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Australia's mandatory Superannuation Guarantee requires its citizens to save at least 9 percent of their income towards retirement. In many Asian nations, economic growth has spurred reexamination of pension systems to meet the needs of rapidly evolving societies. Would a mandatory savings plan be more effective than the current U.S. voluntary system? How have Asian nations have restructured their pension systems to deal with legacy costs? And what can Americans learn from the way Australia uses both employer and employee representatives to shape investment choices?

On September 17, the Retirement Security Project at Brookings and the AARP Public Policy Institute hosted a discussion of what the United States might learn from retirement savings systems in Australia and Asia. Opening speakers included Nick Sherry, who helped shape the Australian system as a cabinet minister and ran a Superannuation fund in the private sector, and Josef Pilger, an advisor on pension reform to both the Malaysian and Hong Kong governments and many industry providers. Steve Utkus, David Harris and Benjamin Harris, retirement experts from both the United States and the United Kingdom, considered how reforms in Australia and Asia can shape the American debate and whether this country should adopt key features from those foreign systems.

 

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• Retirement Savings in Australia, Asia and Beyond: What are the Lessons for the United States?

Transcript

• Uncorrected Transcript (.pdf)

Event Materials

• 20130917_retirement_savings_transcript

      

In this year’s State of the Union Address, President Obama announced a new retirement savings account for workers whose employers do not offer any form of pension or savings plan. He also promoted the Automatic IRA, a retirement savings plan that originated at the Retirement Security Project and has been in the Administration’s budget for several years.

Only about half of workers has access to a retirement savings plan at work. Millions of Americans lack the ability to save at work via payroll deductions. And while these individuals could in theory save on their own in an IRA, the best estimate is that only about one in twenty eligible to contribute to an IRA actually do so on a regular basis.

To help solve this problem, the President announced the creation of My Retirement Account, or “MyRA.” Similar to the R-Bond discussed in a recent AARP Public Policy Institute paper written by William Gale, David John and Spencer Smith, MyRA would allow individuals to save in a government bond account similar to the one offered as an option to federal employees through the Thrift Savings Plan. The details are unclear (there’s a WhiteHouse fact sheet here), but MyRA would allow new savers and those with small balances to accumulate retirement savings without either having to pay administrative charges or face market risk. Employers would not administer the plan or have any fiduciary responsibilities related to the accounts. Importantly, too, contributions come from employees, not employers. The plan is meant to build off of existing institutions—payroll deduction, Roth IRAs, the G-fund in federal employees’ thrift saving accounts. And it is meant to supplement, not substitute for, 401(k) and other company-based retirement plans. It accomplishes the latter by only allowing contributions up to the IRA limit, by limiting investment choice, and by having people with more than a set balance move into a regular account.

This approach is a boon to those who can only afford small contributions to retirement accounts. Private sector funds often require minimum contributions that are out of reach of low-income savers or assess high fees to offset their costs.

The key questions are whether employers will participate and whether automatic enrollment (that is, a regular contribution on behalf of all employees who do not opt out) would be allowed for MyRA accounts. Research suggests that automatic enrollment would greatly boost the number of employees who participate.

President Obama also promoted the Automatic IRA, but that would require congressional action, something that has not happened so far. Because the Automatic IRA would require employers with more than 10 employees to offer retirement accounts, it would likely dramatically increase the number of workers who save for retirement. It would also give employees a greater choice of investment options and serve as a permanent retirement savings plan, rather than a starter account like MyRA.

With Tuesday night’s mention of both proposals, the president made retirement security a priority. Both proposals would allow workers to build economic security through their own efforts and promote the kind of values and self-reliance that both sides of the political spectrum find attractive.

      

In the 2015 State of the Union Address, President Obama made retirement security a priority for his Administration by promoting the Automatic IRA, a retirement savings plan that originated at the Retirement Security Project. The proposals would increase the ability of part-time workers to join their employer’s plan and improve tax incentives for businesses that either start an Automatic IRA or other type of retirement plan or add automatic enrollment to an existing plan.  

Only about half of all American workers have access to a payroll deduction retirement savings plan at work. For part-time workers, fewer than four in ten have the opportunity to save at work. And while these individuals could in theory save on their own in an IRA, the best estimate is that only about one in twenty eligible to contribute to an IRA actually do so on a regular basis.

Last year, the President announced the creation of My Retirement Account, or “MyRA.” Similar to the R-Bond discussed in a recent AARP Public Policy Institute paper written by William Gale, David John and Spencer Smith, MyRA would allow individuals to save up to $15,000 in a government bond account similar to the one offered as an option to federal employees through the Thrift Savings Plan.

Now, the White House proposes to build on the MyRA.  Because the Automatic IRA would require employers with more than 10 employees to offer retirement accounts, about 30 million more workers would have the opportunity to save for retirement via payroll deduction. Using automatic enrollment, a mechanism that both works and that employees strongly support, the Automatic IRA would serve as a permanent retirement savings plan, rather than a starter account like MyRA.

To further increase the number of retirement savers, the Obama Administration also proposes to allow part-time employees who have worked for the employer for at least 500 hours a year for the past three years to make voluntary contributions to the employer’s plan.  Currently, employers are allowed to exclude any employee who works less than 1,000 hours per year. 

And to encourage employers to offer retirement plans, the existing tax credits for small employers who start a new retirement plan or pension would be greatly expanded.  Small employers who create an Automatic IRA would be eligible for a $3,000 tax credit, while those who open another type of retirement plan would be eligible for a $4,500 tax credit.  And just adding automatic enrollment to an existing plan would earn a small employer a tax credit of $1,500.

While these proposals would all need the approval of congress, they may well be able to rise above the usual political maneuvering.  For instance, both left and right have made positive comments about the Automatic IRA, and businesses should support the call for expanded tax credits to cover their costs in implementing the plans.

Most important, the president continues to make retirement security a priority with practical solutions that would allow many more Americans to build retirement security through their own efforts.  His proposals promote the kind of values and self-reliance that both sides of the political spectrum find attractive.

       

American experience strongly suggests that the coming UK pension freedoms sound better in theory than they will work in practice. After nearly a decade where the UK has been the gold standard for retirement savings policy, it is about to take a step that it may regret.

As annuity purchases are not required, very few Americans buy them, feeling that they are spending a great deal of money for a comparatively small monthly income. Even those in traditional DB pension plans usually take a lump sum if they are allowed to do so. As a result, many US retirees spend unwisely, trust the wrong financial advisor, or make other financial mistakes.

Many people greatly overestimate how long their savings will last. Most others assume (often wrongly) that they can manage their own money as well as anyone else or that they can live comfortably on Social Security alone. U.S. Social Security pays a benefit that depends on the retirees’ individual income history. The average annual amount is about $13,000 (GBP 8,700).

One survey found that in West Virginia, a state with a relatively low average income, 78% of those near retirement and 67% of those at retirement would likely outlive their financial assets. Workers with lower incomes are most at risk. A recent national study found that by the 20th year of retirement, more than 81% of Americans with incomes up to $27,000 would run short of money, as would 38% of those earning up to $42,000, and 19% of those with incomes up to $65,000.  Even 8% of those with the highest incomes could not meet their expenses.

Advice alone is not likely to help. US experience shows that literally every minute that passes after general advice is given reduces the chance that the consumer will act on it – even when they have decided to do so. And even a significant number of those who consult with a financial planner fail to act on that guidance.

What does show promise is income illustration. In a 2014 U.S. survey, 85% of plan participants found estimates of the income they could anticipate from their retirement savings useful, and 35% said that they would save more. Income illustrations change the framing of retirement saving from gross amounts saved to retirement income.  Annuity-like products become insurance against running out of money, something Americans are increasingly concerned about.

Two other potential developments may help. One is longevity insurance, an annuity that provides income only after a set age. Purchasing a policy defines how long one must make retirement savings last, and the retiree is protected against running out of money. Because longevity insurance is deferred, one can receive higher amounts of monthly income for a lower cost.  In 2014, $50,000 would buy $275 a month at age 65 or $1200 a month starting at age 80.

Another idea is an automatic enrollment trial annuity. As developed by several Brookings Institution colleagues and me, new retirees would automatically use part of their savings for a two year annuity unless the retiree refused it. The rest of their savings would be available as a lump sum. After the trial period, the annuity would become permanent if they did nothing or they could cancel it and take the rest of their money as a lump sum.

The many annuity horror stories from the UK show a definite need for change, but the coming reforms go too far. US experience suggests that too many UK retirees are likely to see their savings exhausted all too quickly. There are alternatives that could do a better job of protecting retirees.

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

       

The final months of Obama’s historic terms of office as America’s first black president are taking place against the backdrop of an ugly Republican nominating race, and to the sound of ugly language on race from Donald Trump. Progress towards racial equality is indeed proceeding in faltering steps, as the president himself made clear in a commencement speech, one of his last as president, to the graduating class of Howard University.

“America is a better place today than it was when I graduated from college,” the president said. But on the question of progress on closing the race gap, he provided some mixed messages. Much done; more to do. The president picked out some specific areas on both sides of the ledger, many of which we have looked at on these pages.

Three reasons to be cheerful

1."Americans with college degrees, that rate is up.”

The share of Americans who have completed a bachelor’s degree or higher is now at 34 percent, up from 23 percent in 1990. That’s good news in itself. But it is particularly good news for social mobility, since people born at the bottom of the income distribution who get at BA experience much more upward mobility than those who do not:

2. "We've cut teen pregnancy in half."

