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Regardless or whether you agree or disagree with specific social programs, we can generally agree that government wastes much money as it tries to engineer social outcomes (50% by some estimates). There are many reasons, but one of the primary reasons is because governments haven't any incentive to be efficient and, in fact, are motivated otherwise (e.g., they gain money and power the worse they do). Entrepreneurs work exactly opposite to this model: the more efficient they are, the more profit they earn. What if government worked more like entrepreneurs do? For example, the US Constitution provides for something called Letters of Marque and Reprisal, which is basically the government authorizing private citizens/companies to engage in warfare against enemies, and then taking a majority of the profits from the capture of the enemy. What if you could apply this concept to social problems?


Help the unemployed! Cut spending! Provide a safety net! No new taxes! America expects the impossible of government right now, if campaign events are any indication. But what if government could do all that without spending a dime up front? A recent plan from England may prove an inspiration for penny pinchers, bleeding hearts, and rational economists alike.

It's called a social impact bond, and here's how it works: Social entrepreneurs or community groups are loaned money by private investors to try out solutions to social problems. If the solution works, the government pays whoever invested in the solution a share of whatever spending is saved. In other words, as one writer put it, "It's a way of transferring public sector savings to private investors who are willing to put money into preventative initiatives early on."

The social impact bond launched earlier this summer in England and it is a global first in government spending, mainly because the government doesn't spend anything until they get results. And "results" means both cost savings as well as meeting a social goal. Win-win all around if it works, and if it loses, the investors are out, not the government.

Can the U.K.'s Social Impact Bonds Work in the Unites States?


Original posting by Braincrave Second Life staff on Oct 7, 2010 at http://www.braincrave.com/viewblog.php?id=343

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