdles, may fail for countless reasons, and produces successes that often pale compared to the outsize efforts required to achieve them. Creating the first social impact bond, as Social Finance has done, required years of discussion. The second social impact bond has been easier. Subsequent ones should get easier still. So perhaps the questions that Caroline raises, and the ones that are raised by the impact investment community worldwide, can best be answered across a series of SIB programs.

Toby Eccles from Social Finance UK recently asked an interesting question about social impact bonds on his personal blog. The question is “Could Social Impact Bonds be happening more quickly?” I offer here my own thoughts on this question.

Social impact bonds, or SIBs, certainly take a long time to create. Massachusetts started exploring SIBs in, or before, October 2011, released the RFP in January 2012, entered into negotiations with service providers in August 2012, and has not yet signed a pay-for-success contract. If Massachusetts signs a SIB by end of this year, it would have taken 24 months to create the SIB from RFP to contract, and longer if pre-RFP work is included in the count. The Essex SIB in England also took approximately 24 months. The New York City SIB was probably faster, at 12-18 months. Australia’s New South Wales government started exploring SIBs 12-18 months ago, and announced its first SIB this month. On average, if a government that has already looked at SIBs was to start creating one today, it would take it 9-12 months to deploy.

I think several components of this process are especially lengthy. Whenever a SIB has to go through procurement, its creation will become drastically slower. The government must design an evaluation system, issue a public call for proposals, evaluate the responses, request additional information if necessary, and select its counterparty. The NYC SIB and the Peterborough SIB did not undergo procurement. This reduced one lengthy part of the process for these SIBs, but the general novelty of the program probably erased most of these timing gains.

Toby mentions that governments may be unwilling to pay outside organizations to assist with the creation of a SIB in part because the deal is unclear and unlikely. Lack of funding may constrain outside organizations, such as intermediaries like Social Finance, from acquiring enough resources to develop the SIB faster. It may also signal to mid-level government officials that the government is not seriously invested into creating this program, and therefore they should not devote too much time to it themselves.

I think that SIBs will be created increasingly faster for three reasons. First, NGOs and governments around the world, including the Cabinet Office in the UK, are creating templates for SIB processes. This will enable future governments to copy large chunks of the legal and financial machinery of the SIB. Second, if initial SIBs succeed, investors will have a history of returns and financial arrangements against which to compare new SIBs, which may shorten their time to evaluate an investment.

Finally, as Toby mentions, governments and social enterprises are still learning how to partner with each other to increase social value while maintaining a financial proposition. This process in difficult because the two sectors speak a different language, and because governments worry that profit-seeking behavior will infect the behavior of social enterprises and warp their programs, and that therefore these organizations should be kept at arm’s length. If nothing else, the SIB helps erode these barriers and create a common language among the sector that, ultimately, may increase the speed of the conversation.

The winter 2013 edition of the Harvard Kennedy School Magazine contains an excellent article about social impact bonds, which describes the work of the Harvard Kennedy School Social Impact Bond Technical Assistance Lab, a k a the SIB Lab, as well as the work of Instiglio, an organization I co-founded last year.

“Market Values”
Steve Nadis
Harvard Kennedy School Magazine
Winter 2013

What a great birthday present: I am quoted in the Economist.

Excerpt:

And there is rising emerging-market interest in SIBs, where they go under the name of “development-impact bonds”. According to Michael Belinsky of Instiglio, a start-up devoted to designing SIBs in poor countries, there is less scope for government savings to pay back investors in emerging markets because social safety nets are thinner. So international-development agencies are more likely to act as sponsors. Mr Belinsky is working on potential SIBs in India, to improve educational outcomes for girls in Rajasthan, and in Colombia, to reduce teenage-pregnancy and school drop-out rates.

 

I’m happy to report that Instiglio was selected as a semi-finalist for the 2013 Echoing Green Fellowship. Read more about the news on the Echoing Green website here.

Professor Jeffrey Liebman at Harvard Kennedy School has unveiled a website for his HKS Social Impact Bond Technical Assistance Lab. The Lab was created to assist US local and state governments with the research and analysis necessary for the creation of pay-for-success contracts using social impact bonds. I was a lucky member of Professor Liebman’s team that advised the Massachusetts government on the youth recidivism pay-for-success contract, the details of which are being negotiated by the government with ROCA (the service provider) and Third Sector Capital Partners (the intermediary organization).

This month NY Governor Andrew Cuomo requested budgetary authorization for $100 million for development of pay-for-success (aka social impact bond) initiatives over the next 5 years.

“Human Services – Pay for Success. Also known as “Social Impact Bonds,” “Pay for Success” contracts are an innovative program to achieve better Human Services outcomes while saving taxpayer money. Program ideas will attract private funding for preventative programming with a promise to investors of a return on investment based on savings the programming achieves. Such programs share common characteristics including: rigorous measurement of outcomes; payments to service providers only when pre-determined outcomes have been successfully achieved as measured by an independent monitor; and creative private sector financing that helps proven service providers fund their operations with minimal risk to government budgets. The Executive Budget authorizes the State to undertake up to $100 million of Pay for Success initiatives over the next five years. The initiative will offer the opportunity to invest in programs in the areas of health, education, juvenile justice, and public safety”

Sources:
1. http://www.governor.ny.gov/press/122201-Executive-Budget-2013-2014
2. http://publications.budget.ny.gov/eBudget1314/fy1314littlebook/HumanServices.pdf

I just published an article on negotiations between the FARC and the Colombian government.

