Social investment emerged as a way to reconcile the design of social policy with the improvement of economic competitiveness in Europe. This approach has recognised that, in a fast changing society, in order to create the prerequisites for human flourishing, there are new social risks that need to be addressed. Welfare provision needs to ‘prepare’ individuals to overcome new  risks rather than simply ‘repair’ damages.

 

 

Since the ’80s, the labour market has increasingly become more volatile. The end of the male-breadwinner approach (i.e. employment-based social insurance) have comported significant changes over the life-course of individuals. Workers are now expected to transit between different jobs, and sectors. The need to increase the capacity of firms to quickly adjust to mutating economic needs has created strong incentives to use part-time work, temporary work, self-employment, gig’s jobs, and other types of employment arrangements that can be collectively called non-standard forms of employment.

 

Social investment explains the effect caused by particular combinations of social policy intervention for economic wellbeing.  In other words, social investment is a way to create a specific blend of wage policy, social insurance and assistance, employment policy, labour market regulation, pensions, education and family policy in order to foster policy innovation aimed at creating socially more inclusive growth.

 

The social investment approach received considerable attention in 2013, when the European Commission launched the Social Investment Package (EC, 2013) . The intent was to create a new framework to organise European welfare state in contrast with the neoliberal policy paradigm.

 

Five reasons make social investment worth discussing:

 

• Social investment is a dynamic policy framework which evolves with the changing nature of social risks. The increasing lack of jobs in today’s labour market cannot only be addressed though social insurance measures (passive policy approach) but needs to include new mechanisms to deliver quality active labour market policy which are both sustainable and effective.
• It affirms that the right combination of social policy can enhance aggregate productivity by reducing inequalities and fostering social mobility.
• It focuses on a life course perspective. This means addressing both intra and inter-generational inequalities as well as recognising the damages caused by segmented labour markets.
• It conceptualises the participation of women into the labour market as fundamental to sustain the welfare state in ageing society. For this reason, family policy and work-life balance measures become crucial to sustain high level of employment.
• It favours a holistic approach in designing policy intervention aiming at preventing the social risks faced by individuals. In doing this, it recognises the existence of spillovers effect across interdependent areas of social policy regulation.

 

Future steps: innovative policy approach to deliver social investment.

Many issues have undermined the successful implementation of social investment. Some of them are related to the institutional system in which this ‘policy instrument’ has been adopted. Not all European Member States have the same approach in scaling-up social programme and the historical and political context does play a role in the success of any policy approach.

In addition, the tightening of the public purse has imposed a dare ‘reality check’ exercise when designing and launching social policy. As a consequence, the holistic nature of social innovation measures has been often neglected. This has caused the emergence of sclerotic institutional settings where governments have launched social programmes without fully consider the spillovers effects of each policy.

 

For this reason, recent attempts to addressing social risks have integrated the notation of social investment with the one on social innovation and innovative social finance.

 

Social innovation interprets in new ways the idea of societal goods and involves a new range of stakeholders (both public and private). The unprecedentedly large-scale human cooperation which has been enabled by information and communication technology (ICT) networks has offered a whole new variety of grassroots bottom-up solutions to resolve social problems.

 

Social investment can lead to institutional changes when interpreted through the lenses of social innovation because it leads to the development of new social investment ecosystem. A social investment ecosystem brings together social finance and social enterprises as well as public authorities who are interested in revolutionising their social investment strategy. Social innovation creates opportunities to boost entrepreneurship, generate new markets and create new jobs while focusing on addressing the most pressing social needs.

 

Social enterprises are at the core of this transformation. The primary objective of social enterprises is the achievement of measurable, positive social impacts, rather than generating profit for their owners. Social enterprises become instrumental for the provision of social services. These services generate a social return and employ production methods which privilege social finance tools.

 

One concrete application of this new way of interpreting social innovation is, for instance, the financing of social impact bonds (SIBs) to implement innovative inclusion schemes aimed at getting disadvantaged and underrepresented groups from benefits into work, education or creating their own businesses.

 

Social Impact Bonds are based on the “pay for success” model. Success can be defined as realized savings or achieving a political goal. The criteria necessary for defining success can be described in absolute figures or in terms of relative, percentage-based improvement (for example as compared to a control group). It is crucial that the public sector is solely responsible for defining the content and financial framework of a Social Impact Bond as well as the key success criteria. This not only allows the public sector to retain control over its sovereign tasks, but also bolsters these tasks through clearly formulated objectives.