The teen birthrate recently hit an all-time low, with a reduction in births by 35 percent for whites, 44 percent for blacks, and 51 percent for Hispanics:

This is a real cause for celebration, as the cost of unplanned births is extremely high. Increased awareness of highly effective methods of contraception, like Long Acting Reversible Contraception (LARCs), has certainly helped with this decline. More use of LARCs will help still further.

3. "In 1983, I was part of fewer than 10 percent of African Americans who graduated with a bachelor's degree. Today, you're part of the more than 20 percent who will."

Yes, black Americans are more likely to be graduating college. And contrary to some rhetoric, black students who get into selective colleges do very well, according to work from Jonathan Rothwell:

Three worries on race gaps

But of course it’s far from all good news, as the president also made clear. 

1. "We've still got an achievement gap when black boys and girls graduate high school and college at lower rates than white boys and white girls."

The white-black gap in school readiness, measured by both reading and math scores, has not closed at the same rate as white-Hispanic gaps. And while there has been an increase in black college-going, most of this rise has been in lower-quality institutions, at least in terms of alumni earnings (one likely reason for race gaps in college debt):

2. "There are folks of all races who are still hurting—who still can’t find work that pays enough to keep the lights on, who still can’t save for retirement."

Almost a third of the population has no retirement savings. Many more have saved much less than they will need, especially lower-income households. Wealth gaps by race are extremely large, too. The median wealth of white households is now 13 times greater than for black households:

3. "Black men are about six times likelier to be in prison right now than white men."

About one-third of all black male Americans will spend part of their life in prison. Although whites and blacks use and/or sell drugs at similar rates, blacks are 3 to 4 times more likely to be arrested for doing so, and 9 times more likely to be admitted to state prisons for a drug offense. The failed war on drugs and the trend towards incarceration have been bad news for black Americans in particular:

Especially right now, it is inspiring to see a black president giving the commencement address at a historically black college. But as President Obama knows all too well, there is a very long way to go.

      

There is a marriage gap in America. This is not just a gap in choices and actions, but in norms and attitudes. Each generation is more liberal, on average, when it comes to issues like premarital relationships, same-sex marriage, and divorce. But generational averages can obscure other divides, including ideology—which in many cases is a more powerful factor.

Take opinions on the most important prerequisites for marriage, as explored in the American Family Survey conducted earlier this year by Deseret News and the Center for the Study of Elections and Democracy (disclosure: I am an adviser to the pollsters). There is widespread agreement that it is best to have a stable job and to have completed college before tying the knot. But there is less agreement in the 3,000-person survey on other questions, including premarital cohabitation.

Living in sin, or preparing for commitment?

In response to the question of whether it is “important to live with your future spouse before getting married,” a clear gap emerges between those who identify as Democrats and those who identify as Republicans. This gap trumps the generational one, with younger Republicans (under 40) more conservative than Democrats over the age of 40:

The importance of family stability for a child’s wellbeing and prospects is well-documented, not least in Isabel Sawhill’s book, Generation Unbound. The question is not whether stability matters, but how best to promote it. To the extent that biological parents stay together and provide a stable environment, it doesn’t much matter if they are married. For children living with both biological parents, there is no difference in outcomes between those being raised by a married couple compared to a cohabiting couple, according to research by Wendy Manning at Bowling Green State University.

But people who marry are much more likely to stay together:

Marriage, at least in America, does seem to act as an important commitment device, a “co-parenting” contract for the modern world, as I’ve argued in an essay for The Atlantic, “How to Save Marriage in America.”

The varied meaning of “cohabitation”

Cohabitation can signal radically different situations. A couple who plan to live together for a couple of years, then marry, and then plan the timing of having children are very different from a couple who start living together, accidentally get pregnant, and then, perhaps somewhat reluctantly, get married.

There is some evidence that cohabitation is in fact becoming a more common bridge to marriage and commitment. First-time premarital cohabiting relationships are also lasting longer on average and increasingly turn into marriage: around seven in ten cohabiting couples are still together after three years, of whom four have married.

In the end what matters is planning, stability, and commitment. If cohabitation is a planned prelude to what some scholars have labeled “decisive marriages,” it seems likely to prove a helpful shift in social norms, by allowing couples to test life under the same roof before making a longer-term commitment. Sawhill’s distinction between “drifters” and “planners” in terms of pregnancy may also be useful when it comes to thinking about cohabitation, too.

      

The Horatio Alger ideal of upward mobility has a strong grip on the American imagination (Reeves 2014). But recent years have seen growing concern about the distance between the rhetoric of opportunity and the reality of intergenerational mobility trends and patterns.

The related issues of equal opportunity, intergenerational mobility, and inequality have all risen up the agenda, for both scholars and policymakers. A growing literature suggests that the United States has fairly low rates of relative income mobility, by comparison to other countries, but also wide variation within the country. President Barack Obama has described the lack of upward mobility, along with income inequality, as “the defining challenge of our time.” Speaker Paul Ryan believes that “the engines of upward mobility have stalled.”

But political debates about equality of opportunity and social and economic mobility often provide as much heat as light. Vitally important questions of definition and motivation are often left unanswered. To what extent can “equality of opportunity” be read across from patterns of intergenerational mobility, which measure only outcomes? Is the main concern with absolute mobility (how people fare compared to their parents)—or with relative mobility (how people fare with regard to their peers)? Should the metric for mobility be earnings, income, education, well-being, or some other yardstick? Is the primary concern with upward mobility from the bottom, or with mobility across the spectrum?

In this paper, we discuss the normative and definitional questions that guide the selection of measures intended to capture “equality of opportunity”; briefly summarize the state of knowledge on intergenerational mobility in the United States; describe a new microsimulation model designed to examine the process of mobility—the Social Genome Model (SGM); and how it can be used to frame and measure the process, as well as some preliminary estimates of the simulated impact of policy interventions across different life stages on rates of mobility.

The three steps being taken in mobility research can be described as the what, the why, and the how. First, it is important to establish what the existing patterns and trends in mobility are. Second, to understand why they exist—in other words, to uncover and describe the “transmission mechanisms” between the outcomes of one generation and the next. Third, to consider how to weaken those mechanisms—or, put differently, how to break the cycles of advantage and disadvantage.

Download "Modeling Equal Opportunity" »

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• Download "Modeling Equal Opportunity"

      

Community colleges are a vital part of America’s opportunity structure, not least because they often provide a way into higher education for adults from less advantaged backgrounds. Each year there are around 10 million undergraduates enrolled at public, two-year colleges. Among first-generation students, nearly 38 percent attend community colleges, compared to 20 percent of students with college-educated parents.

Credentials from community colleges—whether short vocational courses or two-year associate degrees—can be valuable in the labor market. In theory, community colleges also provide an on-ramp for those seeking a bachelor’s degree; in fact, four out of five students enrolling intend to get a 4-year degree.

But the potential of community college is often unrealized. Many students are not ready. Quality varies. Pathways are often unclear and/or complex. Only about 40 percent of those enrolling earn a degree within six years. Just 15 percent acquire a 4-year degree, according to analyses by Doug Shapiro and Afet Dundar at the National Student Clearinghouse Research Center.

Transfers rates from community college vary dramatically by state

The degree of alignment and integration between community and four-year colleges is much greater in some states than others. Some use common course numbering for 2- and 4-year institutions, which helps students find the classes they need without racking up costly excess credits. In others, universities and community colleges have tried to align their curriculum to ensure that students’ transfer credits will be accepted.

Individual institutions like Queensborough College (part of the CUNY system) and Miami-Dade College have streamlined course sequences to help their students stay on track to transfer into 4-year schools, as Thomas Bailey, Shanna Jaggers, and Davis Jenkins describe in their book, Redesigning America’s Community Colleges. There’s some indirect evidence that these initiatives increased retention and graduation rates.

These policy differences help to explain the very different stories of transfer rates in different states, revealed in a recent study by Davis Jenkins and John Fink. One important measure is the proportion of students transferring out of community college with a certificate or associate degree already in hand:

Florida tops the list, partly because of state legislation requiring that community colleges grant eligible transfer students degrees—but also because of concerted investments at the state and institutional levels to improve 2-year institutions.

Another measure of success is the proportion of those who transfer ending up with a four-year degree. Again, there are significant variations between states:

Since community colleges serve so many more students from poor backgrounds, the importance of the transfer pathway for social mobility is clear. Many who struggle at high school may begin to flourish in the first year or two of post-secondary education. As their skills are upgraded, so their opportunities should widen. But too often they become trapped in the silos of post-secondary education. We should continue to support efforts like pathway programs that explicitly attempt to build bridges between community colleges and high-quality four year institutions through the creation of clear and consistent major-specific program maps. Such programs allow students starting out at community colleges to easily chart out the specific, clear, and coherent set of steps needed to eventually finish their post-secondary education with a four-year degree.

Tuning an American engine of social mobility

The mission of community colleges since their inception a century ago has been to broaden access to education. Today that means providing a solid education to all students, but also providing opportunities to move on to other institutions.

       

Like many Brits, I’m reeling. Everyone knew that the "Brexit" referendum was going to be close. But deep down I think many of us assumed that the vote would be to remain in the European Union. David Cameron had no realistic choice but to announce that he will step down.

