As one British Parliamentarian noted (before his career ended in failure), ‘you can’t tax a loss, you only tax a profit: we’re all in this together!’ to a group of students many years back, so too the entire foundation os the SIB movement is based on a very simple motive: profit provided by service. This is the lifeblood upon which all commerce functions and by which society has improved over the centuries.
Therefore the wave of Wall Street banks entering the SIB/DIB arena is to be applauded for the capital they bring but it will clearly cause angst in areas of the NGO community which have grown flaccid and ineffective.
There is nothing to fear from the profit motive. There is everything to fear from a world where there is no service to help the community because history will show the period when governments perceived taxing with impunity to spend unaccountably was merely a blip in the history of our rich civilisation.
It is in the essence of providing profit for service which makes SIBs – Pay for Success Bonds – such a fascinating project. Wall Street can marry its interests with the provision of a better society.
In the non-profit and social sector the “new, new thing” is social impact bonds, also known as pay for success contracts. In the last two years, for example, the Stanford Social Innovation Review has published more than 50 articles about social impact bonds, and in 2011 the term was one of the top ten philanthropy buzzwords according to the Chronicle of Philanthropy.
Major players like McKinsey, Goldman Sachs and the Rockefeller Foundation have all jumped in. Huge numbers, like $600 billion of potential investment, get bandied about. All of which makes it sound like a great new source of financing except that only six deals have been financed. Is this a flash in the pan or the next big thing?
Social Finance: A Primer
In recent years, a growing number of philanthropic foundations, policymakers, social service providers, and researchers have come to recognize that the social sector is changing. Shrinking public-sector budgets have limited traditional government grant programs.
An increasing number of private funders have created financial models that pay for performance and emphasize the importance of and need for evidence. And complex social challenges such as criminal recidivism, poor school performance, homelessness, and chronic health conditions, with their panoply of causes and effects, seem to resist nearly every attempt to solve them. These issues have given rise to the creation of new models of partnership between the public, nonprofit, and private sectors that focus on achieving results.
Goldman Sachs Thinks It Can Make Money By Being A Do-Gooder
When faced with an investment bank saying that it’s going to do something for “social impact,” it’s fair to interrogate its motives. Take Goldman Sachs’s new $250 million “social impact” fund, or the $10 billion that Morgan Stanley hopes to attract to its “investing with impact” platform, for pumping money into projects with some beneficial public outcome. That’s just glorified philanthropy, right? Surely just something to help Goldman burnish its image and brag about at cocktail parties, not much more.
That may be true. But if Goldman CEO Lloyd Blankfein is to be believed, he wouldn’t be doing it if it weren’t also a lucrative enterprise.