The Emperor has some new clothes

Authors: Sandy Thompson & Garth Nowland-Foreman @ LEAD

Heralded by the Government as a panacea to address our shameful social wellbeing record, is the establishment of the Social Investment Agency headed by Andrew Coster, the ex Commissioner of Police. The task of the Social Investment Agency is to implement social investment approaches in our communities and provide cross-sector insights for decision-makers. They describe themselves as being “focused on the operation of the system of government agencies, supporting agencies to comply with the Government’s directions (e.g. through standards and guidance), and monitoring delivery against the Government’s work programme and priorities”.

Non-profit organisations are, by our nature, interested in social impact. After all, we are not in it for a financial return on investment. So then, what is Social Investment, and shouldn’t we welcome it with open arms? The following is an exploration of the Social Investment approach. We offer this information to help not for profit and community leaders make sense of a trend that can be confusing and also as a warning.  We apologise for the length of this blog – we are passionate about Social Investment being used with care and caution, and we are extremely concerned also, that enthusiastic positivity and fear of repercussion may drown out those who are able to identify some of its very real risks. 

If you are leading an organisation that is not government funded, and/or does not deliver what you would consider a “social service”, you might understandably think that this does not concern you. Yeah, Nah. The embedding of Social Investment into the Aotearoa New Zealand not for profit sector is going to impact on the availability of funds for your organisation and how philanthropic as well as government funders shift their ways of working, as it becomes a mainstream approach to social development. Real life examples are presented in this blog.

It is important that the whole not for profit sector understands what it is, what opportunities it presents and most importantly what the hidden pitfalls are. We implore all not for profit and community leaders to be knowledgeable about Social Investment and to ensure they are able to support or push against developments from an informed position. This is critical given the potential of the Social Investment approach to paralyse civil society and undermine the capacity of the grassroots, community led, not for profit sector. We encourage leaders to engage with the proposals being implemented, make the most of its potential, and prevent the dark side of social investment from destroying our not for profit sector. If not you, then who? If not now, then when?

So what is Social Investment?

At its core, social investment involves an approach to social policy that places emphasis on using data and evidence to make decisions about where resources should be directed. It requires an understanding of the root causes of social issues, such as poverty, unemployment, or family violence, and investing in programmes and interventions that deliver long-term benefits. This is an alternative, not just short-term fixes to improve life outcomes, reduce social inequalities, and achieve a more equitable society. This is achieved through a combination of early intervention, prevention, and the use of data to track and measure success. 

The history and current use of social impact

The government using Social Investment as a concept to inform policy and allocation of resources is not new, and it is important we understand how it is being adopted here in 2024 in Aotearoa. At least since the London School of Economics was founded in 1895, and especially since it established a Department of Social Administration in 1912 (with the dual purpose of carrying out investigations of social conditions and training of social workers), there has been a long history in social policy of using unashamedly values-driven concerns to find empirical and evidence-based solutions to poverty, inequality and the great social problems of the day. The term ‘social investment’ can be traced back to the Swedish social-democratic welfare state in the 1930s (Smyth and Deeming 2016). Its modern usage internationally dates back quarter of a century ago, as a backlash against the dominant neo-liberal, market-oriented social policy approach of the 1980s and 90s (Hemerijck 2015). 

This international usage of the term is not how it has been used in Aotearoa New Zealand. This is an important distinction to be aware of, and one of several points of confusion about the term. When Social Investment (version 01) was first introduced by the previous National Government in 2017, an ‘actuarial’ focus was prominent. This uses the mathematical tools of the insurance industry to identify ‘high lifetime cost’ individuals so as to reduce long-term government spending.  This was a unique New Zealand usage of an internationally well-known policy concept. “This fiscal liability element became a proxy for overall improvement in societal outcomes. What defined this New Zealand approach and gave it boundaries was in fact this emphasis on fiscal liability and efforts to shape policies and interventions based on data, to reduce it.” (Allen 2019). 

(Check out Garth’s paper delivered to an international research conference in the UK on the first version of Social Investment in Aotearoa New Zealand, HERE). 

As the Social Investment phoenix rises from the ashes in 2024, a Social Investment Agency and Cabinet Committee have been resurrected, given more power as a ‘central agency’ and allocated (a relatively modest) $51 million over four years to try things out. It is unclear exactly what Social Investment (version 02) will look like in detail, but it currently appears that it will be little more than a reboot of version 01. In any case, Social Investment has bounced back and is here to stay. 