Mr. Cameron’s fall can be traced back to a promise he made in the 2010 election to cap the annual flow of migrants into the U.K. at less than 100,000, "no ifs, no buts."Membership in the EU means free movement of labor, so this was an impossible goal to reach through direct policy. I served in the coalition government that emerged from the 2010 election, and this uncomfortable fact was clear from the outset. I don’t share the contents of briefings and meetings from my time in government (I think it makes good government harder if everyone is taking notes for memoirs), but my counterpart in the government, Mr. Cameron’s head of strategy, Steve Hilton, went public in the Daily Mail just before this week’s vote.

Steve recalled senior civil servants telling us bluntly that the pledged target could not be reached. He rightly fulminated about the fact that this meant we were turning away much more skilled and desirable potential immigrants from non-EU countries in a bid to bring down the overall number. What he didn’t say is that the target, based on an arbitrary figure, was a foolish pledge in the first place.

Mr. Cameron was unable to deliver on his campaign pledge, and immigration to the U.K. has been running at about three times that level. This fueled anger at the establishment for again breaking a promise, as well as anger at the EU. In an attempt to contain his anti-European right wing, Mr. Cameron made another rash promise: to hold a referendum.

The rest, as they say, is history. And now, so is he.

Immigration played a role in the Brexit campaign, though it seems that voters may not have made a clear distinction between EU and non-EU inward movement. Still, Thursday’s vote was, at heart, a plebiscite on what it means to British. Our national identity has always been of a quieter kind than, say the American one. Attempts by politicians to institute the equivalent of a Flag Day or July Fourth, to teach citizenship in schools, or to animate a “British Dream” have generally been laughed out of court. Being British is an understated national identity. Indeed, understatement is a key part of that identity.

Many Scots, Welsh and Northern Irish feel a much stronger affinity to their home nation within the U.K. than they do to Great Britain. Many Londoners look at the rest of England and wonder how they are in the same political community. These splits were obvious Thursday.

Identity politics has tended in recent years to be of the progressive kind, advancing the cause of ethnic minorities, lesbians and gays, and so on. In both the U.K. and the U.S. a strongly reactionary form of identity politics is gaining strength, in part as a reaction to the cosmopolitan, liberal, and multicultural forms that have been dominant. This is identity politics of a negative kind, defined not by what you are for but what you are against. A narrow majority of my fellow Brits just decided that at the very least, being British means not being European. It was a defensive, narrow, backward-looking attempt to reclaim something that many felt had been lost. But the real losses are yet to come.

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Editor's Note: This piece originally appeared in the Wall Street Journal's Washington Wire.

       

Event Information

China’s outbound investment is expected to increase by leaps and bounds in the next decade. Chinese companies are poised to become a major economic force in the global economy. Outbound direct investment by Chinese companies presents unprecedented opportunities for both Chinese companies and their global partners.

The relatively brief history of Chinese companies’ outbound investment indicates, however, that Chinese outbound FDI faces many hurdles both at home and in the destination countries. How can we assess the regulatory, financial, labor, environmental and political risks faced by Chinese multinational companies? What remedies can mitigate such risks for the Chinese firms, for the host countries of Chinese investment and for the Chinese government and people?

The Brookings-Tsinghua Center for Public Policy co-hosted with the 21st Century China Program at UC San Diego, and in collaboration with the Enterprise Research Institute and Tsinghua’s School of Public Policy and Management, a two-day conference at Tsinghua University in Beijing, China, on September 23 and 24, 2013. The conference gathered leading experts, policy makers and corporate leaders to examine the latest research on trends and patterns of Chinese outbound direct investments; the regulatory framework and policy environment in China and destination countries (particularly, but not only in the U.S.); and the implications of Chinese outbound direct investment for China’s economic growth and the global economy. Keynote speakers of each day were Jin Liqun, chairman of China International Capital Corporation, and Gary Locke, U.S. ambassador to China. Mr. Jin suggested that China’s foreign direct investment companies should cooperate with local firms and be willing to talk to the local governments about their problems. Ambassador Locke, on the other hand, introduced the advantages of the U.S. as an investment destination country. He also agreed that investors were supposed to get local help to achieve success.

The audiences included major Chinese companies, service providers in the area of overseas direct investment, policy makers and scholars.

Read more about the speakers and the conference agenda »

Video

• Overview of China's Overseas Investments: Trends, Patterns and Comparison
• Chinese ODI: Motivation and Policy Environment
• Risk Management in Chinese ODI
• China's Outbound Direct Investment - Gary Locke Keynote Address
• Regulatory Environments in Destination Countries (Non-U.S.)
• Regulatory Environments in Destination Countries (Focusing on the U.S.)
• Labor, Environment, and Community Relations in Destination Countries

Transcript

• Keynote speech of U.S. Ambassador to China Gary Locke (.pdf)

Event Materials

• Remarks of Ambassador Locke
• Brian Beglin slides
• Daniel Levine slides
• Jiang Heng slides
• LIU Qian
• Matt Ferchen slides
• Steve Olson slides
• Tang Xiaoyang slides
• Thilo Hanemann slides
• Weiyi Shi slides
• Kang Rongping slides
• Duan Zhirong slides

       

       

       

Introduction

Reaching education goals in the coming years will require sharp increases in funding and better delivery. Despite a global focus on improving access to education, nearly 60 million children in developing countries remain out of primary school and increased investments have not translated to better education quality or improved learning outcomes (UNESCO 2015a). Even with an increase in domestic public expenditure, UNESCO estimates that the financing gap for delivering good quality universal education from pre-school through junior secondary levels by 2030 in low-income countries will be $10.6 billion, on average, between 2015 and 2030—over four times the level currently provided by official donors ($2.3 billion) (UNESCO 2015b).

Closing acute financing and delivery gaps that prevent access to quality education will be a major challenge, requiring all hands on deck. Domestic governments and foreign donors will need to step up their game substantially, but fiscal and capacity constraints are likely to prevent them remedying resource deficits on their own in the short term. Non-state actors—mainly religious and charitable organizations, private (“foundation”) schools, and a small number of for-profit schools—are already partially filling the gaps, although the precise extent of their services and their impact is unknown.

Determining the appropriate role of non-state actors in education is a contentious topic among specialists. Disagreements have revolved around serious normative issues, including such basic questions as whether non-state provision is consistent with the principle of education as a human right, and serious empirical questions relating to quality and equity implications. This discussion has been blurred by definitional issues (i.e., what is non-state and private education?); lack of clarity over distinctions between ownership, delivery, and financing; a lack of accurate data on current and potential provision rates; and an insufficient base of evidence from which to draw clear conclusions on the effectiveness of non-state engagement in education. These problems have made it difficult to generate comparisons across empirical studies, leading to significant variation in the interpretation of evidence. For some observers, evidence has fueled concern that non-state education is violating human rights principles (e.g., the report by the United Nations Rapporteur on Education),1 while for others it has provided encouragement that non-state engagement can help address financing and delivery challenges (e.g., Tooley 2009).

Our goal is to provide a neutral background to this debate and identify areas of common ground. Beginning with some big picture facts, this paper develops a detailed language around non-state actors in education. We then outline current issues and poles of debate around engagement of non-state actors in education and provide an assessment of the depth of available data and evidence. To close, we establish a typology and propose a framework for discussions around the role of non-state actors in basic education and how these actors can best contribute to the achievement of Education for All and the Sustainable Development Goals (SDGs). Our paper refers largely to basic education, including pre-primary, primary, and lower-secondary, as this is the main focus of much recent discussion around the role of non-state actors in education and an area of strong growth in developing countries.

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Editor’s Note: This blog post is one in a series of posts in which guest bloggers respond to the Brookings paper, “The potential and limitations of impact bonds: Lessons from the first five years of experience worldwide."

Constitutional mandate for ECD in Kenya

In 2014, clause 5 (1) of the County Early Childhood Education Bill 2014 declared free and compulsory early childhood education a right for all children in Kenya. Early childhood education (ECE) in Kenya has historically been located outside of the realm of government and placed under the purview of the community, religious institutions, and the private sector. The disparate and unstructured nature of ECE in the country has led to a proliferation of unregistered informal schools particularly in underprivileged communities. Most of these schools still charge relatively high fees and ancillary costs yet largely offer poor quality of education. Children from these preschools have poor cognitive development and inadequate school readiness upon entry into primary school.

Task to the county government

The Kenyan constitution places the responsibility and mandate of providing free, compulsory, and quality ECE on the county governments. It is an onerous challenge for these sub-national governments in taking on a large-scale critical function that has until now principally existed outside of government.

In Nairobi City County, out of over 250,000 ECE eligible children, only about 12,000 attend public preschools. Except for one or two notable public preschools, most have a poor reputation with parents. Due to limited access and demand for quality, the majority of Nairobi’s preschool eligible children are enrolled in private and informal schools. A recent study of the Mukuru slum of Nairobi shows that over 80 percent of 4- and 5-year-olds in this large slum area are enrolled in preschool, with 94 percent of them attending informal private schools.

In early 2015, the Governor of Nairobi City County, Dr. Evans Kidero, commissioned a taskforce to look into factors affecting access, equity, and quality of education in the county. The taskforce identified significant constraints including human capital and capacity gaps, material and infrastructure deficiencies, management and systemic inefficiencies that have led to a steady deterioration of education in the city to a point where the county consistently underperforms relative to other less resourced counties. 

