Conclusions on Financial Biopolitics

This is the final installment of a series on the St Mungo’s social impact bond (SIB), set up in the UK to fund a homelessness program using money from private financial investors.

What can we conclude from our examination of the St Mungo’s social impact bond?

The St Mungo’s SIB allows us to see the impact of financial biopolitics on social policy. What we’re talking about here is the use of finance and accounting to try to get individuals to act as if they are microentrepreneurs, ultimately responsible for their own well-being. The individuals in this case are the social workers and their homeless clients.

The social workers are asked to accept short-term employment and achieve performance targets that determine the funding flowing into the program they work for. Failure to achieve those targets means the program will end and their contracts will not be renewed.

The homeless clients are treated as failed entrepreneurs. Their failure is monetized, however, for the benefit of investors. The cash flows provided by the government, to help reduce their use of medical services and get them to stay in stable housing, are the source of investor returns.

Individual Choices

We’ve seen how this individualization of social problems is inherent in SIB calculations. The rationality behind SIBs assumes that if poor people made better choices, they wouldn’t be poor. This thinking prevents SIBs from addressing the structural causes of poverty. SIBs, at least in their current guise, can only fix social problems to the extent that different choices by poor individuals can actually make a difference in their economic circumstances.

If those individuals are prevented from making optimal choices because of factors that systematically exclude them from education, housing, and jobs, then asking them to make better choices will change nothing. If the causes of poverty are, for instance, racism or gender inequality, then the problems in question are not really economic to begin with. They are social.

Investor Choices

We saw, however, that there are other benefits to SIBs, benefits that have nothing to do with outcomes for the poor. For example, the use of performance metrics in a SIB allows the government and the service provider to “prove” they are doing something useful. Improvements in the metrics over time can be publicized to justify the policies of government and the activities of the service provider. This is a double-edged sword. Proving that programs are working is great, but it means we are less likely to support important work on complex problems where simple proofs are impossible to obtain.

Another benefit is that a SIB can also help governments identify promising social programs. After all, the thinking goes, if a program attracts money from investors, it must be good. This argument rests rather uneasily on basic economic theory. The underlying assumption is that investors are rational profit maximizers. Unfortunately, this assumption is difficult to justify here. First of all, there is as yet no market for the bonds, so any notion that the “market forces” required by economic theory are being brought to bear on these decisions is illusory. The validity of the assumption that investors are rational depends in part on being able to aggregate their behaviour: even if any individual investor is less than perfectly rational, if you get enough of them participating, then in statistical terms, they can be considered rational. This is fundamental to the methodologies behind neoliberal economics. The whole argument falls apart if there is no market.

Furthermore, if you deliberately select a handful of investors who are motivated by social concern, it seems to me that you violate the basic economic assumption of self-interest. Calling the intrinsic satisfaction derived by these investors “utility,” and moving the goalposts from profit maximization to utility maximization, just gets you into a circular argument from which there is no escape. On that basis, all behaviours must be considered rational and optimal, and therefore the theory predicts nothing.

The biggest problem with SIBs, however, is this: turning the selection of social programs over to wealthy people is fundamentally undemocratic. This is a policy path we simply should not follow.

Financial Bias

There are side effects to SIBs, too. One clear side effect, which we can observe in the case of St Mungo’s even before the experiment has concluded, is that the social service provider gets captured by financial concerns and drawn away from programmatic ones. Senior employees must become experts on financing arrangements. This requires considerable time and effort, or a change in hiring practices. Service-level employees – the social workers who need to spend time with their clients – must devote energy to budgets and performance metrics. Neither are the homeless left out of this mentality: marked as failed entrepreneurs, they are called to improve their social capital through better economic decisions about medical care, housing, and employment. What is important about them, under a SIB funding model, is how much they cost the rest of us.

At the level of governance, the St Mungo’s organization is similarly affected. As a condition of making their investment, the investors asked for and received a seat on the Board of Directors. The constant scrutiny of all board decisions by an investor's representative will inevitably tilt the priorities and mentality of the board away from social concerns.

Risk Redistribution

This tilting makes sense within the assumptions of a SIB. The rhetoric of SIBs claims that investors should be involved in decisions. After all, they are the ones who bear the financial risk.

As we have seen, this line of thinking suffers from at least one significant problem: the investors in the St Mungo’s SIB are not bearing all the financial risk. They are not even bearing most of the risk. They are only putting up £650,000 in the seed money. St Mungo’s itself put up £237,000 in share capital, in addition to acting as one of the investors in its own SIB. The government, meanwhile, will put up as much as £2.4 million in funding over the life of the program. That is money down the drain if the program fails.

The government bears even more financial responsibility, because if the SIB program does fail, the government is left with the unresolved social problem, which must still be fixed.

Meanwhile, the social workers have put their livelihoods on the line. If the SIB fails, they are out of work and must find another job. They are going all in. The investors are not.

And none of this begins to comprehend the financial risks borne by the homeless themselves, whose entire future depend on the program succeeding. It’s not that they have nothing to lose, it’s that they have lost everything already. They are the most vulnerable party to the SIB agreement, and yet they were never invited to the negotiations.

