Social Impact Bonds: are they ethical?

On 12 and 13 September 2016, members of the international research community descended on the Newcastle University London campus to share their research on one of the hottest topics in public sector delivery in recent years: social impact bonds.

One thing that struck me most during the two days was the sheer global reach of the social impact bond (SIB).

Whilst I was aware they were well established in the UK, with the 35th about to be launched, I hadn’t quite realised their global expansion until Professor Alex Nicholls from the University of Oxford showed the map from Social Finance’s Impact Bond Global Database. According to this, there are 60 live SIBs across the world and over 160 being developed, including more than 100 in the US.

We heard from Dr Lisa Knoll from the University of Hamburg, explaining how they are being debated in Germany, most likely as a result of the latest cross-border SIB operating in the Netherlands and Germany. We also heard from Duncan Farthing-Nichol, Associate at MaRS Centre for Impact Investing, about plans for the second SIB in Canada.

To me this raised a question: how can they be popular in so many countries, with such different political philosophies?

This question was answered in Professor Mildred Warner of Cornell University’s keynote speech about the rise of SIBs in the US, explaining how they are popular among both Republicans (because they let the private sector get access to public services) and Democrats (because they hope it will increase investment in public services). If they can bring bipartisanship in the US, then they really must have a lot of political popularity.

This scale of global political enthusiasm seemed matched by the research community, with many academics presenting from across the globe, including USA, Canada, Italy and Germany. However, their tone was somewhat different to that espoused by others.

Dr Alec Fraser of the London School of Hygiene and Tropical Medicine, in a recent literature review of SIBs, found that academics have generally been cautious about the claimed benefits of SIBs; that feeling was certainly evident in the room. Based on the presentations we heard, some academics are wary of SIBs on both ethical and operational grounds.

From an ethical standpoint, many of the presentations warned of the moral dilemmas that can arise when we place a financial value on social outcomes, and begin to see interventions in the light of the money they can save rather than on their inherent public value.

The concept of the ‘investible child’ is great, but does that mean the ‘uninvestible’ child gets left behind?

Professor Warner and Dr Julia Morley from the London School of Economics (LSE) captured this unease best, warning that this can result in people being viewed as commodities. The concept of the ‘investible child’ is great, but does that mean the ‘uninvestible’ child gets left behind? Will it lead to us prioritising certain policy areas simply because they can save us money? Are we giving away too many decisions to unaccountable consultants and investors – and do the service users themselves get a say in any of this? Is it right that investors can gamble on the fortunes, or misfortunes, of others?

And Professor Nicholls asked whether development bonds, where investment is made in developing countries, create a new form of colonialism, as the West profits from interventions in developing countries.

Dr Morley did ask another counter-ethical question, though – if SIBs do increase outcomes, do the ends justify the means? (You can see more about the ethical debate behind social investment in LSE’s short film). Dr Morley summarised this debate by arguing: “SIBs offer us an exciting opportunity, but we need to reflect on the ethical issues involved.”

This is the first of two reports from the event, the second will be published next week. The event, ‘Widening Perspectives on SIBs’, was organised by Dr Jonathan Kimmitt and was a joint initiative between the Centre of Knowledge, Innovation Technology and Enterprise (KITE) at Newcastle University, the Policy Innovation Research Unit (PIRU) based at the London School of Hygiene and Tropical Medicine and RAND Europe.

Photo credit: Fredrik Rubensson