Social impact bonds are all the rage among financiers who argue that the profit motive can help nations and municipalities tackle such thorny issues as dysfunctional families and chronic crime. Balderdash, say authors Jesse Hajer and John Loxley, although they make their argument in a far more measured way. The professors detail the rise of social impact bonds, noting that this new financing mechanism is necessary only because governments have gutted social programs. Their well-argued case may not convince all readers, but their work offers important food for thought.
Social impact bonds (SIBs) have emerged as a new way of financing social services.
SIBs appeared after the financial crisis of 2008, that jarring episode that raised new concerns about the concentration of wealth and the precarious financial situation faced by middle-class workers. The Great Recession led to the rise of the Occupy Wall Street movement on the left and the Tea Party on the right, both reactions to the high costs of economic volatility. As a funding mechanism, SIBs are a niche instrument, so far. As of January 2019, 122 SIBs had been funded worldwide, and more than 100 additional projects were in the planning stages. SIBs present a different way of pursuing the public good. The SIBs that have been issued since 2010 focus on such societal challenges as reducing prison recidivism, housing the homeless and improving child welfare. Proponents argue that effective SIBs will help reduce government costs in the future.
The first SIB was launched in 2010 to reduce recidivism at the Peterborough prison in the United Kingdom. The project raised £5 million [$6.7 million] from private investors. If ...