The confusion surrounding the use of the social impact approach

A key part of the confusion and uncertainty surrounding Social Investment, is its slippery usage - to mean four over-lapping, but quite different ideas, each with their own opportunities and significant risks:

• At one level, Social Investment is an (almost unobjectionable) increased emphasis on addressing the causes or drivers of social problems, especially complex social issues. Not always easy to implement, but a very admirable intention – if that’s where it finished.

• However, it is often also bundled up with concepts of ‘social outcome contracting’ – the government (or other funders) ‘purchasing’ the delivery of outcomes (rather than funding inputs or activities, sometimes referred to as outputs).

• It has been associated, at least in theory, even if it has never actually been significantly implemented, with social impact bonds – a method of getting the private sector engaged in paying for better specified social outcomes and government sharing part of the savings with investors (offering the tantalising prospect of being able to make money out of addressing social needs).

• Finally, and as described above as an almost unique addition in this country, is the use of an actuarial approach to addressing social problems. This involves using Big Data (usually matching and bringing together data from a wide range of disparate sources) to identify and predict big life-time users of government services or support (and hence a drain on government finances). This is reflected in the importance given to the government’s Integrated Data Infrastructure (IDI).

The Sunny Side of the Street

The Social investment approach provides some great opportunities for communities:

1. More Targeted Support for Vulnerable Populations

One of the most promising aspects of social investment is its potential to improve how we target support to the people who need it most. In Aotearoa, where disparities between different population groups are stark – particularly for Māori, Pasifika, people with disabilities, and low-income communities – social investment could allow us to identify and address these inequalities with greater precision. By analysing data on social outcomes and individual circumstances, government and social service providers can direct interventions where they will be most effective, reducing any waste and improving social mobility.

2. Evidence-Based Decision Making

Social investment encourages a more evidence-based approach to policymaking and resource allocation. This means that decisions about how to spend public money can be guided by data and research, rather than assumptions or ideologies. By using evidence, social investment initiatives are more likely to succeed because they are grounded in what works, rather than what’s politically popular.

3. Long-Term Financial Savings

Investing in prevention and early intervention can lead to significant savings in the long run. For example, supporting children and whānau with early learning or mental health support can reduce future costs associated with child welfare services, healthcare, or criminal justice interventions. The focus on long-term outcomes means we shift away from the cycle of reactive services and focus on building resilience and wellbeing at the community level. However - and this is a crucial (and unresolved) ‘however’ - this by definition requires up-front and ‘double’ funding, as it would be inhumane (and politically untenable) to drop support for today’s victims, while we invest in tomorrow’s. Even if the long-term pay-offs were certain (which because of the nature of social phenomena, they almost cannot be), it still requires a government brave enough to increase borrowings to cover the ‘hump’ funding.

4. Empowerment of Communities

Social investment’s focus on whānau-centred and community-led approaches could empower local communities to have a greater say in how resources are used and what interventions are implemented. This is particularly important for Māori communities, where traditional models of decision-making and resource distribution may not have worked in the past. Social investment could help strengthen whānau, hapu and iwi, providing them with the tools and support to create meaningful, sustainable change.

5. Innovation in Addressing Social Challenges

Social investment can encourage innovative approaches to longstanding issues, by offering greater flexibility in ‘means’ as a consequence of only being focused on ‘results’. For instance, impact investing could support new technology to improve mental health care accessibility or fund startups creating solutions for sustainable housing.

The Very Long Shadow

Sounds great, however, there are also many pitfalls with Social Investment that could undermine or threaten these opportunities.  We would like to present some of these and strongly encourage all not for profit leaders to think about them in the context of their own organisations and aspirations for their communities.

To succeed, the government’s Social Investment approach will require leadership that fully understands how systems approaches to social change works. This includes: appreciating the need for failure and experimentation in ‘systems change’; understanding not all positive outcomes can be quantified and measured; and most importantly knowing that in complex human systems cause and effect in systems is not always visible until after the fact (unintended consequences are frequently inevitable and need to be minimised).

