/ Juvat / by Stefan Shaw

We’re probably doing too well

With the wide-scale launch of Social Impact Bonds, particularly in England and the United States, as well as pilot projects in many other countries, including Germany, a new model is available for financing social projects. At first glance, the new model seems incredibly attractive. A closer look shows that it actually is.

The current practice of funding projects in Germany can be summed up as follows: The public sector finances a previously approved measure if it is properly implemented. The funding logic behind a Social Impact Bond is different. In this case, the public sector only pays for (rather than finances) a measure once the measure has been proven to be successful. A non-profit financier is responsible for providing the upfront financing for the measure. If the measure is a success, the financier is reimbursed, meaning that the funding is not a lost donation, as is usually the case with non-profit funding. Everyone benefits: The non-profit financier can support multiple projects, and public sector only pays if the measure is a success. As a result, the public sector can use its funds more effectively than ever before.

Since the very nature of Social Impact Bonds guarantees that funds are used effectively, municipalities and states are lining up to introduce them in areas that have already been tested internationally. Or at least that’s what you might think. Unfortunately, that isn’t the case. While there have been a few isolated expressions of interests, if the prospect were to turn around, they would find themselves alone. No one is lining up.

This might seem surprising at first. Yet upon closer look, it actually isn’t. After all, the introduction of the Social Impact Bond concept in Germany coincides with an unusually rosy budget situation in the public sector. The budget is balanced at the federal level. Even at the state and municipal level, the situation is much more relaxed than just a few years ago. And while common sense tells us that during times of economic growth we should be preparing for an inevitable economic downturn, experience has shown that we need acute crises before administrative bureaucracies are willing to try new solutions. To take one example, just look back at the emergence of Public Private Partnerships, which were a new concept at the time. They too started due to an acute crisis plaguing public budgets. Unfortunately, this isn’t a good starting point since the leeway for successful negotiations is very limited when you are caught between a rock and a hard place.

So what does this mean for introducing Social Impact Bonds in Germany? They will most likely still take a while to catch on since we are probably just doing too well. By “we” we mean public budgets. However, “we” does not include those people with social problems who continue to encounter service providers and measures whose right to exist is solely derived from proper implementation rather than whether they actually make an impact. The people facing social problems will probably just need to be patient until all of us are as bad off as they are today.