Monthly Archives: May 2018

Japan highlights innovative Asia Pacific model for Social Impact Bonds

BY CHIH HOONG SIN & ICHIRO TSUKAMOTO

SIBs are emerging as a way to reconfigure relationships between the state and civil society in ways that their Western inventors may not have anticipated but may wish to replicate.

Japan’s experience of Social Impact Bonds (SIBs) offers some important insights. First, it challenges the notion – held by some – that SIBs should be seen chiefly as a way to cut costs: in Japan we see a typically Asia-Pacific framing of SIBs that’s more focussed on developing civic society. It’s an approach that may catch on more widely around the world.

Secondly, the Japanese experience demonstrates the importance of institutional infrastructure and culture – and not only availability of finance – to make SIBs work well. SIBs require a complicated culture in which to thrive: Japan shows how it can take time for the various elements to be established.

Japan expressed an early interest in SIBs, becoming part of the OECD Social Impact Investment Taskforce. A five year nationally-funded research project, based at Meiji University in Tokyo, looking into developing SIBs for Japan is almost complete.

On the face of it, Japan might look to be in the same boat as, for example, the UK. The country’s national debt at the end of the last fiscal year was 254% of GDP, compared with the UK’s 88%. So, one might think, Japan would use SIBs to drive down spending and increase efficiency.

In fact, although Japanese rhetoric initially focussed on fiscal savings, interest swiftly shifted to SIBs steering improvements in societal wellbeing that might require more, rather than less, public spending. Japan has also been much more like other Asia-Pacific countries where SIBs have been seen as a means to reconfigure relationships between the state and civil society and focus on long-term issues of public health.

Past and existing projects have looked at, for example, how to create learning supports in deprived areas for NEET young people – those not in education, employment or training. A nationwide health SIB has just been launched focussing on better managing or preventing long-term conditions such as dementia, diabetes, cancer, cardio vascular disease.

Japan’s government has shown a high level of interest in SIBs. It’s seen its role largely as being to signal interest and legislating to make money available. In December 2016 Japan harnessed dormant bank accounts, like the UK has done, to set up the equivalent of Big Society capital, which is envisaged to go live from 2019. In addition, the Ministry of Economy, Trade and Industry (METI) and the Ministry of Health, Labour and Welfare have provided pilots around the country with funding for operations.

So pilot programmes have tended to suffer not from shortages of capital. Their problems have, rather, concerned lack of measurement or been because service providers are short on thinking or capacity to deliver outcomes-based contracts.

Institutional weaknesses in Japan
Japan has been institutionally handicapped in developing SIBs in a number of ways. The country has a weak public management culture: transparency, a focus on efficiency and on prioritising clients’ views of outcomes are less developed than in the UK.

The country is only slowly creating the building blocks for outcomes-based markets. The UK government has supported the creation of outcome payers: SIB investment funds such as the Innovation Fund, the Fair Chance Fund, Commissioning Better Outcomes Fund, and the Life Chances Fund. Britain has invested in developing an evidence base that can support outcomes-based contracting. There is also legislation that directly or indirectly supports SIBs, including the Public Services Social Value Act and provision of social investment tax relief. Japan has had a much less developed basic infrastructure.

In comparison, the UK’s voluntary – not-for-profit – sector is also more robust, diverse and heterogeneous, including organisations of different sizes. There are strong umbrella bodies such as the National Council for Voluntary Organisations. Japan has a long history of social sector organisations but the flowering of the not-for-profit sector is more recent, encouraged in the past 20 years by legislation liberalising regulation of the sector.

Many Japanese organisations remain small and hyper-local, which raises questions about their capacity to engage with SIBs. The country’s not-for-profit umbrella bodies are also relatively weak in terms of their lobbying capacities and the extent of their networks across the sector.

There are fewer charitable foundations than in the UK. So, social sector organisations in Japan largely rely largely on government funding, whereas UK social sector organisations tend to have more diverse funding. This financial dependence makes it harder for social sector organisations to question government.

Problems measuring impact
These days, the UK social sector is familiar with measuring and demonstrating impact. Japan’s social sector organisations are less experienced in measurement and, where they are, their focus tends largely to be on activities and inputs.

