“Using social finance schemes like social impact bonds to privatize community and social services means funding that is desperately needed to help the most vulnerable people in our communities will end up in the pockets of lawyers, consultants and other intermediaries,” — Larry Brown, NUPGE President
Ottawa (24 July 2020) ― Transforming the planned federal government Social Finance Fund into a subsidy for privatization will harm community and social services. That was the message in a letter from Larry Brown, President of NUPGE, to Ahmed Hussen, the federal Minister of Families, Children and Social Development.
The letter was written in response to media reports earlier this week about plans for the Social Finance Fund. According to the reports, the focus of the fund is likely to be subsidizing privatization schemes that use social finance. The description of the planned privatization schemes sounded very much like social impact bonds.
Using social finance to privatize services will take money away from front-line services
All types of privatization come with additional costs. Investors want to make a profit from their investment. There are the lawyers, accountants and consultants involved in the bidding process and negotiating the legal agreements. With privatization schemes that use social finance—such as social impact bonds—there is also the cost of the intermediary organizations who are supposed to oversee the project.
These extra costs add up. At least 60% of the funding for the first federal government social impact bond went towards overhead and profits. The result is that there is less money available for front-line services.
“Using social finance schemes like social impact bonds to privatize community and social services means funding that is desperately needed to help the most vulnerable people in our communities will end up in the pockets of lawyers, consultants and other intermediaries,” said Brown.
Using social finance to fund public services is privatization
Social impact bonds and other schemes that use social finance to privatize public services are designed so that investors can make a profit from funding public services. These schemes give investors or intermediary organizations control over how public services are delivered. That’s privatization.
The privatization industry has attempted to portray social impact bonds and other similar schemes as an example of the wealthy helping others. That doesn’t match reality. Helping out is paying one’s taxes or making a donation, not putting money into an investment that offers the opportunity to make a profit.
For non-profit groups and charities, involvement in privatization schemes can create problems
Years of austerity mean that funding for community and social services has not kept pace with need. Charities and non-profit organizations are feeling squeezed.
A small number, have seen revenue from operating privatized services as a way to fund their work. For example, the co-founders of the WE Charity, who were also involved in an attempt to privatize the Canada Student Service Grant program, have promoted social impact bonds.
However, organizations delivering services funded by social impact bonds and other privatization schemes can find themselves having to put making a profit for investors ahead of their mission and their values. In a documentary on social impact bonds, The Invisible Heart, Brigitte Witkowski, the head of an organization involved in a social impact bond project spoke of how “it’s changing our mindset to what makes sense from an investor’s point of view.”
This can have serious consequences. In Britain a charity whose mission was to help the homeless found that, to make a profit for investors in a social impact bond, it had to help deport people.
Adequate funding, not privatization, the solution
The first step to solving complex social problems is providing enough funding for community and social services. Contrary to what the privatization industry likes to claim, governments haven’t been throwing money at problems. Instead, they’ve been viciously cutting and starving services for the most vulnerable people in society of the resources they need.
Rather than making problems worse by introducing new forms of privatization, the federal government needs to start to reverse the years of austerity by increasing funding for community and social services.
The National Union of Public and General Employees (NUPGE) is one of Canada's largest labour organizations with over 390,000 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