Potential role of impact bonds

Nairobi City County now faces the challenge of designing and implementing a scalable model that will ensure access to quality early childhood education for all eligible children in the city by 2030. The sub-national government’s resources and implementation capacity are woefully inadequate to attain universal access in the near term, nor by the Sustainable Development Goal (SDG) deadline of 2030. However, there are potential opportunities to leverage emerging mechanisms for development financing to provide requisite resource additionality, private sector rigor, and performance management that will enable Nairobi to significantly advance the objective of ensuring ECE is available to all children in the county.

Social impact bonds (SIBs) are one form of innovative financing mechanism that have been used in developed countries to tap external resources to facilitate early childhood initiatives. This mechanism seeks to harness private finance to enable and support the implementation of social services. Government repays the investor contingent on the attainment of targeted outcomes. Where a donor agency is the outcomes funder instead of government, the mechanism is referred to as a development impact bond (DIB).

The recent Brookings study highlights some of the potential and limitations of impact bonds by researching in-depth the 38 impact bonds that had been contracted globally as of March, 2015. On the upside, the study shows that impact bonds have been successful in achieving a shift of government and service providers to outcomes. In addition, impact bonds have been able to foster collaboration among stakeholders including across levels of government, government agencies, and between the public and private sector. Another strength of impact bonds is their ability to build systems of monitoring and evaluation and establish processes of adaptive learning, both critical to achieving desirable ECD outcomes. On the downside, the report highlights some particular challenges and limitations of the impact bonds to date. These include the cost and complexity of putting the deals together, the need for appropriate legal and political environments and impact bonds’ inability thus far to demonstrate a large dent in the ever present challenge of achieving scale.

Challenges in implementing social impact bonds in Kenya

In the Kenyan context, especially at the sub-national level, there are two key challenges in implementing impact bonds.

To begin with, in the Kenyan context, the use of a SIB would invoke public-private partnership legislation, which prescribes highly stringent measures and extensive pre-qualification processes that are administered by the National Treasury and not at the county level. The complexity arises from the fact that SIBs constitute an inherent contingent liability to government as they expose it to fiscal risk resulting from a potential future public payment obligation to the private party in the project.

Another key challenge in a SIB is the fact that Government must pay for outcomes achieved and for often significant transaction costs, yet the SIB does not explicitly encompass financial additionality. Since government pays for outcomes in the end, the transaction costs and obligation to pay for outcomes could reduce interest from key decision-makers in government.

A modified model to deliver ECE in Nairobi City County

The above challenges notwithstanding, a combined approach of results-based financing and impact investing has high potential to mobilize both requisite resources and efficient capacity to deliver quality ECE in Nairobi City County. To establish an enabling foundation for the future inclusion of impact investing whilst beginning to address the immediate ECE challenge, Nairobi City County has designed and is in the process of rolling out a modified DIB. In this model, a pool of donor funds for education will be leveraged through the new Nairobi City County Education Trust (NCCET).

The model seeks to apply the basic principles of results-based financing, but in a structure adjusted to address aforementioned constraints. Whereas in the classical SIB and DIB mechanisms investors provide upfront capital and government and donors respectively repay the investment with a return for attained outcomes, the modified structure will incorporate only grant funding with no possibility for return of principal. Private service providers will be engaged to operate ECE centers, financed by the donor-funded NCCET. The operators will receive pre-set funding from the NCCET, but the county government will progressively absorb their costs as they achieve targeted outcomes, including salaries for top-performing teachers. As a result, high-performing providers will be able to make a small profit. The system is designed to incentivize teachers and progressively provide greater income for effective school operators, while enabling an ordered handover of funding responsibilities to government, thus providing for program sustainability.

Nairobi City County plans to build 97 new ECE centers, all of which are to be located in the slum areas. NCCET will complement this undertaking by structuring and implementing the new funding model to operationalize the schools. The structure aims to coordinate the actors involved in the program—donors, service providers, evaluators—whilst sensitizing and preparing government to engage the private sector in the provision of social services and the payment of outcomes thereof.

      

The confluence of the agreement on 17 Sustainable Development Goals (SDGs, or Global Goals) in 2015, and the increased attention being paid to the role of non-traditional actors in contributing to shared prosperity, provide a unique opportunity to focus attention on attempts to identify promising new solutions to the barriers that impede the full development of the world’s youngest citizens. Current estimates indicate that 200 million children globally under the age of 5 are at risk of not reaching their development potential. With these goals, the global community has a tremendous opportunity to change the course of history. There is evidence that certain early childhood development (ECD) interventions—spanning the nutrition, health, water and sanitation, education, social protection, and governance sectors from conception to age 5—have high potential to help to achieve the SDGs related to child development. Furthermore, early childhood interventions have been found to improve adult health and education levels, reduce crime, and raise employment rates, which will be paramount to achieving global economic, climate, and physical security.

Impact bonds have the potential to address some of the main financing and delivery constraints faced in ECD. By providing upfront private capital, impact bonds could help to address service provider liquidity constraints and leverage public capital by allowing the government to connect preventive programs with future benefits to individuals, society, and the economy. Impact bonds also have the potential to drive performance management, support monitoring and evaluation, and create accountability, which all help to address quality and capacity constraints. By fostering innovation, experimentation and adaptive learning in service delivery, cost-effective solutions could be identified through impact bonds. By producing evidence of outcome achievement, impact bonds could shift the focus toward effective ECD programs. Finally, collaboration across stakeholders—a necessary component of impact bonds—has the potential to allow for alignment of interests and a win-win situation for investors, outcome funders, and program beneficiaries alike.

The high participation of non-state actors and potentially significant returns in ECD make it a promising sector for impact bonds. Unlike other services that may have entrenched interests, the multitude of agencies and non-state entities financing and providing ECD services potentially allows for more experimentation. The preventive nature of ECD programs also fits well with the core feature of SIBs, which is that preventive investments will result in valuable short- and potentially long-term outcomes. There is evidence that ECD interventions can have immense effects on later-life outcomes. For example, a longitudinal study of a program in Jamaica, in which participants received weekly visits from community health workers over a 2-year period, was found to increase the earnings of participants by 25 percent, 20 years later.

There may, however, be some particular challenges associated with applying impact bonds in the ECD sector. Impact bonds (and other Payment by Results mechanisms tied to outcomes) require meaningful outcomes that are measureable within a timeframe that is reasonable to the outcome funder (and investors in the case of an impact bond). Meaningful outcomes are outcomes that are intrinsically or extrinsically valuable. Intrinsically valuable outcomes that are measureable within a reasonable timeframe could be extrinsically valuable if they are proxies for long-term benefits to individuals, society, or the economy. The delay between ECD interventions and later-life results may prove an impediment in some cases. By identifying appropriate interim measures such as language development, socioemotional development, and schooling outcomes that may proxy for desirable longer-term outcomes, the issue of delay could be mitigated. For example, there is evidence that early stimulation and health programs can have statistically significant effects on schooling outcomes in the short-run. An increase in focus on the intrinsic value of short-term outcomes that result from ECD interventions, such as child survival, is also important.

As the global community moves beyond the Millennium Development Goals to a set of Global Goals and associated targets linked to measurable outcomes, there is an opportunity to demonstrate a commitment to invest in future generations. Leveraging upfront funding, focusing on outcomes through adaptive learning and testing new ways to deliver early childhood interventions more effectively are all means of achieving the ECD-related goals. Despite the hype around all of the new financing mechanisms, the keys to creating high-quality, locally appropriate programs remains simple—real-time collection of outcome data, the freedom to fail, and the flexibility to course-adjust. In some circumstances social service provision based on outcomes and adaptive learning may require mechanisms like impact bonds or other Payment by Results mechanisms. In other circumstances it may not. As this very nascent field continues to grow, more research will be needed to capture lessons learned, contextualize them within the larger landscape of ECD financing and service provision, and apply them to real-world social challenges with the world’s youngest and most disadvantaged populations at the forefront of the conversation. 

Read the previous report on the landscape of impact bonds across sectors and geography »

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March 18 was an historic day for early childhood development (ECD) financing—the Departments of Social Development and Health of the Western Cape province of South Africa committed 25 million rand ($1.62 million) in outcome funding for three social impact bonds (SIBs) for maternal and early childhood outcomes. This is the first ever funding committed by a middle-income government for a SIB—to date no low-income country governments have participated in a SIB either—making South Africa’s choice to pioneer this new path especially exciting.

A SIB is a financing mechanism for social outcomes where investors provide upfront capital for services and a government agency repays investors contingent on outcome achievement. There are currently two active development impact bonds or DIBs (where a donor provides outcome funding rather than a government agency) in middle-income countries, one for coffee production in Peru and one for girls’ education in India. The South African SIBs, whose implementation was facilitated by the Bertha Centre for Social Innovation and Entrepreneurship at the University of Cape Town and Social Finance U.K. as well as other organizations, will be the first impact bonds in Africa.

We have been following closely the development of these SIBs over the last two years through our research on the potential applications of impact bonds for ECD outcomes, and recently hosted a discussion on the topic at Brookings. There are currently nine other impact bonds worldwide that include outcomes for children ages 0 to 5, including two recently announced impact bonds in the U.S. for nurse home-visiting in South Carolina and support for families struggling with substance abuse in Connecticut.

