The Real Revolution of Pay for Success: Ending 40 Years of Stagnant Results for Communities

Author(s): George Overholser and Caroline Whistler, Third Sector Capital Partners

Pay for Success (PFS) contracting, social impact bond financing, collective action, impact investing, human capital performance bonds–these are all fascinating and powerful ideas. But the big idea that unites them is progress. Over the years, most sectors of the U.S economy have displayed a long and steady march of progress, where innovation builds on innovation, relentlessly driving efficiencies and effectiveness to ever-higher levels. A particularly striking example is Moore’s Law, which has for 40 years correctly predicted a re-doubling of computer processing speeds and memory size every 24 months. The gains we have seen in medicine, leading to a 50 percent reduction in the U.S. death rates from coronary heart disease and childhood cancers in the last half-century, are no less impressive. Even from the broadest perspective, where America’s real GDP per capita has more than doubled since 1970, the steady march of economic progress seems almost inexorable. And yet, as Jon Baron, president of the Coalition For Evidence-Based Policy, pointed out in a November 29, 2012, New York Times op-ed, much of our social sector seems frozen in time. Forty years after Lyndon Johnson declared a War on Poverty, real median incomes among the poorest 20 percent of Americans have not budged. Nor have our national test scores on math and reading.