How can New Zealand get the best return on social investment?

Government agencies have new questions and approaches to consider as they prepare for a social investment budget 

With New Zealand once again embracing social investment, our nation has an opportunity to entrench a more holistic, longer-term, and evidence-based approach to policymaking and investment. Evidence-based policy is nothing new and is certainly not unique to social investment. The difference is that social investment focusses on long term outcomes and brings a consistent measurement system that allows interventions to be compared and assessed on an equal footing.

At its core, social investment is about performance improvement at the whole-of-government level, not just an individual agency level. It is driven by a top-down focus on performance measured consistently, in an integrated manner, at program, portfolio and whole-of-system levels.

This is essential to get an appropriate social return on the money put into solving complex social problems, where solutions rarely sit where the problem arises. Take unemployment. Investing in social wellbeing can increase the participation rate, but it can’t create jobs. That requires industry policy changes, which do not fall under the Ministry of Social Development’s remit. This is why even the best efforts to optimise a single agency’s actions and social investment often fail to move the dial. It is only when all the relevant needs are met in the right order – usually requiring coordinated cross agency action – that meaningful social change occurs.

For example, investing in vulnerable children in the first 2,000 days offers enormous potential to change their life course. Instead of being at risk of becoming welfare dependent or encountering a range of other poor lifetime outcomes, these children can break intergenerational vulnerabilities, participate in employment, and avoid many negative (and costly) health and wellbeing outcomes. Acting on the holistic needs of children and families that create life-changing interventions is a social investment that can pay enormous long term economic dividends. However, this requires strong performance management and a focussed approach to managing the emerging social benefits over the long term to achieve these economic dividends. 

A different conversation

Social investment moves the discussion of agency budgets from “how to control costs” to a value conversation. The approach provides the evidence base for investments in programs that yield a social and governmental fiscal return. Expressed this way, the approach creates a business case for program investment.

This contrasts with traditional budgeting and initiative planning methods, which may focus more on short term outputs and cost efficiency. Done well, it can create a case for greater investment in improving lives so less can be spent responding to unemployment, poverty, chronic health issues and crime.

More public-private possibilities

Overseas experience suggests that, when social value concepts are integrated into procurement processes and policymaking, innovative public-private partnerships emerge, including with smaller, local partners.

In Canada, the community employment loan program in Ontario facilitates access to subordinated debt financing for small businesses that commit to hiring workers via community agencies. The terms of these community employment loans are linked directly to outcomes: for every employee a business hires from a community partner and retains for at least six months, the interest rate on the loan decreases.

Under the Netherlands’ Social Return on Investment policy, the Dutch "Buzinezzclub" is helping young people on welfare to gain employable skills. The program's success is measured by the number of participants who leave welfare. The government only pays for the service if it leads to a net reduction in welfare costs.

When governments use a social investment framework, interventions like this are considered alongside standard agency responses. They are not necessarily adopted, but they are explored, ensuring the government considers opportunities to use private capital to create better social outcomes.

How to get started

Social investment requires careful implementation that brings together practice, service design and funding mechanisms with robust, evidence-based approaches. To develop a receptive environment for these practices, agencies may need to:

1. Adapt governance: Focus governance structures around long term organisational and system performance measures. Oversight bodies should receive regular reporting on organisational performance against these measures, determining which programs are delivering and which are not.
2. Develop integrated ministry partnerships: Establish strong inter-ministerial partnerships with a collective commitment to social investment. Cross-ministry integration is essential if services are to be coordinated in the right order. Also, integrating social investment modelling into the service system will require the shared skillsets, capacity and information of many ministries working together.
3. Consider the maturity of local partners: Better outcomes can be achieved via partnerships with community organisations that know the people and services in the local area. But when choosing where to roll out services first, maturity is a key consideration. Ideally, local partners should have previous experience in delivering joint commissioned services and the ability to draw from lessons learned.
4. Invest in data and analytics: Build robust data systems and analytical capacity to help case workers identify needs, predict outcomes and measure impact. Data and analytics should be integrated into service design and specially designed to support performance management. The language of analytics must be designed for case workers, so people understand, accept, and trust the evidence.

Better questions for agencies

As agencies consider how to move towards a social investment budget, the big shift is the need to demonstrate how budget bids will improve social and fiscal outcomes over the longer term and put mechanisms in place to adjust should these outcomes not emerge.

Social Investment Questions include:

Imperative to create a sustainable framework

New Zealand needs to ensure its social investment framework survives the election cycle. A new, incoming government may well decide to make new trade-offs to deliver on its election promises. But it can do this without throwing out the ability to predict long term outcomes and costs.

Much of the debate regarding the previous social investment focussed on the “liability” measure. What wasn’t acknowledged is that a wellbeing approach is essentially the same discipline. It may be optimising a different measure, but it still seeks improved long term social outcomes, requires rigorous measurement and evaluation, and should be the driving measure of organisational performance. Having a focus on both wellbeing (or outcomes) and fiscal spend provides an ability to understand the trade-offs between long term spend and long term wellbeing improvements.

By supporting social investment in principle, both sides of government would benefit from better informed decision-making and the ability to make clear trade-offs to support any manifesto. These are capabilities every policy maker should welcome.