The Appeal and Limitations of Social Impact Bonds

Source: Sanford Schram, Scholars Strategy Network, SSN Basic Facts, April 2014

Social impact bonds are a new way of financing social welfare programs – by attracting private sector investors with promises to repay them with interest if the programs they invest in meet specified benchmarks of success. Invented in 1988 by an economist from New Zealand, these bonds have recently begun to spread from one country to the next – first used in England, then in the United States, and now in Canada, Australia and beyond. They are the latest example of what some call the “neoliberalization of the welfare state,” where government functions are modified to imitate market logics. The idea of social impact bonds appeals to many important actors, public officials and the socially influential alike, but early research findings and past experience with similar approaches suggest possible limitations and downsides….