Around the globe, governments are turning to pay-for-success (PFS) contracts as a way to provide public services more efficiently at lower cost, reports.
Including a prematurely terminated effort in New York City, at least a half dozen PFS experiments have been launched in the United States, with dozens more on the drawing board and another thirty or so under way in the United Kingdom (where the concept originated), Australia, and India. Under these arrangements, which are also known as social impact bonds, so-called impact investors agree to step in for government and pay for innovative programs delivered by third-party service providers that address a persistent social or environmental problem. If the program achieves its agreed-upon targets, the investor gets its investment back along with a portion of the government's savings; if it fails, the investor assumes the risk and the government is off the hook. "Governments in the past may have launched a program based on what they think might be a good fit — it was a well-intentioned investment. With the vehicle of PFS, we can spend time thinking about target populations where we think we can have maximum benefit, and where there’s greatest potential for taxpayer savings," said Ben McAdams, mayor of Salt Lake County, Utah, which has entered into a t involving pre-school education and is exploring others in the areas of infant and maternal health, homelessness, and adult recidivism.
Indeed, many of the most popular social programs and interventions at the state level have never been rigorously tested for effectiveness, while of the eleven large federal programs that have been subjected to randomized control testing since 1990, ten, including the Job Training Partnership Act and Upward Bound, were found to have little or no positive effect, Jon Baron, president of the , told .
Critics of the pay-for-success approach argue that the involvement of private funders inevitably will skew public services toward narrow outcomes at the expense of wider government responsibilities and result in efforts to skim "the cream" to ensure success — and payment. And while the failure of the experiment in New York City may deflect some of that criticism, it does nothing to change the fact that PSF contracts are difficult and costly to set up.
"The essential source of change is the insertion of rigorous evidence into the way government selects and pays for social programs," George Overholser, CEO of , which is advising on many U.S.-based projects, told Fast Co-Exist. "We're using careful measurements of whether communities and individuals are better off, as opposed to how much they get paid [for those services]....Our expectation is that a subset of the projects we're looking at will be particularly compelling in their performance, and those will be rapidly replicated around the country," Overholser explained. "Each time we replicate it, there will be track record to go on, which in turn will allow us to accelerate the pace of growth."