A Test Of Social Impact Bonds In NYC
Last month, there was a not widely noticed article, “Goldman to Invest in City Jail Program, Profiting if Recidivism Falls Sharply”.
This experiment will be watched all over the US. I’ve worked with MDRC in the past and they are a reputable organization, with considerable expertise in programs to provide “transitional employment” to traditional private sector employment (including ex-offenders, juvenile delinquents, welfare recipients and drug addicts). They have been mostly known for running major social experiments. So this experiment may have a somewhat higher probability of success than an initial reading would imply.
However, the social bonds strategy raises a variety of fundamental issues about public services. These are only some of the questions (and I’m not even sure that this list is all that clear):
- If such a program is so important, why isn’t the government paying for it? Is this just a short-sighted way around raising public funds for a necessary program?
- If this strategy grows to be a major source of funding for social programs, what potential abuses might grow with it? (The Clinton-Bush program of expanding home ownership also seemed like a good idea before it got out of hand, ultimately leading to the largest financial bust in 80 years.)
- If this strategy becomes the major source of funding for government programs, does the market decide what public goods/services can be funded?
- It would seem that some of the risk is being shifted to private financial organizations, but the reality may different once these bets fail to pay off. Will this become another form of socializing risk, when that was not the original intention?
Clearly this is an interesting experiment in public finance. What’s less clear are the ways that the social programs are themselves experimenting with new ways of doing things, better use of technology, etc.
By the way, I’ve already heard people discuss using the social bonds approach as a way of financing broadband for economic development.
© 2012 Norman Jacknis