Lack of diversity in markets – in terms of service providers, investors and intermediaries – also hampers the growth of SIBs in Japan. Until 2017, when the Yokohama SIB was developed, all pilots were driven by the Nippon Foundation or its subsidiaries. So a single, large player was trying to nudge the market along.

There are significant differences between the UK and Japan in the maturity of intermediary markets. The UK has moved from a virtual monopoly among a few intermediaries in the early days of SIBs to a growing, diverse market, bringing in many different skills. Intermediaries no longer offer only financial backgrounds. There are people with commissioning support experience as well as good provider engagement experience. The same cannot be said quite of Japan, where the emergent intermediary market remains in its infancy.

From the commissioner side in Japan there remains a poor understanding of SIBs so it is difficult to collaborate with providers about constructing SIB models. As a result, commissioners may not know what to specify. They tend to identify general outcomes which may lack meaning and be unachievable within the timescales.

Building underdeveloped civil society
Nonetheless, Japan’s vision for SIBs is innovative as it tries to use them to place individuals at the heart of public services that have tended to be dominated by centralised bureaucracies. As in China, SIBs offer Japan a model that facilitates an underdeveloped civil society sector to grow and play a more visible role. SIBs allow responsibility to be devolved downwards while retaining central control through outcome-based funding. SIBs help square the circle for centralised governmental structures that wish to devolve responsibility while retaining policy direction.

Western countries such as the UK, where SIBs originated, would be wise to take stock of this evolving emphasis. Just as football played in Brazil and Spain has turned out to be more exciting than the game played by its inventers, SIBs, in their cultural adaptation, may prove to be a more transformative model than originally envisaged in Britain.

Attractions of Asia Pacific model
This adapted model could turn out to be an attractive export even to its inventors. Austerity – the ground into which SIBs were originally planted – will not last forever. SIBs may, in the longer run, offer opportunities for a more ambitious and hopeful agenda of improved well-being that may be politically realistic in more prosperous times. Such reinvention and rebranding of SIBs might also make them more attractive to their Western critics. The Left in Britain and US has tended to dismiss SIBs, suspicious of them as vehicles for commodisation and privatisation of public services. A revisioning of SIBs might suit a more left-wing agenda.

This SIBs model with a different emphasis might also offer an approach to reform in Britain where big providers such as Serco and Capita – focussed on driving down costs rather than on quality delivery to the person – are edging out smaller local players. Since 2010, many small civil society organisations have collapsed in the UK and others have had to merge as size has become the key to survival. Might SIBs eventually offer a way to address this trend and recognise financially the value of local deliverers with smaller caseloads but higher quality?

As the SIBs story unfolds, the purposes and future of this approach to service delivery remain in flux. Analysing the Japanese – and wider Asia Pacific – approach is a reminder that we may not have scratched the surface of SIB’s potential for achieving a wide range of agenda.

Dr Chih Hoong Sin is Director of Innovation at the Office of Public Management, London, UK

Ichiro Tsukamoto is Professor of Public Management at the School of Business Administration, Meiji University, in Tokyo, Japan.

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We should ask three big questions about SIBs

BY ELEANOR CARTER & CLARE FITZGERALD

Evaluation should test key SIB promises to government: greater collaboration, prevention and innovation, argue two researchers from Oxford University’s Government Outcomes Lab.

To discover whether Social Impact Bonds work, we would be wise, first of all, to ask: “Work for whom?” Our response is: “For public service commissioners.” This answer acknowledges a reality: if SIBs don’t make sense to government, they are unlikely to be more than a passing fashion.

This standpoint cuts through a myriad of promises that typically surround SIBs and other payment by results programmes. It also helps focus how to evaluate them. We should measure SIBs by looking at what, if anything, they can deliver that public service commissioners seek.

That’s what we’re doing in the Government Outcomes Lab – GO Lab – at the Blavatnik School of Government, where our work is currently co-sponsored by the School and the UK government.

The dominant narrative around SIBs, born in an age of austerity, is that they can deliver cashable savings to government. Of course, every government seeks such dividends. However, this claim, far from proven – at least at scale – may or may not be true. Either way, we believe SIBs go well beyond promising the efficiency and entrepreneurialism claimed by conventional outsourcing. SIBs make a more fundamental offer that should be rigorously tested: that they provide an opportunity to remake the public sector itself.

