Politics & Policy

Needed: A Safety Net That Works

For the sake of the economy, the taxpayers, and the welfare recipients, we need reform.

Last month, the unemployment rate dropped to a seven-year low, but the labor-force-participation rate dropped to a 37-year low: a paltry 62.8 percent. It’s extremely hard for the economy to grow when the workforce is shrinking. And if we need more workers, I know just where to look: the millions of people who are still seeking jobs. We may not realize it, but a crucial step in building a healthy economy is helping people move from welfare to work.

That’s the way the safety net is supposed to work, but today it’s pretty ineffective — because nobody bothers to check up on it. Since the 1990s, only ten of our existing programs have undergone a rigorous, third-party evaluation. Nine of the ten were shown to have little or none of the desired effect. These programs too often fail beneficiaries and taxpayers alike — and by extension, the economy, which needs more robust participation.

The evidence tells us that a policy reset is long overdue. Safety-net programs must make efficient use of taxpayer resources and harness the capabilities of recipients by helping them move back into the workforce. That’s why, along with Congressman John Delaney (D., Md.), I’ve introduced legislation called the Social Impact Partnership Act, which would begin to transform the safety net along these lines. Social-impact partnerships — also known as social-impact bonds — are a financing mechanism that brings the idea of pay-for-performance to the social sphere.

Pioneered in the United Kingdom about five years ago, SIPs expand proven social interventions with private-sector and philanthropic funds. If an independent evaluation confirms that a program achieves its stated policy goals, the government will pay back the investors with a modest return out of realized taxpayer savings. But if the program fails, not one dime of taxpayer funds will go to the investors.

It bears mentioning that the sorts of interventions I’m talking about here aren’t currently being run by the government. Rather, they are the products of our robust civil society — that vast network of philanthropic foundations, non-profit organizations, faith-based groups, and other such entities. American civil society is so rich with solutions, in fact, that most of the United Kingdom’s current social-impact programs are modeled on non-governmental interventions from the United States.

Here’s how it would work in practice: An agency of government (federal, state, or local) would first identify a specific problem and define what a successful outcome might look like. For example, if the problem is long-term unemployment, a successful outcome might be putting 15 percent of the long-term unemployed back to work within two years. Once we identify the current cost to the taxpayers of serving that target population through government programs, we can then determine the potential savings if the desired outcome is achieved.

It’s worth noting here the paradigm shift that would result from such an exercise. Typically, discussions of the safety net boil down to one side wanting to spend more in the name of compassion, and the other side wanting to spend less in the name of fiscal restraint. In both cases, money serves as a proxy for moral responsibility. But in the SIP model, we change the focus from inputs to outcomes. In doing so, we can both better serve recipients and better spend taxpayer funds; both sides win.

Once we’ve clearly stated the problem, defined success, and calculated potential savings, it’s just a matter of finding an existing intervention already working at the state or local level that could be scaled up to achieve the desired outcome for a cost sufficiently less than the anticipated savings. Given the previously mentioned strength of our civil society, finding such programs shouldn’t be hard.

Once a program has been identified to address the problem, private-sector and philanthropic investors would finance the costs of implementation. At the end of the established time frame, an independent evaluator would determine whether or not the desired results were achieved. If they were — that is, if recipients’ lives are improved and taxpayer savings are realized — then the federal government pays the investors. If they were not, then we’ve begun to establish an evidence base for future programs, and hardworking taxpayers are off the hook for the cost of the experiment.

Five years in, the United Kingdom’s safety-net reforms are paying huge dividends for the economy. While our labor-force-participation rate is dropping, theirs continues to rise and currently stands at above 73 percent.

Social-impact partnerships address our moral responsibilities to ensure that social programs actually improve recipients’ lives, and to do so in a fiscally prudent manner. But they also respond to the imperative of improving our economic health by harnessing the capabilities of every able-bodied citizen. Our safety net must reflect our country’s belief that — without exception — Americans are not liabilities to be written off, but assets to be realized.


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