It also means social policy will need to become more comfortable dealing with ambiguity, diversity and even apparently contradictory tensions. The elusive search for certainty and the simple answer in social policy is likely to lead us to be ‘precisely wrong’ rather than ‘roughly right’ in our responses. (Remember the fiasco of Meth-testing homes?)

Unintended consequences of the Social Investment approach:

1. Over-Reliance on Data and Metrics

Social Investment casts its longest (and darkest) shadow, because of its pre-occupation with metrics. Far too often in Western-dominated cultures, we privilege numbers over words. Numbers (quantitative data) are great at summarising, standardising and reducing large amounts of information into more manageable (but potentially over-simplified) chunks, while words (qualitative data) are best when we need to understand the complexity, inter-connectedness, diversity and fine-grained nuances associated with real lives and communities. Quantitative data can most helpfully point us to what or where the problem is; qualitative data is most helpful at understanding why something complex is happening, and how it might be best addressed. Neither necessarily has greater validity or reliability than the other. As almost every experienced evaluator recognises, the ‘small data’ of personal stories and interactions are at least as important as the ‘big data’ of mass collections. 

Also as mathematician, Cathy O’Neill (2016), points out in “Weapons of Math Destruction: How Big Data Increases Inequality and Threatens Democracy”, big data’s tools are not neutral; they can be just another form of ‘racial profiling’, reinforcing pre-existing inequalities and discrimination and a ’toxic cocktail for democracy’, because, although the algorithms are often opaque and difficult to contest, their mathematical simplicity means they are highly scalable, thereby amplifying any inherent biases across increasingly larger populations. 

In the same year that O'Neill's book was published in the US, the Ministry for Social Development in Aotearoa New Zealand crunched a whole lot of big data and identified 3 factors in children associated with significantly greater risk of abuse or neglect. The trouble was that although the mathematical correlations looked beautiful, there were still too many false positives and just as many false negatives. Which is why the last three real children who died of abuse at the time were reported as not demonstrating any of the big three risk factors. We cannot do social policy by remote control.

Additionally, data privacy and security are serious concerns. Vulnerable populations, such as children in care or individuals with disabilities, may be at risk if their data is mishandled or used inappropriately. What’s more, when this is ‘done to’ people, the whole process can lose its ‘social licence’ (voluntary compliance and community support) - as happened in the uproar that made Social Investment (version 01) unworkable. Thus the Cabinet Minute proposing Social Investment (version 02) identifies how crucial it is to maintain social licence.

2. Costly and Dubious Self-justification

The first cousin of Social Investment is “Return on Investment” reporting. At its core this is providing ‘evidence’ of the amount of government money saved down the track. For example, for every dollar spent on nutrition programmes will save x dollars in public health expenditure. Its methodology is generally considered to be ambivalent at best, and often highly dubious, as it tries to reduce complex impacts to a simple number (See for example, Flyvbjerg & Bester, “The Cost-Benefit Fallacy”, Cambridge University Press, 2021). One organisation shared with LEAD it cost them $20,000 to complete a government endorsed return on investment analysis of one programme. Many organisations are now being required to provide return on investment data like this to retain contracts.

Data collection and reporting can be resource-intensive, requiring time, technology, and expertise that many non-profits simply don’t have. Smaller organisations, in particular, may struggle to meet the reporting demands set by funders, leaving less time and energy to focus on service delivery. This is especially challenging for grassroots organisations in Aotearoa, which may lack the resources or infrastructure to capture detailed data, especially in rural or underserved areas. 

3. Funding Shortages and Sustainability

As we identified back in 2018, Social Investment in 2024 and beyond is valuable when it means investing more resources up-stream, preventing social ills from developing or nipping them in the bud early on. It’s not useful if it just means increasingly narrower targeting of help or resources for a smaller group of stigmatised ‘most vulnerable’ (like Predictive Risk Modelling, Robocop, and the movie “Minority Report”).

Social Investment is great when it helps us identify how to improve well-being for more people and society as a whole; it’s not so useful when it is just a means to ration inadequate funding and make cut backs that undermine wellbeing.

While the model promises long-term savings, it requires upfront investment, the opposite of what we are experiencing in this volatile political and economic climate. Non-profits and community groups that rely on social investment funding often face uncertainty and a lack of long-term commitment, making it hard to plan and implement effective programmes.

Moreover, many organisations feel pressure to align their programmes with government priorities or data-driven models, which may not always match the needs of the communities they serve. Non-profits often end up ‘chasing’ funding opportunities rather than focusing on the needs of their beneficiaries.

