The federal government is stepping gingerly into the emerging world of social finance through training programs tied to specific targets and cost-sharing from the private sector. The initial experiment is sensibly modest, involving two literacy and skills-training projects at a cost of less than $6-million.
Results-oriented social investing has taken root in Britain, where the government has taken initiatives to make it more attractive for private money to help tackle such thorny issues as youth unemployment, substance abuse and homelessness. The British government, for example, has proposed tax breaks for investments earmarked for “social impact” projects that once would have depended on the public purse or charities for most, if not all, of their funding.
Prime Minister David Cameron has carried the banner to the rest of the G8 countries, calling for the creation of social investing banks and bonds. One crucial benefit of the model is that government only pays out if the projects financed in this way reach certain benchmarks.
Jason Kenney, the Minister of Employment and Social Development, is rightly starting with smaller ambitions, but is poised to do more if the initial pay-for-performance trials succeed. Both seem promising. One, run by the Alberta Workforce Essential Skills Society, would help hotels, grocery stores and other enterprises cover the cost of upgrading employees’ literacy and math skills. The details are yet to be worked out, but the proposal makes a lot of sense. If employees achieve certain test scores, the government would cover 35 per cent of the training costs. Then, if the workers can show they have retained their knowledge when examined a year later, Ottawa would kick in more money to cover half the total price tag.
The second program, run by the Association of Canadian Community Colleges, is aimed at drawing money from private investors to finance training for unemployed Canadians. Investors might get a return on their capital, if the trainees meet specific test scores.
Some critics worry that governments are simply looking for new ways to cut social spending. But by now it should be painfully obvious that the old government-does-all methods are not effective. It’s high time to try another path.