Hi, my name is Margot Young. I'm representing CUPE today, the Canadian Union of Public Employees. We have more than 630,000 members in the broader public sector. We have been following this issue as it started to emerge. That's why we are happy to share with you what we've learned so far.
From the stats we've done—and we have worked carefully with NUPGE, so you will probably see some similarities— social finance is like applying a venture capitalist model in the area of social, health, and educational service delivery. Unlike the case with bonds, there is a significant performance risk attached to the model. When and if projects fail on pre-agreed outcomes, investors stand to lose their initial investment. As Andrew pointed out, often those investors are the charities that have guaranteed them.
The government's role is effectively reduced to paying the cost when the contract terms are fulfilled. The model effectively outsources not only the service delivery but also key elements of policy development, implementation, and assessment. Even the measuring of what the objective is becomes outsourced. The financing of child care in the Utah case, for example, is tied to future performance of children in school and to reduced incarceration rates. That's how they say what the success is. But you can see that if you outsource the defining of what success is....
There has been a ton of literature to show you the importance of women's participation in the labour force and to show that it's good for labour, is good for the economy, and is a good anti-poverty measure for child care as well. But that is lost, if all you're measuring is a lower cost of education and lower incarceration rates.
Large private financers such as Goldman Sachs are excited by social finance. In a way, Goldman Sachs and the consulting companies have, I think, finally found a formula for making a profit out of public services.
Efficiency and profit generated out of social finance initiatives seem to be smoke and mirrors. The enterprises are set up at the beginning to skim off the people who are easier to treat and leave those who take more than minimal input to get help from the government; i.e., they cherry-pick their clients, the ones who are more likely to be successful. In the end, the government pays either way, because they are paying premiums for the company to do these outcomes for this group of people, but the government still has to serve the hard-to-serve people in the end. So, if you have a system of public services in which the government is providing the services, we would argue to keep it, because it works.
We are also very critical of the companies that are promoting it. The fact that financialization of public human services will make matters worse on the ground results in people making money on public programs that are supposed to be helping the most disadvantaged in society.
We find that the worst part of the social finance initiative is what is called the social impact bond. It was set up in 2008, during the recession, to get governments to delay paying for needed social services until some time in the future. It's a kind of cynical marriage of financial investor opportunism and governments that want to push the costs of the current year off the books.
Social impact bonds leverage private sector money to invest in social services with the promise that the government will pay them back in four or five years with a substantial return on their investment. These returns are up to 12%. There is one, the Newpin bond in Australia, that is paying 12% annually.
This tortured logic tries to tie up outdated and debunked notions that the private sector has something to offer in finding more efficient ways of delivering needed services. In fact, we would argue that there is a lot of innovation in the public sector and that the formula they are using to measure the success of the outcome actually curtails innovation, because they're using methods based on studies that have already been done that say if this happens, x will happen. They're tying that in as the measure.
These schemes aren't that innovative and they end up with the financialization of existing not-for-profit services. In Ontario in 2007 they did a study where they studied pay for performance. They used a municipal government and compared it with a private company service called JobsNow. In the study they made JobsNow use the same level-of-need clients as they did for the municipal services. All they found out in the end was that they had the exact same outcomes as municipal services, except it cost more. That's the pay-for-performance model and it does cost more.
We think this is like trying to apply this so-called innovative model to this, but there isn't a sexy way to deliver these much needed services. There might be more ways of innovating and of getting ideas, such as talking to the service participants, people who deliver the services, and policy-makers about those new ways, but applying this venture capital method to it is probably not the best way.
There are ways to include public service delivery, but this isn't it. Those marketing the social impact bonds routinely make the argument that only the private sector is innovative, but it's never documented. Those promoting SIBs base their arguments on a belief that market-driven decision-making is inherently superior to other approaches. By presenting the truth of these ideas as self-evident, and in the absence of supportive evidence, the case for SIBs becomes a faith-based exercise driven by ideology.
Our position is simple. Social finance will lead to fewer resources available for social and human services, a more fractured environment, and a reduced quality of services for the public.
Thank you.