Social bonds - an unfortunate experiment

It is perhaps not surprising that groups such as the New Zealand Initiative (partly created by the former Business Roundtable) should support this latest experiment on New Zealand’s most vulnerable. Social bonds are the most recent example of the idea that market approaches can and should be applied to everything and that the only motivation for individuals is profit making. They are a dangerous tool which run substantial risk of very serious harm.

What’s the problem? There are many, but perhaps the most serious is that the needs of the most vulnerable will be dependent on the willingness of investors who want a return (in some instances quite a significant return) on their capital. Those whose needs don’t meet the interests of investors will be left behind and will get, at best, fewer services, often of an inferior standard. 

Those who are left behind, will be the most vulnerable with the greatest needs, for example those with chronic difficulties or who come from the most deprived and disadvantaged backgrounds. Services will be based on investment returns, not on the needs of those receiving services.

Overseas examples are used to argue that the bonds produce better results for vulnerable groups, but the argument is not based on a proper comparison. Those for whom the bonds are used to purchase services are receiving a more comprehensive and more extensive range of services. It is, then, only to be expected that there will be better results. To use an old analogy, apples are not being compared with apples.

Then, there are critical questions of what happens when the bond is due for repayment. Services and supports decline because the money needed is not available. As has so often happened in social services over the years, expectations are created and then cut rather than being sustained over time.

Social bonds raise critical questions for service providers in that services are provided (and outcomes measured) on the basis of the funding provided, not on the basis of what might be needed. To take a simple example, a child might need specialist health assistance but the funding is provided for quite a different outcome such as educational support. Outcomes are then liable to be measured to demonstrate success, thereby ensuring funding is received - there are powerful motivations for this.

Social bonds allow government to do less and underfund critical services and programmes. They also create a great opportunity for social engineering based on investor decisions. If additional funding is going to create the possibility of better outcomes for vulnerable children and families then those outcomes should be available for all, not just those who are acceptable to investors. Vulnerable children and families should not be the subject of another unfortunate experiment.