An interesting plan from Goldman and a rather critical article which actually doesn’t address the key issues per se:
1) mass donor fatigue;
2) growing cynicism about the ability of either government or traditional (unaccountable charities) to actually deliver required programmes;
3) the fact that there just isn’t any scope for government in the medium let along the long term to maintain social spending in western economies at the outrageously high levels which have become commonplace, leading to the current government paucity of reserves and subsequent debt crises.
About 1,500 incarcerated New York City teens have received behavioral therapy aimed at lowering their chances of returning to jail in the first year of a Goldman Sachs-funded program that’s the first U.S. effort to lure private investors to finance public social programs.
Nonprofit research group MDRC, the program’s administrator, said Wednesday its met many of its first-year goals as it aims to counsel more than 9,000 youths over the next four years under a novel approach to social welfare, called a social impact bond: let companies foot the bill and profit if the program is a success.
Goldman Sachs stands to make a profit on its $9.6 million investment if MDRC’s behavioral therapy program prevents enough 16-, 17- and 18-year-olds in the city’s notorious Rikers Island jail complex from reoffending.
More than 3,100 adolescent inmates were admitted into Department of Correction custody on Rikers in 2010, the most recent year for which figures are available. The DOC says nearly half return within a year of being discharged.
If the recidivism rate declines by at least 10 percent, officials said, the project will be considered a success and the Department Of Correction will pay back the $9.6 million loan. Goldman stands to make a $2.4 million profit if an independent review of recidivism data finds the reoffending rate of the 1,500 young people in the first group declined more than 9 percent in the first year after their release. Goldman could make even more if they stay out of jail for a second year.
The program must also serve 9,240 participants within four years for Goldman to get paid. If rates don’t fall low enough, the city won’t make any payouts.
SIBs Will Lead To Lying And Cheating
I am getting fed up with the ‘social finance’ story – whether it be about creating the market, social impact bonds or encouraging more social investors. The latest thing I have read is about social impact bonds taking us to the Star Trek economy.
Those of us who argue that SIBs are somewhat limited market, not relevant to the majority of the sector, are seen as people who don’t get it yet, are too attached to the past and unwilling to see the brave new world. I prefer to think of our view as being realistic and pragmatic, based on an understanding that this isn’t a new source of income but just a change in the way cash flows.
So the things that bother me most are comments in blogs like the above that say things like:
“Social impact bonds will boldly go where no financial instrument has gone before, resulting in a triple set of benefits:
– Getting investors involved in projects that contribute real social value
– Giving third sector healthcare providers much-needed funding to do what they already do best
– Allowing commissioners to fund the interventions that lead to our citizens benefiting from healthier and happier lives.”
How true is this? Has the sector really been waiting for social impact bonds to enable it to do what it does best?