Pay for Success: Assessing the Landscape of an Innovative Funding Mechanism for Social Services

Background and Purpose

Pay for Success (PFS) - sometimes called Social Impact Bonds - is a fast-moving, global policy innovation with the potential to transform the nature of contemporary social services. In short, PFS leverages private capital to fund services with the explicit goal of achieving long-term, measurable outcomes tied to government cost savings. If certain outcomes are met, these cost savings are used to repay investors plus interest and bonus; if outcomes aren’t met, investors receive no repayment. Although originating in the UK, PFS officially emerged in the U.S. with the Serve America Act of 2009. Since then, PFS has enjoyed widespread, bi-partisan enthusiasm and interest on federal, state and local levels. To date, over twelve PFS programs have launched with dozens more currently in development; social issues targeted through PFS range from recidivism to homelessness to green infrastructure development, among others.

Despite its expanding intrigue among governmental, private and nonprofit sectors, PFS has received practically zero attention in social work literature. This paper begins to address that gap by offering a theoretically and empirically informed introduction of PFS to the social work field. Two questions guided the research: How can PFS be contextualized within broader political-economic relations and what impacts does PFS have on social service organizations?

Methods

I utilized an extended case method (Burawoy, 1998); this approach is ethnographically oriented and situated within the critical theory tradition. The “case” at hand is PFS in the U.S. with a specific focus on the state of Oregon.

Multiple forms of data collection occurred: participant observation of PFS-related events; in-depth interviews with key stakeholders from governmental and non-profit sectors; and collection of relevant documents including federal and state legislation, evaluations of completed or in-progress PFS projects, and reports from third parties including consulting firms, financial institutions and think tanks. Thematic and qualitative content analysis strategies were utilized.

Findings

PFS can be understood as the latest iteration of the neoliberalization and financialization of the welfare state. A convergence of factors makes PFS part of this lineage: it mobilizes private sector resources for public good in an era otherwise averse to public expenditure; it creates new markets for private capital accumulation; and its focus on outcomes supports a “what works”/evidence-based mentality in public policy and service provision at the expense of normative considerations. Service providers acutely feel these same dynamics, leading to conflicted feelings about PFS; they too want their services to “work” in the long run but worry about perverse incentives and the narrowing scope of what is considered success.   

Conclusion and Implications

The PFS movement is in its relative infancy. Its defining characteristics map on to broader transformations of welfare governance including a focus on evidence, outcomes, taxpayer accountability and the expanding role and legitimation of the private sector. Service organizations and the field of social work should closely monitor this unfolding movement with a critical eye: aware of possible alignments with socially just ends for individual service users but cautious of broader implications for democratic governance in American society.