Impact bonds are well suited to fund interventions that have high potential returns to society; that require learning, adaptability, and combinations of services to achieve those returns; and that are not core government-funded services (often resulting in a relative proliferation of non-state providers). In our recent report, we find that a majority of evaluations show ECD can have unparalleled returns, but there are also a number of evaluations that show no significant impact or where impact fades out. Overall however, there are few evaluations relative to the number of service providers and interventions, an indication of how little we know about the effectiveness of the majority of service providers. For example, there are only 15 studies examining the effects of ECD interventions in low- and middle-income countries on later-life socioemotional development, which has been shown to be a critical determinant of success in school and life.

The case for government investment is strong, but continuous learning and adaptation is needed to ensure the high potential impacts are achieved. Tying payments to outcomes could help the ECD sector in three ways: it could encourage new government investment in ECD, it could encourage performance management and adaptability, and, crucially, it could help develop the knowledge base of what works in ECD. Unlike some other sectors where providers are able to finance their own operations to participate in a results-based (performance-based) contract through fees or other cash flows, ECD providers will almost always require upfront capital in order to reach the most vulnerable. Consequently, we find that, despite some significant challenges, ECD interventions are particularly well suited to impact bonds.

For this reason, there are three things we find particularly exciting about these new SIBs for early childhood development in South Africa:

1. Collaboration of two departments to ensure a continuity of outcome measurement and, hopefully, achievement. Given their different mandates, the Department of Health will fund outcomes for pregnant mothers and children in their first 1,000 days and the Department of Social Development will fund outcomes for children ages 2 to 5. The Bertha Centre writes that “the funding will be made available to three community based organizations working with pregnant women and children up to five years of age with outcomes including improved antenatal care, prevention of mother to child transmission of HIV, exclusive breastfeeding, a reduction in growth stunting, and improved cognitive, language and motor development.” 

The continuity of quality services is essential to sustaining the impacts of early childhood services, and this is the first set of impact bonds to address outcomes across the development spectrum from age 0 to 5. Selecting outcomes however, particularly for more complex learning outcomes for children ages 3 to 5, can be one of the greatest challenges for impact bonds in the ECD sector.

A full list of recommended outcome metrics for ECD impact bonds is available in our report.

2. Outcome fund structure. The SIBs in South Africa have been designed as impact bond funds, where the outcome funder issues a rate card of prices it is willing to pay for certain outcomes and multiple service providers are awarded contracts to provide those outcomes. This structure, which has been implemented in four instances in the U.K., could help facilitate impact bonds at greater scale than what we have seen thus far.

At the Brookings event on impact bonds, Louise Savell of Social Finance U.K., explained that scale was critical in the South African case because there are few providers that work across the entire province. While the discussion around pricing outcomes in the U.K. was more focused on future value to the economy, the discussion in South Africa had to be more attuned to the price of providing services. These delivery prices differ greatly by township, which may result in different outcome payment prices by township. The impact bond designers also had to ensure the outcome price allowed for providers to serve the hardest to reach.

3. Matching of private-sector outcome funds. This is the first impact bond to date where private-sector actors will augment outcome funds, in addition to serving as investors. Impact bonds take a great deal of work for a government agency to establish—though it will likely drop over time—and additional or matching of outcome funds will be critical to making this effort worthwhile for low- and middle-income country governments.

Looking forward, it will be interesting to compare and contrast the structure and design of these SIBs with the impact bonds for ECD outcomes in Cameroon, India, and potentially other countries as they launch in the coming years. Each impact bond must be designed taking into consideration the particular issues and challenges in a given context. However, sharing learnings from one impact bond to the next will likely improve both efficiency and quality of the impact bond implementation. 

       

This week the Dutch Ministry of Security and Justice announced that it will pay for the successful achievement of employment and prison recidivism outcomes among short-term adult prisoners as part of the new “Work After Prison” social impact bond (SIB)—the fifth such transaction in the Netherlands and one of about 60 in the world. In a SIB—which is a mix of results-based financing, a public-private partnership, and impact investing—private investors provide upfront capital for preventive social services, and in turn an outcome funder (usually government) pays them back plus a return contingent upon the achievement of agreed-upon outcomes. Where consistent social outcomes achievement poses challenges, this model has considerable potential to create a path forward.

What is the social challenge?

Each year in the Netherlands, around 40,000 adults are incarcerated and about 30,000 are released. What’s troubling is that the rate of recidivism two years after release from prison is nearly 50 percent. And the costs of successful reintegration and reduced recidivism rates are high and include enormous amounts of social benefits paid out to previously incarcerated individuals. Multi-pronged approaches are often necessary including programs that address housing needs, employment, mental health and substance abuse issues, and debt settlement. Addressing all of these challenges simultaneously is difficult and often the right incentives are not in place for the outcomes of importance to be at the forefront of decision-making. But SIBs may offer a promising way to meet these hurdles.

Who are the players in the SIB?

In a typical SIB, the players at the table include an outcome funder (government), investors (usually impact investors including foundations), a service provider or providers (usually a non-governmental entity but it can also be public), and the beneficiary population. In addition, there can be external evaluators who assess whether or not the agreed-upon outcome has been achieved; and, in many SIBs, there is also an intermediary party that brings the stakeholders to the table, structures the deal, manage the deal, or conducts performance management for the service provider.

The Dutch SIB for prison recidivism has a total of 10 players not including the beneficiary population. Most interestingly, this deal differs from all four previous SIBs in the Netherlands in that the outcome funder, the Ministry of Security and Justice, is at the national level rather than subnational level—the previous outcome funders were all municipal governments. Notably, less than half of the SIBs in the world have a national-level outcome funder. The Dutch bank ABN Amro, the Start Foundation, and Oranje Fonds are equal investors (and have all invested in previous Dutch SIBs). Three organizations that are part of the Work-Wise Direct Consortium—Exodus Foundation, Restart, and Foundation 180—will provide services to the population in need. Society Impact, an organization supporting social entrepreneurship and innovative financing in the Netherlands, acted as a matchmaker in the transaction by helping to bring all parties to the table. An evaluation arm of the Ministry of Security and Justice and a research entity, Panteia will evaluate whether or not outcomes are achieved.

The beneficiary population includes 150 adults who have been in prison between three and 12 months. There is no targeting based on type of crime, age, or gender and consent must be provided by the participant and the municipality.

What’s at stake?

There are two outcome metrics established in this SIB. In a period of two and half years, the outcome funder will repay investors the principal investment of 1.2 million euros plus a maximum return of 10 percent of the investment (but expected return is around 5 percent) contingent upon: 1) a 25 to 30 percent decrease in the social benefits issued to the previously incarcerated participants (which is estimated to require a 882-month increase in labor force participation by the entire group); and 2) a 10 percent reduction in recidivism among the participants.

Who will benefit?

The beneficiary population

In theory, with all eyes on the target (outcomes), beneficiary populations have a greater chance of success with this results-based financing mechanism compared to traditional input-based financing contracts. The potential for greater collaboration among stakeholders, performance management, and adaptive learning should all bode well for the delivery of the set goals. This could allow for improvements even beyond the targets within the impact bond structure such as improved family life, higher earnings, and increased civic participation.

The outcome funder (and taxpayers)

For the Ministry of Security and Justice, the SIB provides an opportunity to shift to private investors the implementation and financial risk of funding social service programs. If outcomes are achieved, then the ministry repays the investors an amount that represents the value they place on outcome achievement, and if outcomes are not achieved, then they do not pay. What’s more, the ministry could benefit from reduced costs as a result of shifting from remedial to preventive services. Additional cost savings, in particular the reduction in social welfare benefits, and other inherent benefits will be accrued to other government entities as well as society as a whole.

The service providers

There can be multiple benefits for services providers. First, the availability of upfront capital allows them to do their job better. Second, the longer-term (multi-year) contract reduces time spent on grant proposals and allows for more steady funding flows. Third, the SIB can provide an opportunity to strengthen the providers’ systems of data collection. Fourth, it allows the service providers to conduct a rigorous evaluation of their program. Further, SIBs can allow for flexibility and learning-by-doing in the delivery of the social services.

The investors

The three investors in this SIB have an opportunity to earn a financial return of maximum 10 percent if outcomes are successfully achieved. In addition, they benefit from having contributed to the improvement of the lives of the target population and their families. Furthermore, they could generate an impact that goes way beyond the SIB itself. They have the potential to create larger systemic change in the provision of social services by shifting government’s focus away from how services are delivered to which outcomes they want to achieve and by helping to build systems of monitoring and evaluation that allow for systematic assessment of those outcomes.

A way forward

Six years after the implementation of the first SIB for prison recidivism in the United Kingdom, this creative idea has spread to at least 12 other countries with the aim of tackling some of the world’s most intractable social problems. The Netherlands, known globally as a leader on many social and environmental issues, is taking a leading role in the adoption of this mechanism. Moving forward, the rest of the world will be watching to see what lessons can be gleaned from these early experiments as the burden of tough societal issues and potential solutions become increasingly global in nature.

       

“This is about governments using data for performance rather than compliance” was a resounding message coming out of the U.S. Department of Education’s conference on June 10 on the use of Pay for Success contracts in education. These contracts, known globally as social impact bonds, continue to be at the forefront of global conversations about results-based financing mechanisms, and have garnered significant momentum this week with passage of the Social Impact Partnerships for Pay for Results Act in the U.S. While limitations certainly exist, their potential to revolutionize the way we fund social projects is tremendous.

