Will Social Impact Bonds Work?

by Sharon Murphy

My attention was recently drawn to a Chronicle Herald headline stating, “Ottawa Seeks Private Cash For Public Social Plans.” The federal government is introducing an approach to funding social services called Social Impact Bonds. Funds would be raised from investors or charities to finance social programs.

Judith Dunlap, in “Privatization: How Government Promotes Market-Based Solutions to Social Problems,” asks two pertinent questions: 1) Is it the government's intention to shift responsibility for social provision to market-based solutions? 2) Are market-based solutions more cost-effective as a response to social problems?

The answer to the first question is yes. It started with the elimination of the Canada Assistance Program in favour of the Canada Health and Social Transfer Program in 1996. The 1997 budget report “Cuts in Transfers to The Provinces Continue Unabated,” notes the federal government's long drift away from its social program funding partnership with the provinces.

Dexter Whitfield, in his paper “Payment-By-Results,” notes public provision has been fragmented and commercialized. Whitfield says public funding has mutated into many new forms designed to widen and deepen the role of the private sector in the delivery of public services.

Words are important: one news report stated, “Government wants to tap into a gold mine of private sector funding.” This language objectifies and relegates the private sector to a commodity, rather than encouraging the notion that all levels of government and the private sector need to work together to eliminate the spectre of poverty in our society.

British Prime Minister David Cameron expresses this kind of thinking when he argues that rolling back the state would serve to roll forward society.  

An April 12, 2012, research note by the Canadian Union of Public Employees says, “The biggest flaw in this vision is selling a strong public sector in opposition to a strong civil society.” In fact, they are not in opposition to each other or in my opinion mutually exclusive.  In fact, everybody has an important role in the provision of public services.

In answer to the question about cost-effectiveness, David MacDonald, senior economist with the Canadian Centre for Policy Alternatives, says government will end up paying more for programs that it would have funded 10 years ago. MacDonald remarked, “Now they run them through this bond system whereby some private financier makes 10 to 20 per cent on their investment, rather than government evaluating a good idea and saying 'Let's fund that.'"

Critics question whether the bond program would lead to reduced funding for nonprofit organizations supplying valuable but hard-to-measure services, and say the program is a commercialization of social values.

What is the answer? For starters we need a more progressive income tax system. Ed Broadbent, former leader of the federal NDP, has argued that higher taxes on excessive compensation could provide the money to help eliminate poverty in Canada. We could also help the situation by ending the public subsidy of CEOs' excessive pay packages by getting rid of the loophole that allows the proceeds from cashing in stock options to be taxed as if they were capital gains, at half the normal rate, rather than as ordinary income.

Marc Lee in his study “Eroding Tax Fairness,” found the top one per cent of taxpayers saw their rate dropped by four per cent between 1990 and 2005. The poorest 20 per cent of taxpayers, however, pay three to five per cent more in taxes.  Middle income families pay about six per cent more in taxes than a family in the top one per cent.
 
In unity there is strength. We all need to work together for the common good to ensure equality; every Canadian should have the opportunity to realize their potential. Canada is a richer country than it was 10 years ago. Why are the poor still suffering?

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