Create Virtuous Circles for Funding Social Goods

Taxes go up, taxes go down (sometimes). Does it ever seems to make a real difference on the ground in your neighborhood? The typical temptation is to strive to cut costs and then reduce spending. What if instead of cutting spending we changed spending to create virtuous circles of savings and improvements?

What Are Virtuous Circles?

The term “virtuous circle” describes a system where a desired output creates a desired input or starting state. Another term might be a positive feedback loop.

For this post, we’re really talking about pricing, and pricing is a key part of marketing. So how do you create a virtuous circle of social goods pricing to drive real change? Here’s my idea:

  • Implement an innovative and money-saving approach to delivering a social good.
  • Track the money saved.
  • Invest the savings in adjacent activities the continue to lower the cost of the social good.

This sets up a virtuous cycle where costs continue to decline of a social good while conditions also improve.

Sound too good to be true?

An Example of Virtuous Circle Spending

In 2014, California passed Proposition 47, Reduce Penalties for Some Crimes. The goal of the proposition was to reclassify several non-violent, low-stakes crimes from felonies to misdemeanors. Reducing the amount of felons this way would save the state a lot of money in prosecution, incarceration, and rehabilitation. We’re talking nonviolent, mostly financial crimes involving less than $1,000.

Savings from the reclassification were estimated at $150 – $250 million per year. Of the money saved, 25 percent would go to the state Department of Education, 10 percent to victim compensation and government claims, and 65 percent to the Board of State and Community Correction.

Those savings were then set aside for investing in community program and services that help reduce future crime and policing costs. Programs could include after-school programs, adult education, drug abuse education, and more.

As investing in communities increased, the savings in incarceration costs also increased. More savings, more investments, leading to more savings, and so on.

Voters like the idea so much that 59.6 percent voted in favor.

How did it work? In 2020, California voters were asked to vote on Proposition 20 that would, among other things, make those minor crimes felonies again. This time, 61 percent of voters voted against it.

Other Possible Virtuous Circles for Funding

Pulled from other posts on this blog, here are three ideas for virtuous circle funding for social goods:

  • Infrastructure: switch to prefab construction for projects like bridges and overpasses to save money. Reinvest the savings in more transit-centered design for the area around the bridge to reduce the need for infrastructure and maximize the use and life of infrastructure. As density grows, investment in roads will be less. If it’s a bridge in a rural area, invest the savings in a new intersection that reduces accidents and maintenance costs.
  • Social services: switch to a client-centered model to save money. Invest savings in early childhood programs so that problems are nipped in the bud. As social costs decrease, use savings to continue investing in education and health.
  • Water:  invest in leak detection and repair to generate more water and save on finding and processing new water. Use the savings from deferred water plant and purchase expansion to invest in water efficiency, so more people can be served with the same infrastructure. As revenues grow faster than operating and capitals costs, invest in storm water management to prevent urban flooding, driving down those costs.

Creating Virtuous Systems

Identifying and creating virtuous circles is an exercise in systems thinking, specifically

  • Seeking to understand the big picture
  • Considering unintended consequences
  • Identifying the circular nature of complex cause and effect relationships
  • Making meaningful connections within and between systems

(See the habits of a systems thinker.)

Virtuous circles can’t go on indefinitely. But they can lead to new, sustainable ways to have the social goods we need and deserve at the same cost that we’re paying today, or less.

(Image courtesy of WikiMedia)

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