Dollars and Sense

The rhetoric is flying fast with the unveiling of President Obama’s 2012 budget, as Republicans and Democrats accuse each other of fiscal irresponsibility. In fact, if we had a nickel for every partisan recrimination, we might be able to close the deficit.

Yet of all the budget proposals we’ve heard being discussed, the most intriguing may be an effort to test so-called social impact bonds. Under this arrangement, for which the White House is seeking $100 million, investors would put up money to run privately managed social programs. If the programs achieve the desired results—like, say, keeping people drug-free—the government pays the investors back, along with interest. But if the programs fail to meet specified performance goals, taxpayers don’t owe a thing.

[EXPAND More]The concept, which is already being experimented with in Britain and is under consideration in New York and Massachusetts, has drawn praise as well as some concern.

Peter Drucker, we believe, would have been a big fan. For one thing, social impact bonds allow government officials “to make fundamental decisions,” “focus the political energies of society,” and “present fundamental choices”—to use Drucker’s words—but they don’t require them to actually do too much.

“The purpose of government . . . is to govern,” Drucker wrote in The Age of Discontinuity. “This, as we have learned in other institutions, is incompatible with ‘doing.’ Any attempt to combine government with ‘doing’ on a large scale paralyzes the decision-making capacity. Any attempt to have decision-making organs actually ‘do’, also means very poor ‘doing.’ They are not focused on ‘doing.’ They are not equipped for it.”

Second, the fact that the programs being funded through social impact bonds would have strict performance targets would also please Drucker.

Any meaningful overhaul of the federal system, Drucker wrote in an Atlantic Monthly article titled “Really Reinventing Government,” would have to include “continuous improvement and benchmarking . . . largely unknown in the civilian agencies of the U.S. government.” This, he went on to say, “would require radical changes in policies and practices.. . . They would require every agency—and every bureau within it—to define its performance objective, its quality objective, and its cost objective.”

Finally, social impact bonds offer this implicit promise: Those programs that don’t meet their objectives would be ended for lack of funding. This, too, would delight Drucker. For one of the biggest problems with most government initiatives, he declared, is that “they are perennial and can never be abandoned.”

What do you think: Can social impact bonds really help to reinvent government?[/EXPAND]


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