Public sector reform has sat at the heart of every government’s agenda – Conservative and Labour – for nearly 40 years, since the election of Margaret Thatcher in 1979. Its goals – aside from making savings – have included three principles that SIBs directly claim to address.

SIBs address 3 principles of public sector reform
The first principle is to improve collaboration in the commissioning and provision of services so that the collective effort is better focused on the needs of the service user.

The second principle is to shift activity to a more preventive footing, so that service provision is moved upstream of social challenges and towards earlier identification of risk.

The third principle is to make innovation less risky for commissioners so they move to evidence-based procurement, decommissioning underperforming services and becoming better at reaching those, often experiencing the most complex mix of social issues, who may be poorest served by existing provision.

We should, therefore, question, in our evaluations, whether SIB models are improving collaboration, shifting services towards prevention and creating spaces in which public service commissioners and delivery organizations can innovate.

Principles largely untested by evaluations
Our review of evaluations suggests that they rarely explicitly or rigorously test any these three principles by comparing a SIB commissioning approach with a grant, fee-for-service or even in-house delivery for a given population. Evaluations also face the “doughnut challenge”. That’s the difficulty, particularly with impact evaluations, in teasing apart the effects of the commissioning architecture (the dough) from the effects of frontline services operating in different ways (the jam). Indeed, most evaluation material is quite descriptive and exploratory. It doesn’t typically offer or test a mechanism by which a particular SIB is expected to work in practice.

Collaboration is seen
However, where we have tried to read these three principles into the evaluations that have been produced, we see glimmers of each logic being present in SIBs. So Peterborough’s SIB – focused on reducing ex-offender recidivism – saw front-line organisations pull together in cohesive ways, wrapping around the service user.

We’ve also seen multiple commissioners joining forces as, for example, where the Department for Education, Cabinet Office and the Department for Work and Pensions came together for a fund-based approach to support young people vulnerable to disengaging from school and work. We see top-up funding approaches from the Cabinet Office to acknowledge that there might be wider public service benefits springing from a SIB that are not captured within the outcome payer’s domain.

“Step-down services”, more than prevention
As far as prevention is concerned, very early intervention programmes are rare in the SIB field, but there is a focus on “step-down” services. The Birmingham Foster Care SIB is a good example that is already demonstrating cashable savings.

A growing number of SIBs try to de-escalate situations of family conflict or address unstable conditions for children and young people. Typically, for example, the Department for Work and Pensions has worked with people only once they are employed. Now, through SIB programmes, the Department, through the Young Engagement Fund, is becoming involved in programmes that try to understand and anticipate future needs. It is working with school children to prepare them for a smooth transition into work.

Space for innovation
There are also examples of SIBs supporting innovation and helping to dissipate cultural inertia. Typically commissioning has a cycle – there’s the planning stage, the doing phase and then there’s the evaluation. A SIB can help reduce risk at any or all of these stages, allowing SIB commissioners flexibility to think differently about their work. So, for example, with an innovative programme such as the GLA Rough Sleeping project, a SIB allowed commissioners to ask of themselves: ‘Do I know how to be the best contract holder, or would I benefit from bringing in a third party that might have a better appreciation or knowledge base about that side of things?’

SIBs can also enable a certain amount of experimentation by providing quicker feedback through performance management. It’s this feedback that allows frontline organisations to change the way they are doing things to better meet the needs of their clients. A well-designed SIB also creates impetus for high quality impact evaluation within a payment mechanism. That inclusion can, in the long run, only help to improve the quality of future commissioning.

Time to test public sector reform potential
In conclusion, we cannot demonstrate, on the basis of existing evaluation evidence, that SIBs fulfil the many and varied promises that their champions make for them. But observing SIBs through the lens of public sector reform – and their possible role in it – we offer an approach to evaluating whether they might be a tool for remaking the public sector.

Eleanor Carter and Clare FitzGerald are research fellows at the Government Outcomes Lab (GO Lab)at Oxford University’s Blavatnik School of Government.

If you wish to receive our weekly blog on SIBs, please email Paula.Fry@lshtm.ac.uk and we will add you to our subscriber list.