Giving Compass' Take:
- Authors describe a pay-for-success collaborative model in Singapore that addresses the issue of an exit strategy after philanthropic pilots.
- How can funders support this model?
- Read more about designing exit strategies with lasting impact.
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Public institution spending dwarfs private philanthropy in most countries in the world. In the United States, private philanthropy totaled $176.7 billion across social, health care, and education in 2021, while government spending in the same areas was approximately 25 times more. In Singapore, one of the countries where our firm Tri-Sector Associates works, private philanthropy for the same areas totaled SGD 1.4 billion (about $1 billion) in 2020, while government spending was SGD 36.6 billion (about $26 billion)—26 times the amount. This ratio is similar in most other countries; for every year that government funds social impact, philanthropic money would last only about two weeks.
Private philanthropy is also far more expensive to raise than tax dollars. It costs governments an average of 1 cent to raise each tax dollar. Philanthropic fundraising campaigns often spend exponentially more, and many countries have limited the amount that organizations can spend to raise each dollar to 30-35 cents.
Philanthropy cannot and should not substitute for government. Strategic philanthropists understand this and seek to act complementarily; they provide risk capital and pilot solutions to social problems with the goal of eventually handing those solutions over to larger, public institutions for funding. This frees up philanthropic dollars for new pilots, and so on.
Unfortunately, the success of this transfer process is hit-and-miss and thus slows social innovation. The traditional philanthropic exit strategy has been advocacy: Pilot a solution, collect evidence to show results, then use that data to persuade governments to adopt the solution. But this strategy’s success rate is generally low, because philanthropists often discover that the outcomes they believe are important may not align with government priorities. Furthermore, when governments do successfully uptake a program, they have to balance factors beyond the achievement of outcomes, such as whether it fits into the budget, aligns with the narrative of the government of the day, or has influential champions. This mismatch of priorities means that many well-intentioned social interventions end up fizzling out. Indeed, philanthropists may be unwilling to invest in an innovation in the first place knowing there is no clear, long-term sustainability strategy.
One driving force behind the pay for success (PFS) model is that it aims to encourage uptake systematically, by testing out innovative solutions that public institutions may be keen on and having them pre-commit to paying for certain program outcomes before private funders start their pilot.
Read the full article about social impact by Kevin Tan and Nadia Ahmad Samdin at Stanford Social Innovation Review.