Cost Savings

Part 5 of a series based on a paper I co-authored with Christine Cooper and Darlene Himick.

So far in this series, we’ve learned about:

  • biopolitics, the approach to governing populations that insists people are individual little enterprises responsible for their own economic outcomes, and sees the poor as failed entrepreneurs,
  • social impact bonds (SIBs), a mechanism for funding social programs by attracting investment from rich people,
  • the St Mungo’s SIB, created to fund a London homelessness program that treats social workers as individual little enterprises,
  • the social impact measurements on which the social workers would be evaluated, including their success in getting homeless people who weren’t born in the UK to go back to the country they came from, and
  • the generic value-for-money calculation used to create the impression that all SIBs will save money compared to “status quo” government funding arrangements.

Now we are going to look at the specific cost savings calculation used to justify the St Mungo’s SIB.

Counting the Cost

Research suggests that the annual cost to the UK government of an individual homeless person is between £24,000 and £30,000. That's about £1 billion per year in total. This includes food, shelter, medical costs, and -- because poverty has always been considered a crime by the ruling classes -- policing. These are the costs that the St Mungo’s SIB experiment hoped to reduce.

The initial business case for the SIB was based on the 653 “Inbetweeners” – people whose repeated homelessness was not yet considered chronic -- who were in London’s CHAIN database at the time. The business case used the cost measurements shown in column 3 of the following table:

Costs per individual cohort member across proposed outcome areas Sources: Department for Communities and Local Government (2014) and Social Finance (2012, p. 30)

Costs per individual cohort member across proposed outcome areas
Sources: Department for Communities and Local Government (2014) and Social Finance (2012, p. 30)


To put this table together, we combined information from the original business case, written by Social Finance in 2012, and the first interim evaluation report for the program, written in 2014 by the government organization that funded the program.

The table shows that the business case was based on reducing or eliminating existing costs for individuals, including temporary accommodation, reconviction for crimes, and visits to the emergency (A&E) ward. As is consistent with a biopolitical approach to governing populations, the structural reasons behind these costs -- why the homeless don’t have a family doctor, or why housing is too expensive for many people, or why people with mental health issues are not supported properly -- remain unaddressed.

The technologies and assumptions underlying the calculations are interesting. The SIB's cost estimates use the “average net present value” calculation that has featured in all privatizations of government programs. This calculative technology has been shown to be deeply flawed. A highly readable paper by my co-author, Christine Cooper, listed below, shows that average NPV relies on questionable assumptions about discount rates and alternative uses of the funds. It uses costs that either have never been audited or have been audited by accounting firms with a vested interest in the results.



The table also shows alternative cost measures that were not used in the calculation. They are listed in column 4. They include the cost of traditional programs that address social problems, such as unemployment and housing benefits, probation and imprisonment, and substance addiction programs.

This list is informative because it shows how the poor are understood to be deviants who need to be brought back in line with prescribed norms of socially acceptable behaviour: a good person is law-abiding, employed, housed, and temperate. The moral dimension of poverty is implicit here.

Reductionism and Pseudo-objectivity

These cost estimates were critical to the development of the SIB. The totals at the bottom of the table helped focus the argument. The ability to reduce the uncertainty of an entire cohort of individuals to a single average net present value was one of the SIB’s necessary conditions.

Both the state and the investors demanded this kind of calculation, in order to assess the risk of the predicted results not materializing. NPV analysis allows decision makers to play with various assumptions, such as the discount rate used in the NPV calculation, to see the effect on the projected savings. NPV analysis also involves setting ranges of uncertainty around key numbers, separating out the fixed and variable costs, and preforming other accounting and finance calculations until the consequences of the decision are understood.

These calculative techniques give the whole exercise the appearance of objectivity and rationality, even though they embody many hidden assumptions about how the world works and what the priorities of government should be.

In addition to being questionable from a technical point of view, the value-for-money calculation and its underlying performance metrics also served to dehumanize the approval process for the SIB. Calculative techniques remove the homeless person from the decision and replace him or her with a cost. In this way, the reconfiguration of the field of homelessness, and the reconstitution of its workers and of the homeless themselves as entrepreneurs, is accomplished by means of seemingly innocent accounting routines.

Up Next

This reconfiguration will be seen more clearly in the next article. We’ll look at the flows of money that the SIB's accounting routines would have to track. We’ll also examine how St Mungo’s reconfigured itself as an organization to accommodate the new funding arrangements.


Photos taken in Calgary in 2001.

 

References

Cooper, C., & Taylor, P. (2005). Independently verified reductionism: Prison privatization in Scotland. Human Relations, 58(4), 497-522.

Department for Communities and Local Government. (2014). Qualitative Evaluation of the LondonHomelessness Social Impact Bond: First Interim Report September 2014.   Retrieved January 14, 2015, from https://www.gov.uk/government

Social Finance. (2012). A Social Impact Bond for Entrenched Rough Sleepers: Outline Business Case. London: Social Finance.