“Negotiating for Colombian Peace in Havana”
Americas Quarterly
January 9, 2013
http://www.americasquarterly.org/content/negotiating-colombian-peace-havana

Excerpt:

Two decades ago, when political scientist Francis Fukuyama proclaimed the end of history and declared that democracy had triumphed over fascism and communism, Marxist guerrilla groups listened. Many of them shed political ideology and turned to illicit mining, drug trafficking and kidnapping for ransom. Since then, facing military and political pressures, these groups have largely demobilized. And now the last Marxist-led rebellion in South America might come to an end as the Fuerzas Armadas Revolucionarias de Colombia (Revolutionary Armed Forces of Colombia—FARC) negotiates for peace with the Colombian government in Havana, Cuba.

The negotiators face an uphill battle. Not only have numerous past negotiations between the FARC and Colombian government failed to deliver durable compromise, but, historically, successful bargains in civil wars across the world in the last century have proven to be rare and improbable. According to the civil war scholar Barbara F. Walter, only 17 of 41 civil wars between 1940 and 1990 contained formal negotiations for peace. Negotiations produced settlement agreements only eight times.

The Guardian’s Global Development section profiled Instiglio in one of its first articles on social impact bonds in international development.

A “Reset” of Russian-Jewish Relations?

By Michael Belinsky

November 2012

When I was ten years old and our Jewish family still lived in St. Petersburg, my father took me to the State Hermitage, then the world’s largest museum. I marveled at its vast collection – and, through it – at Russia’s awesome grandeur. It was the year when my father took me to cultural and historical landmarks throughout the city and supplemented their narratives with stories of Jewish contribution to Russian society. It was the year our family left Russia for America.

Last week, a very different Russia opened a very different museum, one dedicated to the history of the Jewish people in Russia. This $50 million project, the Jewish Museum and Center for Tolerance in Moscow, is the largest museum of Jewish history in Europe and the first such museum in Russia. In a symbolic gesture, President Putin contributed a month of his salary to the museum; Israeli President Shimon Peres attended the opening.

Museums are a complex construct. Built in the present, they offer perspectives on the past with a view toward the future. And so, too, Russian society, in a rare moment of increased tolerance, has decided to revisit the past with the goal of resetting the Russian-Jewish relations for the future.

Yet the museum confronts a difficult task. It speaks today to different Jews than the ones who left Russia years ago. Diaspora Jews carry a heavy burden of their parents’ and grandparents’ stories of pervasive Soviet and Russian anti-Semitism. To many of them, Russia is not the country that liberated the Jewish race from the genocidal clutches of Nazi concentration camps. Rather, Russia appears as the country that mistreated its Jewry, reluctantly and slowly opened its borders after the Soviet Empire collapsed, and has consistently picked the wrong geopolitical friends.

From America, Jews read of Russia imperial ambition in the sandbox of the post-Soviet space. Russian newfound tolerance seems at odds with a government that turns off Ukraine’s heat in the winter as a foreign policy tool. Republican-leaning Jews see an American political culture in which the right labels Russia America’s “number one geopolitical foe,” while Democrat-leaning Jews see an America frustrated at each attempt to collaborate with a Russian president who ignores the “reset” and exits the Nunn-Lugar treaty that was designed to safeguard nuclear weapons.

So will Russia succeed in resetting Russian-Jewish relations? This may depend on at least two factors. The first is the extent to which Russia’s political establishment will allow Russian society an honest look at the history of Jews in Russia. In doing so it will face a tension between its ingrained desire to control the historical narrative and the new backlash that such control inevitably generates (even in Russia’s illiberal democracy). So far, control and revision have prevailed. Putin has slowly closed state archives and opened a political propaganda machine that tells Putin’s Russian History through state mouthpieces such as the Commission to Counter Attempts to Falsify History to the Detriment of Russia’s Interests. The Soviet Empire was a masterful political historiographer, erasing faces from photographs and rewriting classroom history books in a flash. My parents are still learning the truth about the country from which they left.

The second may be Russia’s ability to pursue policies that align with Jewish interests. According to the exit polls in the U.S., 69 percent of American Jews, or 3.6 million, voted to re-elect President Obama, with whom Putin has chilly relations. In the Middle East, Russia continues to support regimes that threaten Israel. And in Russia, although tolerance is at an all time high, 8 percent of people polled by the Levada Center prefer that Jews are barred from living in the country; in other words, 11 million Russians want the remaining 200,000 Jews out. There is a Russian Jewish joke: “’Where is the best place for Jews?’ ‘Why, where there are none of us!’”

Russia lacks the geopolitical presence of the Soviet Union. The Diaspora of Jews who emigrated from Russia will not live in fear of a rising anti-Semitic state. We will face, instead, a post-Soviet society in search for an identity in a largely anti-Semitic past – from the Romanov empire to the Soviet empire, from the czar to the general secretary. Acknowledging a guilty past is hard; moving from it is harder still. But unless the Russian government continues its attempts to reset Russian-Jewish relationship not only through museums but also through policy, for most Jews, Russia will remain just that: history.