A social impact bond (SIB) is a set of contracts where a government agency agrees to pay for service outputs or outcomes, rather than funding defined service inputs, and an investor provides upfront risk capital to the service provider. The investor is potentially repaid principal and interest contingent on the achievement of the predetermined outputs or outcomes.

In our research on impact bonds at the Center for Universal Education, we have analyzed the use of SIBs for education in the U.S., other high-income countries, and low- and middle-income countries. Practitioners in each of these contexts are having far more similar conversations than they may realize—all are united in their emphasis on using SIBs to build data systems for performance. There is tremendous potential for lessons learned across these experiences and across the broader discussions of results-based financing mechanisms for education globally.

Current SIBs for education globally

There are currently five SIBs for education worldwide: two in the U.S. for preschool education, one in Portugal for computer science classes in primary school, and one each in Canada and Israel for higher education. In addition, a number of countries have used the SIB model to finance interventions to promote both education and employment outcomes for teens—there are 21 such SIBs in the U.K., three in the Netherlands, and one in Germany. There is also a Development Impact Bond (DIB), where a donor rather than government agency serves as the outcome funder, for girls’ education in India. The Center for Universal Education will host a webinar to present the enrollment and learning outcomes of the first year of the DIB on July 5 (register to join here).

U.S. activities to facilitate the use of SIBs for education

At the June 10 conference at the Department of Education, the secretary of education and the deputy assistant to the president for education said that they saw the greatest potential contribution of SIBs in helping to scale what works to promote education outcomes and in broadening the array of partners involved in improving the education system. Others pointed out the value of the mechanism to coordinate services based on the needs of each student, rather than a multitude of separately funded services engaging the student individually. In addition to using data to coordinate services for an individual, participants emphasized that SIBs can facilitate a shift away from using data to measure compliance, to using data to provide performance feedback loops.

The interest in data for performance rather than compliance is part of a larger shift across the U.S. education sector, represented by the replacement of the strict compliance standards in the No Child Left Behind Act of 2002 with the new federal education funding law, the Every Student Succeeds Act, signed into law in December of 2015. The law allows for federal outcome funding for SIBs in education for the first time, specifically for student support and academic enrichment programs. The recently passed Social Impact Partnerships for Pay for Results Act also allows for outcome funding for education outcomes. The Department of Education conference explored potential applications of SIBs across the education sector, including for early home visiting programs, programs to encourage completion of higher education programs, and career and technical education. The conference also analyzed the potential to use SIBs for programs that support specific disadvantaged populations, such as dual language learners in early education, children of incarcerated individuals, children involved in both the child protection and criminal justice systems, and Native American youth. Overall, there was a focus on areas where the U.S. is spending a great deal on remediation (such as early emergency room visits) and on particular levers to overcome persistent obstacles to student success (such as parent engagement).

To help move the sector forward, the Department of Education announced three new competitions for feasibility study funding for early learning broadly, dual language learners in early education, and technical education. The department is also facilitating connections between existing evaluation and data system development efforts and teams designing SIBs. The focus on early childhood development by the Department of Education is reflective of the national field as a whole: Programming in the early years is becoming a particularly fast-growing sector for SIBs in the U.S. with over 40 SIBs feasibility and design stages.

SIBs for education in low- and middle-income countries

There is only one DIB for education in low- and middle-income countries; however, there are a number of SIBs and DIBs for education in design and prelaunch phases. In particular, the Western Cape Province of South Africa has committed outcome funding for three SIBs across a range of health and development outcomes for children ages 0 to 5.

Though the number of impact bonds may be relatively small, a significant amount of work has been done in the last 15 years in results-based financing for education. The U.K. Department for International Development (DfID), the Dutch Ministry of Foreign Affairs, the Asian Development Bank, the World Bank, the Global Partnership for Output-Based Aid, and Cordaid had together funded 24 results-based financing initiatives for education as of 2015. Of particular interest, DfID is funding results-based financing projects through a Girls Education Challenge and the World Bank launched a new trust fund for results-based financing in education in 2015. As with impact bonds in the U.S., a primary aim of results-based financing for education in low- and middle-income countries is to strengthen data and performance systems. Early childhood development programs and technical and vocational and training programs have also been identified as sub-sectors of high potential. Here are a few final takeaways for those working on results-based financing for education in low- and middle-income countries from the U.S. Department of Education conference:

1. The differences between the No Child Left Behind Act and the Every Student Succeeds Act should be analyzed carefully to ensure other data-driven education performance management systems promote both accountability and flexibility.
2. In building data systems through results-based financing, ensure services can be coordinated around the individual, feedback loops are available for providers, and data on early education, child welfare, parent engagement, and criminal justice involvement are also incorporated.
3. There are potential lessons to be learned from the U.S. Department of Education’s effort to conduct more low-cost randomized control trials in education and the U.S. Census Bureau’s data integration efforts.
4. SIBs provide an opportunity to work across agencies or levels of government in education, which could be particularly fruitful in both low- and middle-income countries and the U.S.

As the global appetite for results-based financing continues to grow and new social and development impact bonds are implemented throughout the world, we’ll have an opportunity to learn the true potential of such financing models.

       

       

       

       

       

       

       

       

       

       

Over 200 delegates from 50 countries gather this week in Washington for the Presidential Summit on Entrepreneurship. The summit hosts entrepreneurs to teach and learn innovative ways to strengthen professional and social relationships between the U.S. and the Islamic world. During his first major address to the Muslim world, delivered in Cairo last June, President Obama pledged to increase engagement through entrepreneurship, exchange programs and multilateral service initiatives.

Volunteer-led development initiatives have begun to act on Obama’s call for citizen diplomacy and private-sector engagement. The Initiative on International Volunteering and Service at Brookings and the Building Bridges Coalition have fueled an emerging legislative initiative that calls for increasing the role of international volunteers in the U.S. diplomatic agenda and development programs. This Service World Initiative has drawn from Brookings research outlining options to advance the president’s call for multilateral service.

As seen last year, for the first time in history, the majority of the world’s population lived in urban areas. And this trend is accelerating at an unprecedented rate. By 2050, urban dwellers are expected to make up about 70 percent of Earth’s total population. These informed 21st century urban citizens demand 24-7 connectivity, smart electric grids, efficient transportation networks, safe food and water, and transparent social services. All these demands place a huge strain on existing city infrastructures and the global environment. Most affected by this rapid urban boom, are the emerging markets. So how do we tackle this development dilemma?

One way is for highly-skilled experts, from a range of countries, to volunteer their time in emerging markets to help improve economic development, government services and stimulate job growth. This type of pro-bono program has many benefits. It benefits the urban areas in these emerging markets by leveraging intelligence, connecting systems and providing near-term impact on critical issues such as transportation, water, food safety, education and healthcare. It benefits the expert volunteers by fostering their teamwork skills, providing a cultural learning experience, and broadening their expertise in emerging markets.

IBM, which chairs the Building Bridges Coalition’s corporate sector, hosts a range of volunteer-led global entrepreneurship programs that improve economic stability for small- and medium-sized businesses, increase technology in emerging markets and open doors for the next generation of business and social leaders. This program connects high-talent employees with growing urban centers around the world and fosters the type of leadership to help IBM in the 21st century.

Recently, IBM sent a group of experts to Ho Chi Minh City as part of its Corporate Service Corps, a business version of the Peace Corps. This was the first Corporate Service Corps mission to be made up of executives, and the first to help a city in an emerging market analyze its challenges holistically and produce a plan to manage them. As a result, the city has now adopted a 10-year redevelopment plan that includes seven pilot programs in areas ranging from transportation to food safety. IBM will also help the city set up academic programs to prepare young Vietnamese to launch careers in technology services. IBM will continue this program throughout the next couple years to evolve the next set of global business and cultural hubs utilizing the volunteer hours of some of its most seasoned experts.

The Presidential Summit this week will further Obama’s call to “turn dialogue into interfaith service, so bridges between peoples lead to action.” The policy initiative of the Building Bridges Coalition, coupled with entrepreneurial innovations such as IBMs, can foster greater prosperity and service between the U.S. and our global partners.

      

President Obama’s emphasis on “smart power” diplomacy has thrust the need for international volunteer service into the global spotlight. On June 23, Global Economy and Development at Brookings and Washington University’s Center for Social Development (CSD) will host a forum examining how international volunteer service can address multiple global challenges simultaneously and build international cooperation. The forum will frame international service as an effective tool for increasing international social capital as well as building sustainable cross-cultural bridges.

This event begins with an address by service champion, Ambassador Elizabeth Frawley Bagley, who leads the Department of State’s Global Partnerships Initiative. Bagley is well poised to foster innovative public-private partnerships, an approach she describes as “Ubuntu Diplomacy: where all sectors belong as partners, where we all participate as stakeholders, and where we all succeed together, not incrementally but exponentially.” The need for multilateral approaches to development has been analyzed by Brookings scholars Jane Nelson and Noam Unger, who explore how the U.S. foreign assistance system works in the new market-oriented and locally-driven global development arena.

This spirit of cross-sector collaboration will carry the June 23^rd forum, beginning with a research panel releasing beneficiary outcome data from a Peace Corps survey completed with over 800 host country nationals, including community members, direct beneficiaries, and collaborators. Peace Corps colleagues, Dr. Susan Jenkins and Janet Kerley, will present preliminary findings from this multi-year study measuring the achievement of “helping the people of interested countries in meeting their need for trained men and women” and “promoting a better understanding of Americans on the part of the peoples served”. Aggregate data about respondents’ views of Americans before and after their interaction with the Peace Corps will be discussed.

