By Julia Morley

Social Impact Bonds and similar financial vehicles may seem guaranteed to deliver key values, but they raise important moral dilemmas.

The impulse to use new private sector approaches to funding public services, via Social Impact Bonds (SIBs) and other social investment vehicles, is fraught with ethical dilemmas. We should be cautious before rushing into “marketising” some public services – packaging them up as commodities that can be provided for a price by any supplier judged appropriate.

It’s easy to miss these problems because many SIB advocates hold strong, high-minded and hopeful moral positions. They’re often tired of just trying to do the right thing: they want to achieve real, measurable improvement in people’s lives.

SIBs and Utilitarianism
The views of those supporting Social Impact Bonds are typically rooted in utilitarianism which attaches moral value to the consequences of actions, not merely to the intentions. This approach contrasts with deontological theories, which hold that no matter how morally good their outcomes, some choices are always wrong. The utilitarian tradition can also be contrasted with virtue ethics. This focusses on what kind of people we want to be so we can work out which actions are allowable.

In contrast to deontological theories and virtue ethics, utilitarianism, which underpins the SIBs’ approach, dwells on outcomes. One popular form of utilitarian theory is “prioritarianism”, which attaches higher moral value to improving things for particular groups of people, usually the neediest and worst off. The goodness of this outcome confers rightness on whatever was done to arrive at that outcome.

At first sight, adopting such a consequentialist approach may seem to be a no-brainer. Who could argue with a standpoint that’s focussed on using SIBs to provide concrete help for the most vulnerable? But this seemingly good sense can sometimes blind us to real dilemmas posed by SIBs, and similar examples of marketisation in social services.

SIBs dilemmas
For a start, what timeframe should be used to assess outcomes? SIBs are normally planned to deliver their benefits in between two and seven years. These are timeframes after which a private equity fund, or venture capital fund, would expect to exit a programme and realise a return on their investments. But there is concern that such timeframes may not capture all the main benefits – and the dis-benefits or negative externalities – that might manifest themselves subsequently.

Is it possible, in any case, to measure all the outcomes? And, if we can, is it always possible to establish a causal link between an intervention or service, provided via the SIB, and the outcomes measured subsequently? Such uncertainties make it difficult, sometimes, to assess the ethical value of the SIB approach.

Should some social problems be free of markets?
For reasons not to marketise social services, I draw on work by Debra Satz, a philosophy professor at Stanford University and author of “Why Some Things Should Not Be for Sale: The Moral Limits of Markets”. Satz is a critic of “noxious markets”, which, she says, tend to feature vulnerable people who have little say in what is happening to them and who may be damaged by being involved in such a market. These “noxious markets” are, she finds, often characterised by excessive profits. She worries about marketisation undermining our civic values and society in such cases.

I also draw on the work of Michael Sandel, a Harvard University politics professor, whose book, “What Money Can’t Buy”, studies the moral limits of markets. He invokes what I call an “icky feeling” about markets in certain goods on the grounds that the exchange, and the nature of the goods, may be devalued by using a market.

These commentators challenge us to consider whether we feel comfortable with a market for kidneys or for other human organs. Would we go along with a market for babies? Would we like to trade them? Would it devalue humankind if we were to do this? How about prisoners? Is it morally acceptable to profit from the misery of others? Is it OK if we “fancy a flutter” with someone else’s well-being, as the Economist asked in an article about the first Social Impact Bond, designed to reduce reoffending rates among former prisoners in Peterborough?

Even if one accepts that SIBs and other forms of marketised social investment are the best that can be done in a difficult world, there are other important issues to address.

The risks of marketization
First, could this kind of marketisation exclude some deserving recipients? Take, for example, help for potential paedophiles. It might not be easy for this group to gain access to resources, using these kinds of mechanism. Which social investor would be prepared risk their brand reputation through such an association?

Another important issue is whether marketising social interventions might affect staff motivation. Describing activities in terms of profit-making can undermine the reasons why people want to provide a service. For example, Richard Titmuss’ classic 1970 study compared voluntary blood donation in the UK with the system in the US that offered donors money in exchange for blood. It concluded that paying for blood reduced not only the quality but the supply of blood because some donors’ motivation was potentially damaged by marketisation.

And lastly, we should also consider possible ill-effects on recipients. How does it feel when a recipient’s problems are generating profits for someone else? How does it feel to be a profit-centre? In short, we should recognise that marketisation can create many potential issues affecting relationships for volunteers, staff and those who receive a social intervention or service.

There are also risks that market systems which replace public values can lead to behaviours that actually worsen social problems. Take, for example, private prisons in the US: providers have spent millions of dollars lobbying for increased rates of incarceration and extending custodial sentences.

Ways to tackle the risks
Where do all these risks leave the question of marketisation, particularly if it looks to be the only way to attract resources? We shouldn’t bury our heads in the sand and conclude that there is nothing that we can do. If some degree of marketisation is inevitable, we should address potential issues.

It may, for example, be better to view markets as complementing rather than supplanting non-profit social services. One can use them around the edges of traditional provision, maintaining an awareness of the social and political implications implicit in these market processes and controlling their worst excesses. This approach would militate against SIBs, and similar approaches, becoming more than an adjunct to more mainstream delivery systems.

One possibility is using experts to constrain profit-based decision making, thus placing moral limits on the market: in other words, regulation of approaches such as Social Impact Bonds. It’s also important to improve the accountability of providers as much as possible, particularly to those receiving services: regulation can reduce power differentials between providers and recipients. There should also be transparency about levels of profit and the structure of deals. Broader social impacts should be measured and monitored.

With these safeguards, the marketisation of social services may be justified even though problems remain, as demonstrated by the behaviour of the US providers of private prisons. Such experience ought to make us reflect about the kind of world in which we wish to live, before we rush into wholesale marketisation. We must not ignore the moral and political implications of actions that might previously have made us feel highly uncomfortable.

Dr Julia Morley is a lecturer in the Department of Accounting at the London School of Economics and Political Science.