The Quandary of the Privatization of Public Services

In the aggregate, this week's readings summarized different approaches to funding social ventures, some of them quite innovative. There was particular focus on social impact bonds (SIBs) in several of the readings. SIBs are not actually bonds, but are instead a social enterprise funding mechanism wherein private investors provide the initial funding for a project, and are reimbursed and (essentially) bonused if they meet certain benchmarks. While most of the coverage for SIBs in our course materials was positive, Rick Cohen's "Social Impact Bonds: Phantom of the Nonprofit Sector" offers a rather scathing criticism of SIBs specifically and the privatization of public services in general.

The challenge of shifting public services and responsibilities to private sector and nonprofit entities is one I am intimately familiar with. Prior to joining Heinz, I was working at the Lowline, a nonprofit in New York City dedicated to building the world's first underground park in Manhattan's Lower East Side. The Lowline is just one of many projects following in the footsteps of the High Line, a project that converted an unused elevated railway line on Manhattan's West Side into a public park. Other similar projects include the QueensWay, +Pool, and Pier 55.

All of these projects, including the Lowline, have drawn their share of criticism thanks to the fact that all of them represent the privatization of public space and public services, even if they operate as nonprofits. Unfortunately, the reality is that these urban innovations would never see the light of day if it weren't for private backing. Public sector leaders are unwilling to take the risk necessary to make these projects a reality, and as such outsource their risk to nonprofit entities that can push the projects through.

None of this is to say that this is the way that things should be. Cohen notes that SIBs have been "overpromoted and oversold", and one might say the same about nonprofits dedicated to major urban redevelopment initiatives. If a given underutilized space in an urban area is ripe for reclamation as active public space, and an effective use-case can be developed for that space, then responsibility falls on public sector leaders to make that a reality. We should not have to turn to extra-governmental entities to make these projects happen any more than we should have to turn to extra-governmental entities to take responsibility for basic government services as in the case of SIBs.

Innovations like SIBs and nonprofit development ventures - and they are innovations - represent both a symptom and a cure. They result from a chronic underfunding of services and a general distrust in government's ability to enact meaningful change to solve problems both large and small. In a less dysfunctional political climate, there would be less of a need for extra-governmental solutions to public sector problems. Unfortunately, that is not the world in which we find ourselves, and these innovations service a very real public need.