The federal government is introducing a controversial new approach to funding social services called “social impact bonds” that can turn a profit for private investors. Prime Minister Stephen Harper’s Conservatives, who have often been accused of short-changing social programs, view the bonds as a valuable source of fresh funding for Canadian communities.*NYT - Giving Back More Than A Warm Feeling: Investors profit by giving through social impact bonds
...Under Finley’s proposal, the government would contract with a non-profit organization or a private, for-profit business to supply a service, such as building affordable housing, counselling ex-convicts to keep them from reoffending, or working with at-risk youth. Funds would be raised from investors or charities to finance the project and, if the goals of the project were reached, the investors would be repaid their original investment plus a profitable return by Ottawa. If the project’s goals weren’t met, the federal government wouldn’t pay. The bonds, which have caught on in a big way in Britain and the United States, are a source of widespread debate. Many praise the idea as an innovative strategy to tap private capital and market discipline to address underfunded social goals.
But critics say the bonds privatize social objectives in a way that gets governments and the public off the hook for paying for needed programs. “It’s a commercialization of social values,” said David Macdonald, a senior economist at the Ottawa-based Canadian Centre for Policy Alternatives. One of the foremost questions about this funding model concerns how the outcomes are measured to decide whether it’s a success that leads to a payout for investors. Macdonald said private-sector investors will learn how to arrange the project and the eventual performance assessment in a way that ensures they don’t end up holding the bag.
“What will probably end up happening is that the government will pay dramatically more for programs that 10 years ago would have been funded because they were good ideas,” he remarked. “Now they’ll run them through this bond system, whereby some private financier makes 10 per or 20 per cent on their investment rather than the government evaluating a good idea and saying, ‘Yeah, that’s a good idea, let’s fund that.’ Critics have also questioned whether the bond program will lead to reduced funding for non-profit organizations supplying valuable but hard-to-measure services.
The seven teenagers sit with their feet tucked under tan desks in a classroom in New York City’s Rikers Island jail... The adolescents are part of a new program aimed at building personal responsibility and life skills, with the goal that fewer of them will re-offend. The program is financed by an innovative mechanism called a social impact bond, one of a handful of ways that philanthropy is trying to tap new pools of funding to produce measurable social results. If the program succeeds in significantly reducing recidivism, the “investors” paying its upfront costs — in this case, Goldman Sachs, with backing from Bloomberg Philanthropies — will be repaid by the city with a modest return. If the program falls short, the investors lose their money, sparing taxpayers the costs of the program.*wikipedia - social impact bond
The “social impact bond,” also known as a “pay for success” bond, is the latest — and most discussed — tool in a broader playbook philanthropists are using to blend business and charity to make a bigger difference. Sometimes known as impact investing, these approaches include providing low-interest loans to nonprofits, making equity investments in companies that tackle social problems and investing a portion of a foundation’s endowment in enterprises that produce measurable benefits to society and a financial return...
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