Trojan Bonds

Is this fair to the homeless and to the social workers? The rhetoric of SIBs says yes. Proponents of SIBs claim that they are simply a financial technology, neutral, objective, and rational.

As our analysis has shown, however, SIBs are an economically conservative Trojan horse for socially conservative policies. Risk is passed down from the state to the city to the service provider and on down to the social workers. The putative cost savings are achieved by making work more precarious. SIBs are thus part of the war on labour that continues from the time of Margaret Thatcher and Ronald Reagan. Meanwhile, the homeless are demonized as failures and foreigners. Remember, built into the funding agreement is a financial incentive for sending non-UK citizens back where they came from.

SIBs illustrate a fundamental fact of contemporary governance, that financial policy is inseparable from moral policy.

Economies of Scale?

Another problem with the St Mungo's SIB experiment is that the project may not scale up. This experiment is intended to prove the concept of SIBs. Everyone from the Cabinet Office on down wants this to succeed.

The performance metrics were devised mainly by St Mungo’s in an effort to ensure that they would receive as much of the contingent money as possible. This was permitted because everyone wanted to ensure that the investors receive a return on their investment.

Having selected the “Inbetweeners” population as the most likely to benefit from intervention, any further homelessness programs funded by SIBs will have to deal with the remainder of the homeless populatin. This includes the transient homeless, who we know already leave the street shortly after arriving there, and the "chronic" homeless population, which has proven difficult to address despite the best efforts of social workers around the world.

Subsequent SIB schemes will therefore face a difficult challenge. Either they will have difficulty proving they made any difference with people who were not going to be homeless long anyway, or they will face a population with much more difficult and intractable problems than the Inbetweeners presented.

Homelessness as a Commodity

Our analysis of the St Mungo’s SIB explains how economic thinking gets extended into the social arena. The SIB creates an economic venture out of homelessness. Rather than attempting to alleviate the structural causes of homelessness in London, the SIB enables the finance industry and the investors to earn a profit from homelessness. This is exactly what Craig Willse argued back in 2010:

As economic ventures, neo-liberal social programmes do not necessarily seek an end to social problems, but become ends themselves – economic activities enabling more economic activity. (Willse, 2010, p. 175)

Social impact bonds need to be understood in their historical context. They are just the most recent tool in the neoliberal reformation of government that began with Thatcher and Reagan. This reformation has sought consistently to disparage the public sector, in order to eliminate government constraints on the accumulation of wealth.

The growing inequality in income and wealth over the past three decades, as documented by Thomas Piketty (2014), has occurred because the middle class is being eviscerated and its wealth transferred to those who are already rich.

According to Robert Chernomas and Ian Hudson (2017), this is accomplished in large part by producing job insecurity. When workers are afraid of losing their jobs, they are afraid to demand their share of wealth. The increasingly precarious employment of the social worker is therefore completely consistent with the transformation of homelessness into an investment opportunity.

Pro Tips

So what does a nonprofit service provider do about all this? Should it chase after social impact bond financing? And what should socially conscious investors do?

Be sure about one thing, SIBs are a lot of work. They are risky because the investment of time and energy required to set them up may come to nothing. Parties may grow frustrated and walk away before any agreements are signed.

Investors need to make themselves accountable to the service providers.

Nonprofit service providers who insist on exploring SIB funding need to beware of letting others set their priorities. It is crucial to get ahead of the game by taking charge of what the performance metrics will be. Make sure that the performance metrics align with your mission and purpose. And make sure they are easy to obtain and track.

Nonprofit service providers must also beware of getting caught up in the world of finance, of getting diverted from their mission. Establish relationships with finance experts you can trust. Make sure you have them on your board or your finance committee before you get into any negotiations. Don’t assume that a finance expert representing the investors will have your best interests at heart.

This is precisely where investors can help, though. If you are an investor who wants your money to have the biggest impact, you need to recognize the risk of the service provider becoming diverted from its mission. You need to allow the service provider's staff to be the experts in the field. You need to recognize how exposed a service provider can be to the influence of financial consultants, and how much risk the service provider is taking on.

The way to overcome this problem is to make sure that accountability flows both ways. SIBs are currently set up to hold service providers accountable to investors. If the relationship is going to be mutually beneficial, investors also need to make themselves accountable to the service providers. This accountability might include being willing and able to demonstrate that investment funds are secure, perhaps by putting them in trust until the SIB negotiations are concluded and all contractual advances of investment funds have been made to the service provider.

Investors can also build trust by demonstrating that they are in it for the long term. Building renewal clauses into contracts can help service providers plan for the future. This security will be passed on in some measure to the social workers and ultimately to their clients. And that is where it is needed most.

Photos of the Toronto International Air Show taken in 2007. The Snowbirds prove conclusively that awesome things can happen if collective activities are planned in advance instead of being left to random market forces. Just saying.



Chernomas, R., & Hudson, I. (2017). The profit doctrine: Economists of the neoliberal era. London: Pluto Press.

Piketty, T. (2014). Capital in the twenty-first century (A. Goldhammer, Trans.): Harvard University Press, Cambridge.

Willse, C. (2010). Neo-liberal biopolitics and the invention of chronic homelessness. Economy and Society, 39(2), 155-184.