This work complements the release of new data on the impact of international service on volunteers, which is supported with funding from the Ford Foundation and a joint Brookings-Washington University academic venture capital fund. Washington University’s CSD has studied international service over the last decade. The current research, first in a series from the quasi-experimental study, compares international volunteers’ perceived outcomes to a matched group who did not volunteer internationally: volunteers are more likely to report increased international awareness, international social capital, and international career intentions.

Building on the demonstrated potential of international service, policymakers and sector leaders will then discuss options for enhancing international service, and provide recommendations for bringing international service to the forefront of American foreign policy initiatives. This policy plenary will introduce and discuss the Service World policy platform: a collaborative movement led by the Building Bridges Coalition, National Peace Corps Association and the International Volunteering Initiative at Brookings. This powerhouse of sector leaders aims to scale international service to the levels of domestic volunteer service with increased impact through smart power policy proposals. What Service Nation did to unite Americans around domestic service as a core ideal and problem-solving strategy in American society, Service World hopes to do on a global scale.

Next week in New York City, the Points of Light Institute and the Corporation for National and Community Service will convene to further spotlight the Service World Platform at the 2010 National Conference on Volunteering and Service. This event will bring together more than 5,000 volunteer service leaders and social entrepreneurs from around the world, including local host Mayor Bloomberg. Michelle Nunn, CEO of Points of Light Institute noted in Huffington Post that “demand, idealism and presidential impact are leading American volunteerism to its…most important stage – the movement of service to a central role in our nation’s priorities.”

Nunn’s statement illustrates the momentum and power that make the voluntary sector a unique instrument in the “smart power” toolbox. According to successive polling from Terror Free Tomorrow, American assistance, particularly medical service, is a leading factor in favorable opinions toward the United States. A 2006 survey conducted in Indonesia and Bangladesh showed a 63 percent favorable response among Indonesian respondents to the humanitarian medical mission of “Mercy,” a United States’ Navel Ship, and a 95 percent favorable response among Bangladeshi respondents.

Personifying the diplomatic potential of medical service abroad is Edward O’Neil’s work with OmniMed. In the Mukono District of Uganda, OmniMed has partnered with the U.S. Peace Corps and the Ugandan Ministry of Health as well as local community-based organizations to implement evidence-based health trainings with local village health workers. Dr. O’Neil is now working with Brookings International Volunteering Initiative and Washington University’s CSD on a new wave of rigorous research: a randomized, prospective clinical trial measuring the direct impact of over 400 trained village health workers on the health of tens of thousands of villagers. 

In the words of Peace Corps architect and former U.S. Senator Harris Wofford, the pairing of new data and policy proposals on June 23^rd will support a “quantum leap” in the scale and impact of international service, advancing bipartisan calls to service from President Kennedy to Bush 41, Bush 43, Clinton and Obama.

      

Event Information

On June 23, Global Economy and Development at Brookings and Washington University’s Center for Social Development hosted a forum to examine how international volunteering and service serve as critical tools for meeting global challenges.

The forum framed international service as an integral component of “smart power” diplomacy and as a cost effective way to build cross-cultural bridges. Ambassador Elizabeth Frawley Bagley, special representative for global partnerships at the U.S. Department of State, delivered a keynote address on how the United States can better promote international service and its impact on American diplomacy, national security and global economies.

The research panel released new data on the impact of international service on volunteers, host communities and host country perceptions of volunteers from the United States. Policymakers and sector leaders discussed options for enhancing international service, and provided recommendations for bringing global service to the forefront of American foreign policy initiatives.

View the keynote speech by Ambassador Bagley »

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• Shared Global Responses to Shared Global Problems
• Young People Want To Make World Better Place
• Data Are Important to Enhancing Volunteerism

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• International Volunteering and Service
• International Volunteering and Service
• International Volunteering and Service
• International Volunteering and Service

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David Caprara, a Brookings nonresident fellow and expert on volunteering, says that John F. Kennedy’s call to service a half-century ago led to the founding of dozens of international aid organizations, and leaves a legacy of programs aimed at improving health, nutrition, education, living standards and peaceful cooperation around the globe.

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Volunteer, civil society and governmental delegates from 22 nations gathered in Johannesburg this month for the Southern Africa Conference on Volunteer Action for Development. The conference was co-convened by United Nations Volunteers (UNV) and Volunteer and Service Enquiry Southern Africa (VOSESA), in observance of the 10th anniversary of the United Nations International Year of Volunteers (IYV).

Naheed Haque, deputy executive coordinator for United Nations Volunteers, gave tribute to the late Nobel Laureate Wangari Mathai and her Greenbelt tree planting campaign as the “quintessential volunteer movement.” Haque called for a “new development paradigm that puts voluntarism at the center of community-centered sustainable development.” In this paradigm, human happiness and service to others would be key considerations, in addition to economic indicators and development outcomes including health and climate change.  

The international gathering developed strategies to advance three key priorities for the 15 nations in the Southern Africa Development Community (SADC): combating HIV/ AIDS; engaging the social and economic participation of youth; and promoting regional integration and peace. Research data prepared by Civicus provided information on the rise of voluntary service in Africa, as conferees assessed strategies to advance “five pillars” of effective volunteerism: engaging youth, community involvement, international volunteers, corporate leadership and higher education in service.

VOSESA executive director, Helene Perold, noted that despite centuries of migration across the region, the vision for contemporary regional cooperation between southern African countries has largely been in the minds of heads of states with “little currency at the grassroots level.” Furthermore, it has been driven by the imperative of economic integration with a specific focus on trade. Slow progress has now produced critiques within the region that the strategy for integrating southern African countries cannot succeed on the basis of economic cooperation alone. Perold indicated that collective efforts by a wide range of civic, academic, and governmental actors at the Johannesburg conference could inject the importance of social participation within and between countries as a critical component in fostering regional integration and achieving development outcomes. 

This premise of voluntary action’s unique contribution to regional integration was underscored by Emiliana Tembo, director of Gender and Social Affairs for the Common Market of Eastern and Southern Africa (COMESA). Along with measures promoting free movement of labor and capital to step up trade investment, Tembo stressed the importance of “our interconnectedness as people,” citing Bishop Desmond Tutu’s maxim toward the virtues of “Ubuntu – a person who is open and available to others.”

The 19 nation COMESA block is advancing an African free-trade zone movement from the Cape of South Africa, to Cairo Egypt. The “tripartite” regional groupings of SADC, COMESA and the East Africa Community are at the forefront of this pan-African movement expanding trade and development.

Preliminary research shared at the conference by VOSESA researcher Jacob Mwathi Mati noted the effects of cross border youth volunteer exchange programs in southern and eastern Africa. The research indicates positive outcomes including knowledge, learning and “friendship across borders,” engendered by youth exchange service programs in South Africa, Mozambique, Tanzania and Kenya that were sponsored Canada World Youth and South Africa Trust.   

On the final day of the Johannesburg conference, South Africa service initiatives were assessed in field visits by conferees including loveLife, South Africa’s largest HIV prevention campaign. loveLife utilizes youth volunteer service corps reaching up to 500,000 at risk youths in monthly leadership and peer education programs. “Youth service in South Africa is a channel for the energy of youth, (building) social capital and enabling public innovation,” Programme Director Scott Burnett stated. “Over the years our (service) participants have used their small stipends to climb the social ladder through education and micro-enterprise development.”

Nelly Corbel, senior program coordinator of the John D. Gerhart Center for Philanthropy and Civic Engagement at the American University in Cairo, noted that the Egyptian Arab Spring was “the only movement that cleaned-up after the revolution." On February 11^th, the day after the resignation of former Egyptian President Hosni Mubarak, thousands of Egyptian activists  removed debris from Tahrir Square and engaged in a host of other volunteer clean-up and painting projects. In Corbel's words: “Our entire country is like a big flag now,” from the massive display of national voluntarism in clean-up projects, emblematic of the proliferation of youth social innovation aimed at rebuilding a viable civil society.

At the concluding call-to-action session, Johannesburg conferees unanimously adopted a resolution, which was nominated by participating youth leaders from southern Africa states. The declaration, “Creating an Enabling Environment for Volunteer Action in the Region” notes that “volunteering is universal, inclusive and embraces free will, solidarity, dignity and trust… [creating] a powerful basis for unity, common humanity, peace and development.”  The resolution, contains a number of action-oriented recommendations advancing voluntarism as a “powerful means for transformational change and societal development.” Policy recommendations will be advanced by South African nations and other stakeholders at the forthcoming Rio + 20 deliberations and at a special session of the United Nations General Assembly on December 5, the 10^th anniversary of the International Year of the Volunteer.

      

Last October, 200 students from Colombia's Servicio Nacional de Aprendizaje (SENA) worked the floor of the campus coliseum at Universidad del Norte in Barranquilla. They were among 900 youth volunteer leaders from nearly 40 nations who had traveled the globe to join the second World Summit for Youth Volunteering, convened by Partners of the Americas and the International Association for Volunteer Effort (IAVE) on the 10th anniversary of the United Nations International Year of Volunteers.

As a developing country, Colombia’s increased civil society participation through volunteering is focused on extending poverty-reduction efforts to levels that the government cannot achieve on its own. Volunteers represent a powerful demographic for a new "service generation" by providing a dual benefit. First, volunteering provides critical services in areas such as education and asset development, which are needed to reduce extreme poverty; second, it connects a new generation with like-minded individuals across the world, which provides young people the professional and leadership skills needed to further access to employment opportunities including entrepreneurship.

