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Goldman Sachs Invests in Crime Reduction

Government continues to struggle to find solutions for many of our most pressing social problems: reducing homelessness, lowering incarceration rates, improving the performance of inner-city schools. Despite the constant stream of taxpayer money into these efforts, the results have been slow to come and unimpressive (with some notable exceptions, like the reduction in overall crime under Mayor Giuliani).

The New York Times reports today on a new public-private partnership between Goldman Sachs and a Rikers Island program that aims to reduce recidivism rates among adolescent prisoners. If it succeeds, Goldman profits off its initial investment in the program; if it fails, Goldman loses money:

In New York City, Mayor Michael R. Bloomberg plans to announce on Thursday that Goldman Sachs will provide a $9.6 million loan to pay for a new four-year program intended to reduce the rate at which adolescent men incarcerated at Rikers Island reoffend after their release. …

The Goldman money will be used to pay MDRC, a social services provider, to design and oversee the program. If the program reduces recidivism by 10 percent, Goldman would be repaid the full $9.6 million; if recidivism drops more, Goldman could make as much as $2.1 million in profit; if recidivism does not drop by at least 10 percent, Goldman would lose as much as $2.4 million.

These investments, known as “social impact bonds” have been used in Britain and Australia, but this would be the first attempt in the U.S. It’s an idea that has upsides for both liberals and conservatives: for liberals, it’s a way to entice private enterprise into supporting public social programs; for conservatives, it’s a way to introduce free market principles into government initiatives. The Goldman Sachs social impact bond in particular sounds like it will bring innovation and accountability to a subject — reducing reincarceration rates — that is lacking in both.

Goldman doesn’t seem to have much to gain or lose financially, other than pocket change (the $2 million at stake is a rounding error compared to the $900 second-quarter profit it reported last month). But the public relations pressure will probably be the biggest incentive.

It’s actually very interesting that Goldman has chosen to invest in reducing recidivism. The free market is a force of miracles that can pull countries out of poverty, tear down walls dividing social classes and allow us to reach new heights of innovation. But it can only reduce social problems to a point; individual choice still exists, and so crime, poverty and homelessness will always remain in some capacity. Is it possible that the recidivism rate can’t be lowered much more than it already has been? There is already a significant cost to choosing a criminal lifestyle. If someone is determined to continue along that path, can any amount of therapy or job training actually reform them? That’s what this social impact bond initiative seems meant to address. And it will be interesting to see what effect, if any, Goldman’s program will have.



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