For anyone interested in how the private sector may be involved in improving social outcomes, Corrections Minister Sam Lotu-Iiga’s interview on TV3’s The Nation is a must watch. 

The interview, which focussed on private prisons, is revealing. Not because it illustrates well-balanced arguments regarding the strengths and weaknesses of private prisons, but because the interviewer, Lisa Owen, brings up nearly every common objection against privatisation.

While it is easy to simply dismiss the interview based on either Owen’s abrasive questioning, or Lotu-Iiga’s unpreparedness, the interview reveals the difficulties ministers face in trying new solutions to resolve old and complex problems.

Performance-based contracting with private parties, particularly when there are multiple contracts and relationships involved, can pose notable challenges for the relevant minister. 

After all, who is responsible when something goes wrong? Ministers are expected to improve outcomes in their portfolio, but face strong scrutiny whenever they try something new and promising. 

It is understandable, then, that ministers would want to monitor results closely, and have a strong hand in activities and operations, as they will ultimately be held accountable for the outcomes. They would also need to have confidence that the successful outcomes are achieved legitimately, rather than by private parties gaming the system.

Some may also find the idea of financially incentivising service providers to achieve outcomes, or making a profit from prisoners’ work unpalatable, even if it improves the lives of society’s most vulnerable. Again, ministers must be prepared to defend what has proven to be effective.

However, if the private party has been contracted to achieve outcomes, over-monitoring or overly-prescriptive contracting could restrict their freedom and flexibility to innovate.

There must also be an understanding that there are some interventions, which may be successful in achieving social outcomes, but don’t look good. Ministers must be prepared to defend such practices. For example, allowing phones in cells, or enabling access to educational software, may be successful in reducing recidivism (and therefore saving taxpayer dollars), but challenge the public’s perception of prison as punishment.

The New Zealand Initiative has recently completed a report on one form of performance-based contracting, known as Social Impact Bonds. The Ministry of Health is currently developing a pilot for the model. In carrying out research for this report, Dr Bryce Wilkinson and I found that while the potential for Social Impact Bonds to greatly improve social outcomes is real, challenges like those listed above remain.
 
Stay tuned next week to hear more about our report and our findings.

If you have an interest in Social Impact Bonds, please get in touch with us to receive a copy of the report.