The latest spin - "Social investment": a way of reducing services to
New zealanders under the pretence of "enhanced outcomes" - as for most
National policies, the better outcomes are to big business; most New
Zealanders (and particularly those most in need, are worse off.

https://thespinoff.co.nz/politics/24-05-2017/is-social-investment-just-a-warm-and-fuzzy-cloak-for-seeking-to-shrink-the-state/

Budget 2017: Bill English has been trumpeting the “social investment
approach” as a core part of his thinking, and it underpins much of
this week’s budget. For economist Simon Chapple, however, it amounts
to a rhetorical banner that obscures standard centre-right political
goals

Dr Simon Chapple has held senior economist and public policy roles in
New Zealand and abroad, including the OECD, NZIER, the Department of
Labour, and Ministry of Social Development. He is contributing a
chapter on long-term fiscal redistribution for an upcoming book on the
social investment approach in New Zealand. Below, he speaks with
Julienne Molineaux, director of the Policy Observatory at AUT

Julienne Molineaux: “Social investment” is a term Bill English uses to
describe his approach to social spending. What does it mean exactly?

Simon Chapple: It is important to distinguish between the rhetoric –
social investment is a lovely soft attractive phrase across the
political spectrum – and what is actually being done under this
banner. I believe that the political focus is reducing the long-term
size of government.

To understand this we need to go back in time. Bill English entered
parliament in 1990. The newly elected National government, of which he
was part, cut government spending through the “mother of all budgets”
in 1991. Reducing the size of government is a standard centre-right prescription, but that particular slash-and-burn exercise burnt a lot
of political capital. The hope was a very quick bounce back and a
rapid political dividend. But the bounce back didn’t happen and the
policies were unpopular with the public.

Bill English learned from that episode. In a sense the ‘social
investment approach’ is pursuing the same goal – smaller government –
but in a more subtle way. English’s claim is that social investment is
a win-win by reducing the size of government while simultaneously
enhancing people’s outcomes. However, when the nuts and bolts are
examined, the principal win that government is measuring and
incentivising is fewer fiscal dollars, not the secondary win which is
better outcomes for people.

What are the key features of the “social investment approach”?

It is moving and evolving. We’ll get a better idea of this with the
2017 budget.

That said, the key unifying feature is managing and incentivising the
welfare system in terms of reducing the future fiscal liability – that
is, fiscal spending on people on the government books today and into
the future – within tightening rules of entitlement and surveillance.

This approach began with the 2011 Welfare Working Group. They were was instructed by government to look at lessons to be learned from the
private insurance system for how to operate welfare. Private insurers
insure people against adverse events, and this creates a liability
that extends into the future if they have to pay out on those events.
But insurers also have a corresponding asset, which is income paid to
them now and into the future as people’s insurance premiums. So the
private insurance sector makes decisions to maximise the difference
between their expected future assets and future liabilities.

The government is using this insurance analogy to make decisions on
how well the public service is doing and about what to invest in. But
how good is the analogy? The answer is not very good.

Obviously the government is not a private insurer. There isn’t a
market where people can choose, say, their welfare cover and take
their money elsewhere if they find a better deal. The government is
only observing one aspect of the analogy with insurance: the future
fiscal liability. But if the system is solely based around
liabilities, why do we even have a welfare system? What is our asset
and how do we value it? How do we build up the asset as much as reduce
the liability? Lastly, what effect does it have on people needing
welfare and the way they are treated by officials if they are
conceptualised as a liability?

What are some examples of problems arising from having such a narrow
focus?

Work and Income, if they are fulfilling their duties under the Social
Security Act, should ensure that everyone entitled to a welfare
benefit gets one. There is good evidence from the OECD that benefit
non-take-up is a serious issue internationally, including New Zealand.
For example, there are likely to be many working people who are
entitled to but don’t get the Accommodation Supplement. Yet there is a
strong disincentive under the investment approach to ensure take-up,
because Work and Income is tasked with reducing welfare payments. So
they don’t promote it.

Another example is that there is evidence that beneficiaries are
increasingly being placed into tertiary study (see Statistics New
Zealand, Table 2.1 here). The beneficiary goes off welfare and onto
student assistance, and builds up student debt. Income support is
effectively privatised, because some student assistance has to be paid
back at the end of study. For Work and Income, this is an unambiguous
win, because even if the education is a complete failure, the person
is off welfare and out of the liability calculations for three years.
But for the student/beneficiary, who may now have a large debt that
they struggle to repay, it can be a loss.

