NUPGE raises concerns that federal funding could be used to subsidize privatization

Unless the Minister completely rejects the idea that the Social Finance Fund will be used to "bring private funding, incentives and discipline into social services," past experience shows we need to assume that it will be used to subsidize the privatization of social services.

Ottawa (08 July, 2019) — The National Union of Public and General Employees (NUPGE) is raising concerns that media coverage of an announcement related to the federal government’s Social Finance Fund suggests that it will be used to subsidize the privatization of social services.

In a letter to Jean-Yves Duclos, the Minister of Families, Children and Social Development, Larry Brown, NUPGE President asked him to respond to the media report that federal officials intend to use the Social Finance Fund to “bring private funding, incentives and discipline into social services governments provide themselves or directly fund.”

Using social finance to fund privatization is contrary to the original objective

Originally, social finance was based on the idea that people would accept a lower level of profit when money was used to fund projects or enterprises that provided some benefit to the community. Social finance was intended to provide an alternative to banks and other traditional investors. It has been used for things like mortgages for non-profit housing and community economic development.

In the last decade, there has been a push to use social finance to provide funding for services that were traditionally publicly funded. Investors would then be repaid by governments. Ultimate control over how services are delivered would rest with investors, meaning that the services are effectively privatized.

This turns the original purpose of social finance on its head. Instead of investors accepting a lower profit while their investment provides a social benefit, using social finance as a form of privatization turns social services into a source of profits for investors.

Social impact bonds, best-known example of using social finance to privatize services

Social impact bonds are the best known example of how social finance is used to privatize public services. These have been used for a wide range of services including justice and corrections, child welfare, homelessness and education. They come with high administrative costs and change the top priority of service providers from helping those in need to keeping investors happy.

Fears Social Finance Fund would be used to subsidize privatization go back to when it was first proposed

The concern that the Social Finance Fund would be used to subsidize privatization goes back to when it was first proposed by the Social Innovation and Social Finance Strategy Co-Creation Steering Group in August 2018. The Social Innovation and Social Finance Strategy Co-Creation Steering Group was set up by the federal government to develop a Social Innovation and Social Finance Strategy.

While the Co-Creation Steering Group did not recommend that social impact bonds be used and many of the examples used in their report were of traditional uses for social finance, it was well known that there were many in the federal government who wanted to see support for social impact bonds. This support was evident when a senior public employee from the Privy Council Office felt able to publicly promote social impact bonds in a panel discussion after a screening of the documentary The Invisible Heart.

History of privatization provides plenty of reasons to be suspicious

When one looks at how public services have been privatized in the past, there is one thing that is very clear: if there is a rumour that privatization is being considered, it is safe to assume it’s true unless it is emphatically denied — and even then, you can’t afford to let your guard down.

In March, in response to concerns raised by NUPGE,  the Minister of Families, Children and Social Development said that “the Social Finance Fund was not intended to replace public funding for social services, nor is it designed to displace the work of more traditional charitable and non-profit organizations.” However, as social impact bonds require public funding and often use charitable and non-profit organizations to deliver services, this statement is far less reassuring than it appears to be at first glance.

Unless the Minister completely rejects the idea that the Social Finance Fund will be used to “bring private funding, incentives and discipline into social services,” past experience shows we need to assume that it will be used to subsidize the privatization of social services.

More information: 

Letter to Minister of Families, Children and Social Development on privatization