The response from the Left to the Government proposals to trial new ways of delivering social services (such as social impact bonds and social housing) has been disappointing to say the least. Instead of being constructive about possibly useful new tools they have shown us again that they’re stuck in the rut of political point scoring. Even White Man Behind a Desk got into the action with an amusing but pretty inaccurate discussion of social bonds. While it is fair to say that the devil is in the detail when it comes to outsourcing social services, the idea is far from the devil incarnate. Why is the political leadership of the Left so lame?
Why should government provide everything?
The first slip the Left makes is the assumption that the government is naturally the best provider of, well, everything. It hallucinates so because when the private sector provides things they make profit, and profits, especially private profits, are bad – always bad. And they wonder why their voter support is on a trend decline?
The idea of social bonds and privatizing provision of social housing is to achieve at least the same result as State provision would but more cheaply. If at least some of those savings could go back to the taxpayer then that is a good thing. Rather than knock it simply on ideological grounds, the Left – if it wants to regain some political relevancy – needs to evaluate the proposition and convince us all why it would fail. They are nowhere that level of discourse.
The social housing proposal is to sell the housing to registered charities but that’s still not innocent enough for the Left. They seem to hold a preconception if a private company or charity can deliver something, then a government agency can as well. Well that presupposition is false for a number of reasons, some of them far from pretty.
Firstly, incentives matter and failure should have consequences. In the private or charitable sector people lose their jobs and the business or organization goes under. In the public sector, agencies that are failing go back to the government for more money. And vice versa – if you do well in the public sector – perhaps by achieving your goal while spending less money than you budgeted for – you lose that money. There just aren’t great incentives to succeed in the public sector.
Of course money isn’t everything – people are motivated by different stuff, like autonomy and trust – the ability to do a good job. While we like to convince ourselves that this high moral ground is the rationale for public service, the overall performance of the sector often gives lie to that. In pursuit of political advantage Ministers fiddle, scrap things their predecessors did and replace them with their pet projects. Bureaucrats are inherently risk-averse – the secret to longevity in the public sector is keeping off the front page of the newspaper, so all in all there is little incentive to innovate. But innovation is the key to successfully finding and implementing better ways to deliver – so being an anathema to life in government’s political or bureaucratic wings, it just ain’t going to happen.
The counter argument is that only government should work with the vulnerable. But is this true? Many vulnerable people are too afraid to go near government agencies as they are worried about being audited, having their benefits reviewed or their kids taken off them. Sometimes the most successful operators with vulnerable groups are independent, because they can provide a non-threatening face that particular communities identify with. They can also ‘join up’ government services (which Whanau Ora attempts to do), often doing a better job than government can do. Those are some of the reasons that social housing has been successful in the UK – but the Left doesn’t like them either.
The ideal is that all programmes for vulnerable people would be so well-funded, let run for a decent amount of time, be evaluated well, and would be scrapped if they don’t work and would be expanded if they do. Only under these very specific conditions would it not matter whether the public sector, private sector or charities ran delivery agencies. But the reality is that all of that rarely happens in the public sector. This cripples its ability to perform in anything beyond policy analysis and advice. That is the problem the Left needs to tackle to be credible.
What outcomes are you paying for?
Payment for outcomes is a pretty standard part of government contracting now, both here and overseas. There are examples where it works, and examples where it doesn’t. That’s because the devil is in the detail.
This is the tricky bit. What the Left should be focused on in terms of its unique contribution to the discussion is that if you want to contract something out, you have to be really, really clear what you want. You have to make sure that the thing you are contracting for is actually the outcome you want, or as close as you can get to it. And it’s the unintended outcomes that often prove to be the pitfall of contracts too loosely specified.
So let’s turn to what the focus of the discussion should be.
There are two main problems with contracting out. The first is ‘cream skimming’ – the idea that a contractor will focus all their activity on the easiest clients and forget about the hard ones. The Government has assured us that they won’t allow their contractors to cream skim with the social bonds pilot because they will be forced to take them all. It isn’t quite that simple sadly – ideally you want a payment mechanism that is linked to the complexity of the client. The more high need they are, the bigger the payout. Otherwise the risk is that a provider ‘takes’ the client, but does nothing with them.
The second problem is ‘gaming’ the results. This is where the contractor finds ways to get results that tick the box but don’t really make a difference long term. For example, if the outcome is getting someone a job, the contractor might find them a temporary job, or a poor quality job. There needs to be criteria around this – for example the person should still be in the job 12 months later before the final payment is made.
Avoiding these problems requires good contracting – something that the public sector often doesn’t have the skills to do. Just look at the recent criticisms of Whanau Ora made by the Auditor General. This capacity issue is actually our major concern with the Government’s proposals, rather than the concept itself.
Social bonds remove the downside finance risk for government
Beyond payment for outcomes, all the social bonds concept does is ask the private sector or philanthropists to write the initial cheque. In other words, the Government is asking someone else to foot the bill and take all the risk for these services. If they don’t succeed, they don’t get paid. Why would you not want to do that as a government? If you can find someone willing to take on the risk, it is a great deal.
As a philanthropist, I have to say that if the right opportunity came along, I might give it a go. But I am skeptical as to whether that will ever happen. I would have to be convinced that it was innovative, could really make a difference to people in need and wasn’t just something that should be a part of core government services. The problem with any public sector funding is that it usually comes with so many strings attached and so much risk averseness, that it rarely tickles my fancy. I often find it is easier to do my own thing.
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