Bonding with those most in need can yield big returns.
To paraphrase Winston Churchill’s famous observation on democracy: Capitalism is the worst system in the world except for all the others. It’s true that capitalism catches much deserved criticism, often within Catholic social teaching encyclicals, because of its tendency to reduce everything in life to a tradable commodity: natural resources, people, time, the environment. In fact there are few aspects of life that have not been at some point or another poorly served by capitalism.
We’ve seen it at its worst in the exploitation of people and the disruption of family and communal life. We’ve seen the wanton disregard for its effects on the environment and the spiritual deracination it can effect when profit is elevated above all other social and personal priorities. But capitalism has certainly proven its mettle as an engine of technological and social innovation, of wealth creation, of capturing and focusing human genius and taking it to the stars.
What if the dynamism of capitalism could be harnessed not in the pursuit of profit but in the pursuit of social goods?
In recent years social investment funds have been devised to attempt to direct profit motives to more positive outcomes, collecting the wealth of the socially conscious and putting it to work at for-profit entities that are most amenable to the planet and its inhabitants. A new investing instrument, however, is creating a more direct financial infrastructure for “exploiting capitalism” in a promising and creative way.
In 2010, even as a global market meltdown generated by perhaps the most irresponsible use of financial instruments in capitalism’s history was reaching a devastating crescendo, yet another new finance innovation was being deployed in Great Britain. This one wasn’t a bundle of toxic mortgage securities; it was something called a Social Impact Bond (SIB).
SIBs raise private capital to pay for prevention and early intervention programs that ideally reduce the need for expensive crisis responses and safety net services, creating a bond market that aligns the interests of nonprofit service providers, private investors, and governments. The government repays investors only if the interventions improve social outcomes, such as reducing homelessness or the number of repeat offenders in the criminal justice system. The market risk for a poor outcome of a social intervention program is thus transferred to the private sector, preserving taxpayer generated resources for more critical needs or more promising initiatives.
The bonds have already financed a program in England aimed at reducing prison recidivism, and outcomes so far have been promising. In the United States, Massachusetts is poised to become the first state to offer “pay for success” bonds, earmarked to finance a program to reduce homelessness.
The Obama administration tried to secure $100 million from Congress last year—and will make a new request in the next budget proposal it prepares—to begin an SIB effort at the national level. The possible payout in restored human lives and reduced government costs seems to justify this small risk, and Congress should approve the cash to jumpstart this promising social revenue stream.
In an era of reduced resources but escalating need, acute attention to accountability, and a sudden affection for subsidiarity, SIBs offer a novel way to finance promising if unproven efforts to respond to nagging social ills—and the thousands of personal calamities they represent—like recidivism, homelessness, and drug addiction. Government plays a mediating role and private innovation is given social room to take risks and enjoy the rewards of success.
It’s an idea that Catholic fans of subsidiarity and embracers of solidarity can both support. If these programs work properly, the major reward will not be a few percentage points of a bond yield but lives rescued from poverty and despair. We are bound together in solidarity; these bonds offer the opportunity for Christian investors to put their money where their good intentions are.
This article appeared in the September 2012 issue of U.S. Catholic (Vol. 77, No. 9, page 39).
Image: Tom Wright
Add comment