1

KENNETH J. SALTMAN – Wall Street’s Latest Public Sector Rip-Off: Five Myths About Pay for Success

Investment banks such as Goldman Sachs, Bank of America, and J.P. Morgan, philanthropies such as the Rockefeller Foundation, politicians such as Chicago Mayor Rahm Emanuel and Massachusetts former governor and now Bain Capital Managing Director Deval Patrick, and elite universities such as Harvard have been aggressively promoting Pay for Success (also known as Social Impact Bonds) as a solution to intractable financial and political problems facing public education and other public services. In these schemes investment banks pay for public services to be contracted out to private providers and stand to earn much more money than the cost of the service. For example, Goldman Sachs put up $16.6 million to fund an early childhood education program in Chicago yet it is getting more than $30 million (Sanchez, 2016) from the city. While Pay for Success is only at its early stages in the United States, the Rockefeller Foundation and Merrill Lynch estimate that by 2020, market size for impact investing will reach between $400 billion to $1 trillion (Quinton, 2015). The Every Student Succeeds Act of 2016, the latest iteration of the Elementary and Secondary Education Act of 1965, directs federal dollars to incentivize these for profit educational endeavors significantly legitimizing and institutionalizing them.

Read more