Wednesday, August 22, 2012 by .(JavaScript must be enabled to view this email address)

Today’s Read: Social Impact Bonds

A new idea getting a lot of attention in the media these days is something called “social impact bonds.”

From The Nation:

Earlier this month, New York Mayor Michael Bloomberg announced the first-ever “social impact bond” in the United States. The bond, between the city of New York and investment giant Goldman Sachs, will finance a behavioral treatment program for incarcerated adolescents on Rikers Island. Unlike a traditional revenue bond, a social impact bond will pay a dividend only if the target outcomes are met — in this case, that the recidivism rate among the youth treated falls by 10 percent. If it does even better, Goldman Sachs will turn a small profit — with the city footing the bill.

Yesterday’s The Nation article brings some much-needed perspective to the media love-fest touting social impact bonds as a great innovation in social services. Specifically, it brings up the concern that profit motives are not necessarily aligned with successful program outcomes. Additionally, it questions how evaluation will remain neutral in the presence of a profit motive.

This precedent worries some analysts of public policy, who see parallels with the privatization of education and healthcare. “When we overlay a profit motive on public enterprises, we find that public purposes are subverted to private profit motives,” said Mark Rosenman, professor emeritus at Union Institute and University. “The market tends to distort and denigrate public goods.”

But I guess Bloomberg’s new pet project shouldn’t be a surprise. It combines everything he loves: corporate control of the public sector, reductions in government spending on social services and the chance for profit. But before we get too enthusiastic about social impact bonds, let’s make sure we look at the potential downsides.

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