“It’s still early days for governments experimenting with pay-for-success (PFS) projects, in which governments ask private funders to foot the bill for social programs, and then agree to repay those funders if the programs achieve agreed-on results. As public budgets tighten and social challenges remain stubbornly persistent, policymakers see PFS contracts as a new way to get more out of taxpayer money by focusing on outcomes, rather than funding services that may or may not work.

But here’s the thing: even if they’re all successful, growth for PFS will be slow. It will require that governments craft every contract with painstaking detail and cultivate a large pool of risk-tolerant investors. The bespoke nature of PFS projects today suggests a halting path to real scale.

The approach can be too narrow in its focus. Most commentators on PFS focus on the financing. The intermingling of worlds—of government spending and nonprofit providers and investment capital—somehow captures the imagination. But the financing is not what’s special. In our view, the concept’s real potential lies elsewhere: as a model for how governments should fund social services.”