13 november 2012

Ottawa’s new social policy will mostly benefit private sector, says economist


Human Resources Minister Diane Finley is seen in Toronto on Thursday, Nov. 8, 2012, ahead of her announcement about a new funding initiative for social policy in Canada.THE CANADIAN PRESS/Colin Perkel

Ottawa’s controversial new approach to social policy will help “unlock innovation in local communities”, says Human Resources Minister Diane Finley. The government argues the new system of “social impact bonds”, which includes the private sector, will be a valuable source of fresh funding for Canadian communities. But critics argue that profits will mostly benefit bankers and investors.

“Governments should not have to pay private sector for good ideas in social services”, says David Macdonald, economist with the Canadian Center for Alternative Policies.

The policy would allow private-sector investors and non-profit organizations to put money up front in projects that are typically financed by the government, such as programs to address homelessness or hunger. If the goals of the project were reached, investors would collect a profitable return by Ottawa.
“[The bonds system] can be quite attractive for businesses. The problem is that it is not that attractive for governments”, says Macdonald.

According to Macdonald, it’s very difficult to measure the impact of social programs, which are also dependent on external factors.

Another challenge, says Macdonald, is that a portion of the savings that used to be gained by federal, provincial and municipal governments would now be paid to the private sector.

“If you’ve got 10 or 20 % on your stock portfolio, you’d be over the moon, that would be a stellar return”, says Macdonald.

Macdonald fears that in order to ensure the success of a project, governments might be tempted to alter the terms of contracts.

“If the private sector saw that the government was willing to let them lose money on a regular basis, they would be a lot less interested”, he said.

Macdonald believes corporations should help by paying “slightly higher corporate tax rates that can then fund innovative social programs”.

“The benefits go to the government, as opposed to going to the financier”, he concludes.

RCI’s Gilda Salomone spoke with David Macdonald about the impacts of the new policy.
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