Are government agencies being given a reward or incentive to reduce
spending or the number of people on their books?

Yes, absolutely. If you look at the government’s relevant Better
Public Services goal, the performance target is about reducing the
fiscal liability of the welfare system and the number of
beneficiaries. The target is not about getting people into jobs and
ensuring that their social outcomes are better.

Two points. Firstly, leaving a benefit is not the same as getting a
job. Secondly, not all jobs are created equal; some jobs are better
for people’s lives than others: think a 9am to 5pm job compared to a
9pm to 5am job. Yet the social investment approach assumes that
benefit exit means that people move into jobs and it presumes that all
jobs are created equal. I think both of these are highly challengeable assumptions and should be empirically tested. Already, we know overall
that many benefit exits are not because people get work.

Think of the government system as a hospital. People come into the
hospital because they’ve got a problem. No doctor would discharge
someone from hospital until they knew that where they are going to was
a better place. We want to know when we discharge them that their
outcomes are better. Yet this new approach says, “Who cares where they
go when we discharge them? We just want them out of hospital.” And I
consider that highly unethical. No doctor would be able to get away
with it.

Well-designed social spending always had an investment element – for
example, investing in maternity care so children get a good start in
life. How does this approach differ from what has been done in the
past?

In the past, rhetoric about investment has mostly lacked data. The
maternity care example is intuitively plausible, but it may or may not
be true in empirical practice. In the past we haven’t been very good
at quantifying longer term outcomes in a sufficient number of our decision-making processes. To the extent that we can now quantify
long-term outcomes better than yesterday, we should be able to make
higher quality investment decisions, better informed by evidence.

In terms of evaluating policy, we know that most of the gains from
social investments – if we do them well – are to people themselves. So
while there may be both future fiscal gains and gains to children from
better maternity care today, the government’s social investment model
only counts and rewards gains to taxpayers.

Social investment includes a highly targeted approach to social
spending, relying on data to pinpoint both recipients of spending and
the interventions or programmes used, against a goal or outcome
measure. This can be contrasted with a more universal approach to
social services, which was the more traditional approach to social
spending. What are the pros and cons of this shift to targeted
interventions?

The classic problem with targeting is that you have false positives
and false negatives. The more you target, the more likely you are to
miss out on people who need the service – and you won’t completely
solve the problem of providing the service to people who don’t need
it.

If we’re looking at vulnerable children, whatever means we have
currently for identifying vulnerable children, we’re going to miss a
lot of them in the targeting process. In addition there will be some
children we identify as vulnerable who won’t be and there may well be
adverse consequences of this – for them and for their families. There
are ethical issues about access to information needed to target well.
Lastly there may be perverse effects on potential clients if they are
required to divulge information. Trust between the client and the
provider could be undermined, to the detriment of the client’s
outcomes.

The other aspect of targeting, compared to a universal model, is that
you lose the middle-class’s voice and commitment to the system: the
sense of us all as citizens in this waka together. It becomes
stigmatising and the risk is that funding is gradually drained out of
the system. The lack of an articulate middle-class voice keeps service
quality low.

What are the positives?

Thinking long-term is good. But the idea that what we do today matters
for tomorrow – this is something we’ve known for a long time! The idea
that we should use joined up data to evaluate programmes or connect
across government agencies – again this is good, but not a new idea.

Unfortunately we’ve spent an enormous amount of money – probably tens
of millions of dollars – on actuarial services to measure fiscal
liability. That is money better spent in measuring the things that
Ministers say are truly important: the outcomes of people who have
been affected by social investment-driven policy change. I find it
pretty disappointing that while using a people-focussed rhetoric, we
continue spending money on expensive actuaries to measure fiscal
outcomes.

Why should we care about things like this?

Rhetorically, we have a warm and fuzzy phrase – “social investment” –
which is obscuring standard centre-right political goals. When people
vote they should be informed on what the approach is really about,
rather than what Ministers say what it is about. If they like that
political goal, people can vote for it; if they don’t, then don’t.

We should also care because social investment which only values fiscal
wins can go badly wrong – for others and for ourselves. The system
creates a bunch of perverse incentives which can negatively impact on
people’s lives. Over our lifetime, nearly half of us will be on a
working age benefit. So how effectively social investment works, even
just in the welfare system, is not about a small minority of Kiwis.

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