 

Independent financiers assume responsibility for funding the Social Impact Bond as well as the default risk. If the predefined objectives are achieved, the funding plus a small amount of interest (e.g., to compensate for inflation) is repaid so that this money can be made available for other projects – unlike a donation, which would otherwise be “lost.” Choosing these financiers from charitable organizations such as foundations and other non-profit organizations brings about the much called for collaboration between civil society and the public sector. Rather than appropriating additional funds for the social sector, the cycle of upfront financing and reimbursement allows for existing funds to be used more effectively and efficiently.

 

In Europe, The Netherlands is a good example of a social system that after going through a certain pressure over the organisation of social policy schemes is looking with great interest to the development of social impact bonds. One sector in which social enterprises are starting investing in the Netherlands is education. Between 2014 and 2016, the social enterprise sector grew 24%, and, according to the Social Enterprise Monitor 2016 results, social enterprises in the Netherlands are highly innovative with 54% of the surveyed enterprises reporting the introduction of new services or products to the market.

 

The Netherlands’ first Social Impact Bond was created in Rotterdam in December 2013, supported by the Start Foundation and ABN AMRO joined forces, investing €680,000 each. This organisation aims to help young people in Rotterdam who are on state benefit to find a job, enrol in training or start their own business. Participants work through an intensive process attending group training sessions and workshops, and doing work placement. They can also take advantage of an extensive network and receive personal coaching from professionals in the field of work they are interested in. Plus they’re given additional guidance for a full year after their time at the Buzinezzclub. This approach allows participants to get off benefits faster than the average person. The government pays investors from the money saved as a result of the programme, and does not provide upfront payments or guarantees.

 

Another example is represented by the city of Utrecht where there is a sizable number of people between 17-35 years without proper education or job qualification, and as a result, with poor prospects of obtaining and maintaining employment. To enhance the position of this group, social entrepreneur The Colour Kitchen has developed a combined school and work-based programme, offering these people an education as well as relevant work experience in the catering industry.

 

The city of Utrecht, Rabobank Foundation and venture philanthropy fund Start Foundation have combined their efforts to realise an innovative financial construct, a Social Impact Bond, which will be the vehicle for the social activities of The Colour Kitchen. This pay-for-success contract enables The Colour Kitchen to increase the scale of their combined school and work-based programme for disadvantaged people, whilst simultaneously realising substantial reduction of social costs (such as unemployment benefits, welfare etc). In the case of a positive financial social intervention, resulting in actual cost reduction on the part of the local government, the city of Utrecht will repay the Rabobank Foundation and the Start Foundation their initial investment plus return. As a rule, the total sum of the investment plus the profit is always lower than the costs of the social benefits the city would otherwise have remitted. The total duration of this programme is 4 years.

 

The key characteristics of this social impact bonds are listed below.  

• The municipality commits to identify a minimum of 252 participants, all of which are between 17-32 years old, between 6-24 months on social benefits and hold no basic qualification.
• The entrepreneur commits to 1) improve the participants labour market position by helping them to acquire an intermediate VET diploma (MBO level 2)
• Government pays back investment interest between 2-6 per cent if 1) 70 per cent of participants complete MBO level 2 diploma, at least 50 per cent of participants are in employment for at least 6 months after the end of the programme, for at least 24 hours a week, and at least 26 per cent of participants continue and maintain employment through employment contracts beyond the 6 months after their participation in the programme
• Overall private investment EUR 734,000
• The City of Ultrecht cost if it were to implement the programme would have been around EUR 800,000. Even accounting for the repayment of the private initial investment and the additional interest (2-6%) the cost saving for the city is substantial.

 

These examples provide a glimpse into the potential that social impact investment could have for European countries. SIBs are often seen as a complicated financial product and not all European Governments have developed enough in-house capability for their implementation. Working to reinforce capacity building in the design and development of social impact investment instruments within EU MSs is one the European Commission priorities.

 

The excitement around the possibility that the lessons being learned from SIBs projects will spill over into how other government-funded social service programmes are managed – even those that don’t pay based upon outcomes is one of the main reasons to keep working on social impact policies. In particular, SIBs are teaching governments to actively manage their social-service contracts by meeting regularly with service providers to review data on programme operations, and jointly determine how to improve the results being achieved for vulnerable populations.

 

Governments should view pay-for-success as a leadership tool that allows them to sustain intensive work with service providers to improve systems for serving vulnerable populations. All of the financing and contracting is simply one of the means to achieve the final aim which is re-engineering the way social investment is organised.

In choosing among the many possible policy areas to which pay-for-success can be applied, governments will have the greatest impact if they select an issue area where the potential benefits from outcomes-focused systems re-engineering are large.