Goldman Sachs is making an unusual loan of $9.6 million to keep young men out of New York City jail. And while, yes, they can make millions out of the deal, there are good intentions behind it. It’s all part of the introduction of a Social Impact Bond, invented in the UK and now launched here by Mayor Bloomberg, in which the private sector seeks to privide a solution to a problem that would cost the government money.
If the plan works, the investors and city split the profits, while if it doesn’t, tax payers don’t pay and the investors bear the loss. Specifically, Goldman’s loan will go to a non-profit called MDRC to pay for a selection of services for teen offenders. And if none of it works out, Bloomberg Philanthropies has guaranteed the bulk of the loan capping Goldman’s exposure to 25%. And that’s what’s so interesting because it prompts a series of questions that speak to the heart of the role of the private sector in scaling (and bankrolling) social change:
1. Does such an effort by Goldman Sachs do anything to improve its reputation in your mind since the revelations of banking practices since 2008?
2. Does the potential upside of the deal for Goldman diminish any reputational benefit especially when they ultimately bear so little risk?
3. Is it alright in the tax payers mind to empower private sector companies to profit by doing projects that government agencies should manage themselves?
4. Do consumers believe such efforts are motivated by a genuine intentions to help or are they seen as yet another (and quite literal) way to profit from the disadvantaged?
5. Is a feature in which private sector companies underwrite social change of all types feasible, both in terms of consumers and citizen support and the bottom line value to those companies?
6. Is it appropriate that Goldman gets a good deal in order to inspire other companies to follow suit?
With government burdened by debt and bipartisan inertia, and non-profits under-resourced, we have little recourse but to look to the private sector to spearhead social change. Yet with it will come even greater scrutiny of the mixed motives and competing agendas of for-profit companies empowering change.
If corporations such as Goldman Sachs cynically view such efforts as merely money-making opportunities they will rob themselves of the reputational benefits they so desperately need. If they re-characterize such efforts as investments in long term customer loyalty through social impact, they can quickly take the lead in what is both a necessary and expanding marketplace opportunity.
Do you support such efforts by Goldman Sachs? Do you believe their motives are genuine, cynical, or a mixture of both?