The voices of Urban Institute's researchers and staff
March 24, 2016

Do governments care about risk?

March 24, 2016

Less than one cent per dollar of government spending funds evidence-based practices, according to Peter Orszag, former director of the Congressional Budget Office and the Office of Management and Budget under Barack Obama, and John Bridgeland, a senior adviser in George W. Bush’s White House. If true, why does the system spend so many dollars on unproven practices, especially when there is a large and growing evidence base around human services for the most disadvantaged?

In my own work, I’ve looked at dozens of drug courts designed to help citizens who struggle with addiction. The idea is straightforward: if you help people recover from underlying problems with alcohol and drugs, you can help them avoid antisocial behavior, save them from trauma, ease the pressure on their families, and save American governments millions, maybe billions, in justice systems costs. What if we took people out of courtrooms and treated them in their living rooms and their communities? Could we break the cycle of crime and addiction?

Dozens of evaluations say we can, and we should. But after more than a generation of mounting evidence that this innovation works, we only serve 1 or 2 percent of drug-involved arrestees and potential drug court clients.

Are governments afraid of risk…

So why don’t governments fund innovative ideas with evidence-based theories of change that can show us what works?

And why can’t governments scale strong evidence-based best practices and increase funding for evidence-based programs from 1 percent or 2 percent to 50 percent?

One theory is that government is so afraid of risk—political and otherwise—that it cannot invest in promising or demonstrated ideas. Governments bear tremendous risk in making these investments and usually only invest in the presence of some insurance scheme that mitigates that risk.

…or do they just not think about risk at all?

I suspect the opposite: My guess is that governments don’t think about risk much, if at all.

Risk is a pretty basic concept. Financial services companies, like big banks, care so much about risk that they evaluate it using basis points, which is one-hundredth of a percent. Banks are so cognizant of risk, they will fight for a couple of basis points to mitigate their risk—less than a fraction of a penny on a dollar—before investing.

Governments, by contrast, risk everything on every investment, with no insurance and no back-up plan. Risk is about clearly articulating what happens when you act and what happens when you don’t. While banks fight over basis points, governments are all or nothing: They are either all the way in and bear all the risk, or completely out, and the program isn’t funded at all. The nuances of risk, financing, and leveraging capital are completely lost in those decisions.

A close look at government procurement and purchasing bolsters the argument that government is not risk averse. Governments would rather bear all the risk and not scale, innovate, or partner with the private sector instead of trying a simpler solution.

The issue is that government would rather go all in and risk complete failure instead of undertaking systems reform, adopting innovative practices, and forging new partnerships that actually mitigate risk.

Decisionmakers need to change the way they think about adopting new programs and practices, especially ones that are backed by evidence. Doing so will open the door to new partnerships, and expand the whole ecosystem around evidence-based interventions.

Pay for success, an innovative funding model, may not be able to solve governments’ skewed perception of risk, but it provides a framework for adopting evidence-based strategies and helps mitigate risk—whether or not governments truly care about it.

In this photo taken Wednesday, July 29, 2009, from left, Tim Plescia, Marvin Miller, David Elledge, Joseph Baker, Antoine Wade, Christopher Williams, and Dustin Miller, gather in a circle for a serenity prayer at the end of a discussion group for drug and alcohol abusers at the Sacramento Recovery House in Sacramento, California. Photo by Rich Pedroncelli/AP

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