Come Back, Polly!

This blog originally appeared

There appeared to be a cross-party consensus about the potential value of Social Impact Bonds, what with Jack Straw pushing them through and Ken Clarke signing them off.

Now, the world’s first Social Impact Bond is being implemented in HMP Peterborough, and anyone who has seen ‘under the bonnet’ will testify to the uniqueness of the approach that is being undertaken by the ‘bankers’ who promise ‘fool’s gold’ by investing in what is described as ‘sub-prime behaviour bonds’ (see

The prospectus for the Social Impact Bond at HMP Peterborough is quite clear about its purpose, and about the terms under which investors are risking their capital.

The investors are not seeking primarily a financial return, but are motivated to see the sorts of social returns about which Polly Toynbee unquestionably cares so deeply. Most investors in this bond have a long track record in putting their money where their mouth is to achieve positive social change – in our case, an investor in the first Social Impact Bond and charitable foundation with a track record of giving money to address social problems dating from 1907.

It is odd, in this context, to see a respected and sincere commentator taking such a hostile position.

Clearly there are difficulties associated with this new approach. As recent experience in the microfinance industry has shown, social finance products need a socially motivated investor base if they are to retain their social mission. Once a purely financial investor adopts the product idea, much of its unique power can be lost. More challengingly, Toynbee rightly points out the difficulties associated with attributing cause to effect in preventative investment – where there are so many potential variables involved, and where the lag between intervention and outcome can be so long. Positive scepticism on these points is not just valid, but welcome and essential.

Yet Toynbee does not, in her critique, appear to appreciate the core point of the Social Impact Bond – that it is a completely new kind of accountability for social intervention. In recent history, government agencies have been made accountable for delivering social change.

Yet they are necessarily massive and bureaucratic, and experience has shown that they cannot easily innovate and adapt. The distance between taxpayer and agency is just too great, the agency issues just too intractable. Politicians do their best, but they are condemned to fight a losing battle. With or without obstructive Sir Humphreys, the civil service machine is too large a beast to change in anything but the extreme long term, which election cycles do not permit.

Where the troubled individual needs help as an individual, the state is often only able to offer a monolithic, one-size-fits-all, inflexible response from a machine where even the (often highly talented) civil servants can feel alienated, disempowered and taken-for-granted.

By contrast, the Social Impact Bond paradigm makes investors responsible for outcomes. Investors, acting through their hired managers who then subcontract to those best placed to deliver the right outcomes, will be rigorous in ensuring that the desired outcomes are achieved on a case-by-case basis. Their financial, and social, interests depend on it.

The investment paradigm is a proven model … after all, financial investors have been hugely effective in ensuring that their desired outcome, profit, is achieved. ‘The City’ is not necessarily full of morally bankrupt people – and it may be full of talented people who are highly successful at achieving the goals that they are set – maximising financial profit for their investors.

Tweaking the investor goals, by replacing financial return with social-return-with-a-financial-angle, re-orientates these talented people to apply their skills to different (better) ends.

This is the purpose of the Social Impact Bond.

Until this point is understood – which involves the abandonment of any doctrinaire rejection of financial professionals (or ‘bankers’) on principle, and which would benefit from a deeper engagement with the inner workings of the Social Impact Bond – then the Social Impact Bond and other Social Investment product will never make sense.

The certainties of the pre-crunch world are no more. It is self-evident that the state cannot solve all social problems. Conversely, there is a growing consensus amongst financial professionals that capital markets, when left to their own devices, can be parasitic. No-one wants to rely on regulation, and we all recognise that, as Adam Smith noted, legitimacy is lost when financial markets fail to serve the broader interests of communities.

So there is an emerging consensus that we need another paradigm.
Social Impact Bonds, for all the questions surrounding them, offer a new tool with the potential to redefine the way in which welfare is delivered, and fundamentally alter the role of the state. Rather than ‘provider of services’, the state becomes a ‘procurer of outcomes’.

With Social Impact Bonds and other social investment product promising so much, and at a time where the old ways are discredited, any whiff of dogma is unhelpful – whether it be from the pro-social-investment lobby, who are developing a worrying penchant for messianic pronouncements … or from the state-is-best lobby, who have developed an (indulged until now) track record of holding all financial professionals in their scathing judgement.

The condemnation of rapacious bankers that lies at the heart of Toynbee’s critique of the Social Impact Bond is inappropriate for a bond put together by ex-bankers who have taken a significant personal financial sacrifice in order to work at developing new ways to deliver social change through innovative social investment product. Accusations of profiteering are wide of the mark when the investors are largely charitable foundations – and where a cap has been agreed on returns, precisely to defend against accusations of profiteering from the state.

Yet despite all of this, Toynbee’s concerns have validity. Her fears are certainly dangers for the SIB movement, in the same way that growing commercialisation has caused questions to be raised about the social validity of the Microfinance movement. This is precisely the reason why we need the constructive engagement of such respected social-hearted commentators.

Come back, Polly, we need you. We need you, and those who share your heart for the marginalised and vulnerable of our society, to be critical friends of the Social Investment movement. It is your voice that will help the social investors to ensure that Social Impact Bonds (and other Social Investment products) keep their heart – as well as their head.

 By James Perry of Panahpur

This blog originally appeared

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One Response to Come Back, Polly!

  1. Suitpossum says:

    I saw Polly’s article when it came out and was pretty disturbed by her total lack of nuance and counterproductive cheap shots. Not only has she misrepresented the people involved, but her attempt to associate SIBs with the financial crisis suggests she really doesn’t understand the structure of the instruments either. It’s an attack on people who could be her allies, and that’s a dubious approach if ever there was one.

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