It’s pretty easy to make businesses accountable to their customers. If they
don’t provide the best value for their customers’ money, the customers will turn
elsewhere. But when it comes to helping people outside market channels – for
example, aiding needy individuals – accountability is hard to
A government agency is accountable to the voters, which is
very helpful, but perhaps few voters are among the clients of the agency. A
nonprofit organization is accountable to donors, but they may not know if the
organization is doing a good job helping its intended clients.
innovation in this field is the Pay on Performance Bond, or POP bond. One
example is the UK group Social Finance. Like many nonprofits, this group found
many wealthy individuals who are interested in helping the disadvantaged: in
this case, recently released prisoners who need support to avoid returning to
crime. Money was donated for various programs for these ex-cons.
there is also a monetary upside. If the outcomes attain a defined benchmark, the
government will repay the investors.
In particular, Social Finance raised
£5 million to work with 3000 released prisoners from the Peterborough prison. If
the reconviction rate of these ex-cons is at least 7.5 percent less than that of
a representative control group, the donors/investors receive a return, which
grows with the extent of the recidivism decline.
This kind of deal is
obviously a good deal for the government. If the program doesn’t work, it pays
nothing; if it does work, £5m. is a small sum for keeping hundreds of ex-cons
from a life of crime and out of the expense of prison and the criminal justice
It is also a good deal for donors; they are providing a valuable
service to needy individuals and may end up with a monetary return to
The United States is also starting a similar pilot program, called
“pay for success.” The Nonprofit Finance Fund refers to this program as “a
promising indication of the federal government’s dedication to outcomes-based
financing models for social services.” Obviously such programs are not without
risks. Various “privatization” schemes in Israel have run into significant voter
opposition and occasionally even legal obstacles. In the past I have criticized
the way employment services in Israel have been privatized. There is a limit to
how far the government can outsource its liability.
That being said,
governments already outsource much social service; for example, in the US some
social work is provided through private groups such as Jewish or Catholic social
Ultimately, virtually all nonprofit activity is subsidized
through the tax deduction for nonprofits. The Pay on Performance model is just a
new reimbursement model. The programs remain accountable to the voters who can
reject government reimbursement of private programs just as they can reject
unpopular government programs.
I think the model is best viewed not as a
way of privatization or marketization of government services but rather of
increasing the degree of accountability for nonprofits.
Finance group refers to the donors as “socially motivated investors.” It is not
a profit model but rather a nonprofit model that increases the focus of
nonprofits and the degree to which donors will demand
Asher Meir is research director at the
Business Ethics Center of Jerusalem, an independent institute in the Jerusalem
College of Technology (Machon Lev).