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When social finance is used to privatize public services, costs go up. In addition to investor profits, using social finance to privatize public services means new layers of bureaucracy.
Ottawa (03 Dec. 2018) — Depending on how it’s used, the newly announced Social Finance Fund will either be a useful tool for economic development or a hefty subsidy for a new form of privatization.
The Social Finance Fund was announced in the federal governments Fall Economic Statement 2018. There will be $755 million in federal contributions spread over 10 years. There will also be $50 million over 2 years to help social purpose organizations make use of social finance.
What won’t be clear until details are announced in early 2019 is how the Social Finance Fund will be used. Traditionally, social finance has been used as a tool for economic development. If that is what the fund is used to support, then it could play an important role in building a more inclusive economy. However, what has many people worried is that both the announcement, and report that led to the fund being created, left the door open to it being a vehicle to encourage the use of social finance to privatize public services.
Social finance as a tool for economic development
The idea behind social finance is that investors accept a lower profit when they are investing in an enterprise or project that will accomplish a social good. Traditionally social finance was a way to provide investment for business ventures and cooperatively owned enterprises when banks and other traditional financial institutions were unable or unwilling to help. In fact, the credit union movement was using social finance long before the term was invented.
Over the years, social finance has been used for things like mortgages for affordable housing, starting or expanding businesses that employ people who face barriers to employment, or economic diversification in areas that have been hard hit economically. Labour-sponsored investment funds have been considered a form of social finance.
Using social finance to privatize public services undermines the original intent
The last decade has seen social finance promoted as a way to fund public services. Using social finance to fund public services turns what was an effective tool for economic development into a new form of privatization.
Social finance investors still expect to make a profit. That means that when services are funded through social finance, service providers have to focus on investor profits instead of meeting the needs of the people they serve.
Using social finance to fund public services also means a loss of public control. Instead it’s the investors that are the ultimate decision makers.
Santa Claus may exist; Social Finance Claus definitely doesn’t
As Christmas approaches, some parents like to tell their children Santa Claus exists. All year long the privatization industry likes to claim that social impact bonds and other methods of using social finance to privatize public services are free money.
Based on what has happened when social finance is used to privatize public services, believing in Santa Claus makes a lot more sense.
When social finance is used to privatize public services, costs go up. In addition to investor profits, using social finance to privatize public services means new layers of bureaucracy. In the first federal government scheme to use social finance to privatize services, 60% of the funding was eaten up by administrative costs.
NUPGE urges government to ensure Social Finance Fund isn’t abused
In a letter to Jean-Yves Duclos, the Minister of Families, Children and Social Development, Larry Brown, the President of the National Union of Public and General Employees, urged him to ensure that the Social Finance Fund is used for economic development. The letter pointed out the problems with using social finance to privatize public services, including the fact it eats up money that is desperately needed for frontline services.