Smaller organisations that are predominantly volunteer-led and responsive to their local communities can be overshadowed by larger organisations which have built in capacity and access to fundraising and contracting professionals. 

Finally – not a social service provider? All those providers who have been historically funded through government policies will now be competing with you for non-government contract funding. There is no doubt funders’ priorities are going to shift. A study of 24 community organisations by West Auckland Together, with support from West Auckland Māori Thought Leadership Collective and Le Moana West Collective, revealed the severity of recent drops in funding:

• 24 organisations reported a combined total loss of $3,228,612 in funding, with

individual cuts ranging from $7,762 to $490,000.

• The average funding reduction per organisation was $134,525.50.

• The cuts ranged from 2% to 90% of annual turnover, with an average of 20% lost

across all reporting organisations.

Here is a link to the full report. This is not an easy environment to access resources to create social change.

4. Equity and Inclusion Concerns

Social Investment is great when it addresses the social (systemic) causes of undesirable outcomes; it’s not helpful if it’s just a more sophisticated way of ‘blaming the victim’ and individualising societal problems.

Social investment has been critiqued for not always being inclusive enough, particularly when it comes to Māori and Pasifika populations. Despite the focus on improving outcomes for Māori, the approach is sometimes seen as paternalistic, especially if Māori-led solutions are overlooked in favour of models developed by external authorities. For social investment to truly be successful in Aotearoa, it must be led and shaped by the communities it serves. Māori and Pasifika providers, for example, must have an equal seat at the decision-making table to ensure culturally appropriate services are developed and funded.

5. Erosion of Grassroots Advocacy

Social Investment is great when it values community building and civic participation, growing social capital and social cohesion (in which community organisations have unique advantages), as well as the delivery of more readily measurable programmes.

Social investment, however, by focusing on data-driven outcomes, can inadvertently marginalise the voices of grassroots advocacy groups that often raise issues not immediately measurable by conventional metrics. Social investment can also sideline the need for systemic change or ignore the role of advocacy in challenging structural inequalities. This is a significant concern for many non-profit leaders who believe that lasting social change is not just about individual interventions (blaming the victim), but also about addressing the root causes of inequality.

6. Risk of Commodifying Social Issues

Social investment is great when it hears and responds to the voices of those directly experiencing social problems, and those grass-roots workers, whanau and friends closest to them (bottom-up); it’s not useful if it only gives most weight to distant ‘experts’ and empirical averages (top-down). 

Social investment is great when it monitors impact at a community-wide or even national level to make informed judgements about policy approaches; it's not so useful when it tries to measure impact on an isolated, individual agency-basis. (The previous Social Investment Agency’s work on the impact of public housing is a great example of it being used well.)

There is a risk that social investment can just end up commodifying social problems. If government funding is tied too closely to (only) measurable outcomes, it could lead to an environment where social issues are reduced to transactions – a process of ‘buying’ social good. Allocating a dollar value on the work of organisations and the wellbeing of organisations is a dangerous practice. Social investment approaches risk undermining the compassion and humanity and responsiveness that must underpin social policy, especially for our most vulnerable communities. 

Last words

Social investment offers a promising framework for addressing social issues in Aotearoa New Zealand, when focusing on long-term solutions and the effective allocation of resources. However, its success hinges on balancing the power of data and evidence with a commitment to equity, inclusion, and community-driven solutions. For social investment to work, it must be flexible, culturally responsive, mindful of the complexities of social issues and be adequately resourced. To see just one real life example of how all the best evidence in the world wont save you in an era of retrenchment, read this short November 2024 case study here:

As non-profit leaders, we have a critical role to play in ensuring that social investment remains a tool for positive, sustainable change, rather than becoming a quick-fix or a transactional model that overlooks the deeper needs of our communities. We must continue to advocate for solutions that are both data-informed and people-centred, ensuring that Aotearoa’s most vulnerable whānau and communities are empowered to thrive. Social investment is not a silver bullet and needs careful implementation and oversight.  

We challenge you to share your thoughts on the opportunities, challenges, and threats of social investment in Aotearoa with other leaders and your political representatives. It’s a conversation that needs ongoing dialogue between government, non-profits, communities, and individuals, working together to create a better future for all.