The Payoffs of Pay for Success

65 % of Americans are dissatisfied with the federal government.

When I read this on a Gallup poll, it did not surprise me. President-Elect Trump is proof of this statistic. We know that people are angry and that they do not believe their taxes are being put to good use. While I personally believe in the government’s ability to solve national problems, I understand the frustrations of those 65 % — many government-funded social programs have indeed failed us. This is largely because the federal government implements expensive programs without having had the opportunity to test out whether their proposed project will in fact work. Unlike the private industry, government cannot operate in beta. Implementing projects with such high levels of uncertainty leaves the taxpayer, social program beneficiary, and politician unsatisfied — this is a lose-lose situation.

To address this uncertainty, a new approach to social entrepreneurship is slowly seeping into mainstream government work: Social Impact Bond Initiatives or, put more simply, Pay for Success programs. Pay for Success is a groundbreaking contracting model that drives government resources toward high-performing social programs.

How Pay for Success Works:

Government
GlassFINAL
GOVERNMENT identifies a critical social issue with historically poor outcomes such as recidivism, chronic homelessness, or early childhood education.
 Private Funders
HandFINAL

PRIVATE FUNDERS such as foundations, banks, and businesses, provide upfront capital to a high-performing social service provider that is helping a specific at-risk target population.

Service ProvidersGearsFINAL

SERVICE PROVIDERS deliver services to key at-risk communities, in an effort to reach or exceed predetermined outcomes for success.

Evaluators

TargetFINAL
EVALUATORS rigorously measure outcomes to ensure providers achieve impact.
Government
TargetFINALL
GOVERNMENT repays private funder’s initial investments only if project is successful in achieving positive outcomes.
  • Pay for Success bonds engage the philanthropic and private sector investors to deliver better outcomes
  • Pay for Success bonds can help achieve better outcomes in many program areas.
  • Pay for Success bonds minimize risk to the government.
  • Special funding provisions will allow existing programs to support Pay for Success bonds
Pay for Success drastically lowers the risk governments have to assume by transferring that risk on to private companies. The model furthermore utilizes an incentive system to encourage companies to create solutions that work. Only about a dozen Pay for Success projects are currently live. We need to wait and analyze the results before expanding the model to all industries. However, the projects that have completed show a lot promise. Pay for Success might be the next major breakthrough for which public policy experts and social entrepreneurs have been waiting.

“From a business venture perspective, if we look at the future of our business, with the millennials coming up as clients, we do not want to be our father’s Oldsmobile.”Surya Kolluri

Advertisements

One thought on “The Payoffs of Pay for Success

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s