For SENA, one of the world's largest educational institutions with more than four million students across Colombia, the opportunity was clear: engage talented and often under resourced youth in Colombia — one of the most economically unequal countries in the world– with innovative global volunteer leaders. According to research from Brookings and the Center for Social Development at Washington University, these types of global volunteering connections have the potential to enhance skills development while increasing social capital networks.

Extreme poverty, along with armed conflict, is one of the highest priorities of the Colombian government. Coincidentally, during the same week as the World Summit, the Colombian armed forces eliminated the Revolutionary Armed Forces of Colombia (FARC) leader Alfonso Cano while President Santos created a new national superagency to combat extreme poverty. The strategic focus on poverty reduction includes a strong role for civil society as a partner with the government in meeting the U.N. Millennium Development Goals and other development commitments. Civil society plays an essential role in overcoming internal conflict. And the youth services generation is among some of the most effective in civil society in working to help their country tackle poverty.

Colombia is certainly not the only country where youth have taken the lead through service to combat poverty. Attendees at the summit heard from Australian humanitarian Hugh Evans, who at 14 began his work to create the Global Poverty Project. In 2006, Evans became one of the pivotal leaders behind the successful Make Poverty History campaign, leading a team across Australia to lobby the country’s government to increase its foreign aid commitment to 0.7 percent of gross national income.

Whether or not SENA’s youth will be able to capitalize on their new connections with global service leaders to combat extreme poverty in Colombia is left to be seen. But the SENA volunteers and their international counterparts are more motivated to do so after gaining access to resources and social capital networks with other inspiring young leaders. That is a cause for celebration as the United Nations releases its State of the World Volunteering report in New York in December at a special session of the U.N. General Assembly.

       

INTRODUCTION

In December 2011, the United Nations State of the World’s Volunteering Report was released at the U.N. headquarters in New York along with a General Assembly resolution championing the role of volunteer action in peacebuilding and development. The United Nations Volunteers (UNV) Program report states that:

The contribution of volunteerism to development is particularly striking in the context of sustainable livelihoods and value-based notions of wellbeing. Contrary to common perceptions, the income poor are as likely to volunteer as those who are not poor. In doing so, they realize their assets, which include knowledge, skills and social networks, for the benefit of themselves, their families and their communities…Moreover, volunteering can reduce the social exclusion that is often the result of poverty, marginalization and other forms of inequality…There is mounting evidence that volunteer engagement promotes the civic values and social cohesion which mitigate violent conflict at all stages and that it even fosters reconciliation in post-conflict situations...

The “South Africa Conference on Volunteer Action for Development” convened in Johannesburg in October 2011, and the July 2012 “Africa Conference on Volunteer Action for Peace and Development” co-hosted with the Kenya’s Ministry of East African Community, the United Nations and partners in Nairobi give further evidence to the rise of and potential for volunteer service to impact development and conflict. Indeed, in the aftermath of the 2011 Arab Spring, youth volunteer service and empowerment have emerged as a pivotal idea in deliberations aimed at fostering greater regional cohesion and development.

In “Foresight Africa: Top Priorities for the Continent in 2012,” Mwangi S. Kimenyi and Stephen N. Karingi note that: “One of the most important pillars in determining whether the positive prospects for Africa will be realized is success in regional integration… This year is a crucial one for Africa’s regional integration project and actions by governments, regional organizations and the international community will be critical in determining the course of the continent’s development for many years to come.”

The authors note the expected completion of a tripartite regional free trade agreement by 2014 and the expected boost to intra-African trade, resulting in an expanded market of 26 African countries (representing more than half of the region’s economic output and population). At the same time, the declaration from the “South Africa Conference on Volunteer Action for Development” calls on “Governments of Southern African member states and other stakeholders to incorporate volunteering in their deliberations from Rio +20 and to recognize the transformational power as well as economic and social value of volunteering in achieving national development goals and regional priorities, which can be achieved by facilitating the creation of an enabling environment for volunteering to support, protect and empower volunteers.” This speaks directly to the urgent need to factor the social dimension into the regional integration agenda in the different African subregions.

This paper includes examples of the growth of volunteer service as a form of social capital that enhances cohesion and integration across three regions: southern, western, and eastern Africa. It further highlights civil society best practices and policy recommendations for increased volunteering in efforts to ensure positive peace, health, youth skills, assets and employment outcomes.

The importance of volunteering to development has been noted in recent United Nations consultations on the Rio+20 convening on sustainable development and the post-2015 development framework. As the U.N. reviews its Millennium Development Goals (MDG) process, Africa’s regional service initiatives offer vital lessons and strategies to further achieve the MDGs by December 2015, and to chart the way forward on the post-2015 development framework.

But how does volunteerism and civic service play out in sub-Saharan Africa? What are its institutional and non-institutional expressions? What are the benefits or impacts of volunteerism and civic service in society? Our specific purpose here is to provide evidence of the different manifestations and models of service, impact areas and range of issues in three African regions. In responding to these questions, this analysis incorporates data and observations from southern, western and eastern Africa.

In conclusion, we provide further collective insights and recommendations for the roles of the Africa Union and regional economic communities (RECs), youth, the international community, the private sector and civil society aimed at ensuring that volunteerism delivers on its promise and potential for impact on regional integration, youth development and peace.

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In late October at the United Nations Economic and Social Commission for Asia and the Pacific (UN ESCAP) headquarters in Bangkok, a multi-stakeholder coalition was launched to promote the role of youth and civil society in advancing post-2015 United Nations Sustainable Development Goals (SDGs). The youth initiatives, fostering regional integration and youth service impact in the Association of Southeast Asian Nations (ASEAN) and counterpart regions of Northeast and South Asia, will be furthered through a new Asia-Pacific Peace Service Alliance. The alliance is comprised of youth leaders, foundations, civil society entities, multilateral partners and U.N. agencies. Together, their initiatives illustrate the potential of youth and multi-stakeholder coalitions to scale impacts to meet SDG development targets through youth service and social media campaigns, and partnerships with multilateral agencies, nongovernmental organizations, corporations and research institutes.

The “Asia-Pacific Forum on Youth Volunteerism to Promote Participation in Development and Peace” at UN ESCAP featured a new joint partnership of the U.S. Peace Corps and the Korea International Cooperation Agency (KOICA) as well as USAID support for the ASEAN Youth Volunteering Program. With key leadership from ASEAN youth entitles, sponsor FK Norway, Youth Corps Singapore and Peace Corps’ innovative program in Thailand, the forum also furthered President Obama’s goal of Americans serving “side by side” with other nations’ volunteers. The multi-stakeholder Asia-Pacific alliance will be powered by creative youth action and a broad array of private and public partners from Thailand, Malaysia, Myanmar, Indonesia, Singapore, the Philippines, Australia, Korea, China, Mongolia, Japan, India, Nepal, Pakistan, the U.S. and other nations.

During the event, Dr. Shamshad Akhtar, ESCAP executive secretary, pointed out that “tapping youth potential is critical to shape our shared destiny, as they are a source of new ideas, talent and inspiration. For ESCAP and the United Nations, a dynamic youth agenda is vital to ensure the success of post-2015 sustainable development.”

Dr. Surin Pitsuwan, former ASEAN secretary-general, called for a new Asia-wide multilateralism engaging youth and civil society.  In his remarks, he drew from his experience in mobilizing Asian relief and recovery efforts after Cyclone Nargis devastated the delta region of Myanmar in May 2008. Surin, honorary Alliance chairman and this year’s recipient of the Harris Wofford Global Citizenship Award, also noted the necessity of a “spiritual evolution” to a common sense of well-being to redress the “present course of possible extinction” caused by global conflicts and climate challenges. He summoned Asia-Pacific youth, representing 60 percent of the world’s young population, to “be the change you want to see” and to “commit our youth to a useful cause for humanity.”

The potential for similar upscaled service efforts in Africa, weaving regional integration and youth volunteering impact, has been assessed in Brookings research and policy recommendations being implemented in the Common Market of Eastern and Southern Africa (COMESA). Recommendations, many of which COMESA and ASEAN are undertaking, include enabling youth entrepreneurship and service contributions to livelihoods in regional economic integration schemes, and commissioning third-party support for impact evidence research.

A good example of successful voluntary service contributions from which regional economic communities like ASEAN can learn a lot is the current Omnimed pilot research intervention in Uganda. In eastern Ugandan villages, 1,200 village health workers supported by volunteer medical doctors, Uganda’s Health Ministry, Peace Corps volunteers and Global Peace Women are addressing lifesaving maternal and child health outcomes furthering UNICEF’s campaign on “integrated health” addressing malaria, diarrheal disease and indoor cooking pollution. The effort has included construction of 15 secure water sources and 1,200 clean cook stoves along with randomized controlled trials.

Last week, the young leaders from more than 40 nations produced a “Bangkok Statement” outlining their policy guidance and practical steps to guide volunteering work plans for the new Asia-Pacific alliance. Youth service initiatives undertaken in “collective impact” clusters will focus on the environment (including clean water and solar villages), health service, entrepreneurship, youth roles in disaster preparedness and positive peace. The forum was co-convened by ESCAP, UNESCO, the Global Peace Foundation and the Global Young Leaders Academy.