Rick Cohen, a journalist for the Nonprofit Quarterly, wrote this article about social impact bonds in 2014. Rick died suddenly a few weeks ago, and it was a great loss. He was a fighter for social justice. When he led the National Committee for Responsive Philanthropy, he lacerated the Walton Family Foundation for its greedy, self-serving ways in two reports. After he left NCRP, this year’s report on the Waltons treated the far-right foundation with kid gloves, almost praising its lust to eliminate unions and public education.
In Rick’s article of 2014, he explains what social impact bonds are and why they are a terrible idea. He would have been outraged to see them embedded in the reauthorization of the Elementary and Secondary Education Act of 1965, now called (absurdly) the Every Child Succeeds Act, which is a different way of saying “no child left behind.”
Rick offers eight reasons to worry about social impact bonds (“pay for success”), which were then a new idea.
Here is one of them:
Is it possible that a potential SIB/PFS downside is that private capital might overly influence the decision-making and priorities of government through the SIB/PFS model? As one advocate testified in a Congressional hearing, a SIB “improves decision-making by bring market discipline to government decisions about which programs to expand, as investors will only put their dollars behind programs with a strong evidence base.” If government overly focuses on programs that will attract private investors, the results might work to the investors’ benefit, but not necessarily to the benefit of appropriately identifying and prioritizing social initiatives that don’t generate private capital interest. Should private investors determine “which programs to expand,” or should public debate and discussion in a democratic process about human needs be the determining factors?
Is the investment “for the kids” or “for the investors”? Let the market decide. Rick would not agree.
R.I.P. to Rick Cohen. He will be sorely missed.
Diane Ravitch's blog 
The contracts are easily rigged to benefit investors, and they are costly.
They assume that “scaled up” social programs are always better, and that none of them are run as efficiently as possible with proper management.. So-called discipline of the market.
Proper management means that the people who are engaged in “service delivery” can be fired at will by the manager of the contract. The manager represents the interests of the investors.
The costs of lawyers, accountants, auditors, and “independent” evaluators is suppressed in marketing these financial products. The marketing is always hype about saving taxpayers money. The calculations of savings are readily falsified even if a ton of data and long inferential leaps are produced as if incontrovertible truths and the economy is in a steady state.
The rapid proliferation of these financial products in education was aided by $200 million from the Obama administration, with insider support sufficient to put these contracts into ESSA. Harvard has a “SIB lab” dedicated to supporting the proliferation of these products. The Rockefeller Foundation has also been active in ” incubating” them.
LikeLike
Reblogged this on David R. Taylor-Thoughts on Education.
LikeLike
It may be too reductionist and simplistic, but it seems that the answer to the question you have posed depends on how one views the fundamental tension between capitalism and socialism in a democratic society as it is now being played in many aspects of the current social and political scenes – not just in the “debate” over educational philosophy and practice.
How do we resolve the conflict between a socialist perspective that views economic inequality is bad for society and that the government is responsible for reducing it via programs that benefit the poor, free public education, security for the elderly and higher taxes on the rich, whereas a capitalist belief is that the government does not use economic resources as efficiently as private enterprises do, and therefore society is better off with the free market determining economic winners and losers?
I fear for the kids.
LikeLike
(Alan Greenspan said “I was wrong”, and he didn’t wait decades to say it – like
Robert McNamara.)
LikeLike
Actually, what we need is a similar accountability/reward for results model applied to philanthropists, hedge fund managers, billionaires and bureaucrats.
LikeLike
” As one advocate testified in a Congressional hearing, a SIB “improves decision-making by bring market discipline to government decisions about which programs to expand, as investors will only put their dollars behind programs with a strong evidence base.”
There is absolutely no factual basis for that claim, as we all learned the hard way when these same people went absolutely insane with greed in mortgage markets and nearly brought down the entire world economy.
It simply isn’t true.
LikeLike
There is a problem of perverse incentives here. Reducing students needing special education services because educational systems work better is good. Reducing them for the sake of reducing them is bad. The problem is the market doesn’t differentiate and doesn’t do so with a fine enough scalpel no matter what regulations or requirements you put on it.
Reduce need for special education services could mean students are being educated more efficiently. It could also mean denying students that need them for the sake of the bottom line.
LikeLike
Social Impact Bonds assume the the market will find an economic solution to social problems. We know this is not true. If it were true, our drug prices and medical care would not be the most expensive in the world, and our outcomes would be superior, which they are not. The problem with the concept of Social Impact Bonds is that when they target specific groups as in ESSA, they are a veiled license to discriminate. The implied message is that some groups, in this case special education and ELLs students, are unworthy of service from certified and qualified teachers like the other students in public schools. In this the government is playing the role of social engineer rather than protector of those that are the most vulnerable and fragile. The market solution will probably be some cheap, gimmick computer programs that are doomed to fail. These students need human instruction from qualified and certified teachers just like other students that attend most public schools.
LikeLike
Fraud made legal.
LikeLike