I've been working in this area for the last eight years. Indeed I think social impact bonds are kind of the far end of the spectrum in terms of the kinds of tools that are available when one talks about social financing.
It's a little bit the holy grail. The concept essentially being that we try to create a marketplace that would allow private sector investment into areas where there may be the possibility through investment to reduce social ills. The design of it is such that the risk to the private sector.... It's basically a venture capital sort of approach, which is they put their money on the table, if they achieve the outcome that the project is designed to achieve then government pays them back a return on their investment.
So there is a risk to that investor. It's a well-articulated and well-understood risk. In the examples that we see around the world where other governments have experimented with social impact bonds, we have not yet seen any government launch a really theoretically pure social impact bond. All governments have actually put money forward in the front end as opposed to allowing the private sector to make that initial investment, so we've not really seen a good test of that model.
We spent two years looking at that model, particularly in the context of public safety and have concluded that we probably could not achieve a social impact bond in the context of the criminal justice system. The primary difference between our system and the British system, where they have several of these bonds going, is simply that we have actually achieved an awful lot in the context of our criminal justice system in terms of reducing recidivism rates and being able to work with offenders in ways that other criminal justice systems have not. So they have much more spread that they can actually achieve outcomes using this kind of tool. We have a much smaller gap in terms of what we might be able to achieve through those kinds of investments. So our conclusion is that they may be a bit risky.
Other kinds of investment tools, however, pay for performance, pooled investments, social enterprise models, trying to incent or incite small enterprises to actually find a way of commercializing some of the outcomes. Those are other mechanisms of social finance that we think are actually applicable in Canada and could have some success. There is a social finance community in Canada that is ambitiously looking at those models.