New flaws emerge with Social Impact Bonds privatization schemes, says National Union

“With Social Impact Bonds, if a project fails, charitable donations will go to a company that made $7.9 billion in 2012,” said James Clancy, NUPGE National President.

Ottawa (21 Jan. 2014) —  A new report, Privatization by Stealth: The Truth about Social Impact Bonds,  released this week by the National Union of Public and General Employees (NUPGE) confirms fears that the only difference between Social Impact Bonds and older forms of privatization is the packaging. 

Charities protecting Goldman Sachs from losses

Since NUPGE released its first report on Social Impact Bonds in 2012, researchers have found that, even if Social Impact Bonds work as claimed, the costs will exceed any possible savings.

In theory, Social Impact Bonds work by having private investors front the cost of services that prevent or reduce social problems. Governments are meant to repay only the investment and pay for their profit  if the service succeeds. If the project does not succeed, investors are not supposed to get their investment back.

In practise, Social Impact Bonds work very differently. A recent example is the investment by Goldman Sachs, one of the biggest investment banks in the world, into two Social Impact Bond projects. To get Goldman Sachs to put money into Social Impact Bonds, charities had to guarantee their investment.

“With Social Impact Bonds, if a project fails, charitable donations will go to a company that made $7.9 billion in 2012,” said James Clancy, NUPGE National President. “That's more than bad policy; it's obscene.”

Tax credits are also being proposed as a way to subsidize investment in Social Impact Bonds. The British government is expected to introduce them this year and there's been support from some Social Impact Bond boosters in Canada.

Illusion of free money — why the use of Social Impact Bonds is spreading

In spite of all the problems, governments are still considering Social Impact Bonds. What's sparking their interest is the illusion of free money. What Social Impact Bonds provide is a chance for governments to “buy now, pay later,"  without it showing up on their books as debt.

Behind the caring language, Social Impact Bonds are still a form of privatization

While Social Impact Bonds proponents try to avoid the word “privatization,"  the impact is no different.

Services would be controlled by an intermediary organization whose priority has to be making a profit for investors under a Social Impact Bonds model. As in public-private partnerships (P3s), we can expect key information about services to be kept from us on the grounds of commercial confidentiality.

And while the proponents of Social Impact Bonds describe them as a form of social finance, the intention is the exact opposite.

“Social finance was supposed to be accepting a reduced profit when funding a new business or service to help the most vulnerable. Social Impact Bonds pervert that ideal and turn it into making a profit from privatizing public services for the most vulnerable,” said Clancy.

More information: 

Privatization by Stealth: The Truth about Social Impact Bonds

Privatization: Same Old Game, Brand New Threats

President's Commentary: Top Ten Reasons to be Worried about Social Impact Bonds

NUPGE

The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 340,000 members. Our mission is to improve the lives of working families and to build a stronger Canada by ensuring our common wealth is used for the common good. NUPGE

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