Social Impact Bonds

Okay, so this is so… questionable. In their thirst to find news ways of making money, the cunning quants at Goldman Sachs have hit upon an ingenious scheme in which New York City is:

embracing an experimental mechanism for financing social services that has excited and worried government reformers around the world, will allow Goldman Sachs to invest nearly $10 million in a jail program, with the pledge that the financial services giant would profit if the program succeeded in significantly reducing recidivism rates.

The city will be the first in the United States to test “social impact bonds,” also called pay-for-success bonds, which are an effort to find new ways to finance initiatives that might save governments money over the long term.

Alright, I’m going to slow pitch this one under-hand. See the ball, here it comes:

If you are going to do this, there are other ways to make money that will save a lot more than save governments money over the long run. More, as in shorelines and aquifers. How about financial incentives for people to use less energy? For power companies to sell less energy? For regions to pump less carbon into the atmosphere? Is this that difficult? I know you can get there GS, come on.

The more you read the article, the more obscene it gets, private equity dabbling in social programs. At its essence, truly obscene. But if it works, they are going to do this, rather than provide any actual societal goods, they are going to fund them through profit-taking. Fine. Whatever. It is a kind a evolution, I guess. Better than incentivizing our destruction, which is exactly what has led us so close to it. But there are all kinds of other problems to which this could be readily applied. Get ready for a very twisted society, in which late-term capitalism comes around to save itself by incentivizing positive social and environmental outcomes.

Actually, who cares why we do it, as long as we do it.  It’ll be a boon for philosophy book publishers.

The nugget:

“This will get attention as perhaps the most interesting government contract written anywhere in the world this year,” Dr. Liebman said. “People will study the contract terms, and the New York City deal will become a model for other jurisdictions.”

But social impact bonds have also worried some people in the nonprofit and philanthropy field, who say monetary incentives could distort the programs or their evaluations.

“I’m not saying that the market is evil,” said Mark Rosenman, a professor emeritus at Union Institute and University in Cincinnati, “but I am saying when we get into a situation where we are encouraging investment in order to generate private profit as a substitute for government responsibility, we’re making a big mistake.”

Mmmm. Why would you think the market is evil?