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Goldman Sachs PreSchool Success Problematic on Three Counts

November 10, 2015

A succession of articles appeared recently on Goldman Sachs’ “success” in preventing large groups of preschool students from requiring special education services through innovative approaches funded by a social impact bond. In a typically insightful post on her Mathbabe blog, Cathy O’Neill explains the design of a social impact bond and how they can be abused to the detriment of those who are presumably helped, by investors, and of science itself.

In the opening paragraphs O’Neill outlines how a social impact bond works:

The idea is that people with money put that money to some “positive” purpose, and if it works out they get their money back with a bonus for a job well done. It’s meant to incentivize socially positive change in the market. Instead of only caring about profit, the reasoning goes, social impact bonds will give rich people and companies a reason to care about healthy communities.

So, for example, New York City issued a social impact bond in 2012 around recidivism for jails. Recidivism, which is the tendency for people to return to prison, has to go down for the bond to pay off. So Goldman Sachs made a bet that they could lower the recidivism rate for certain jails in the NYC area.

Sounds like a good concept on paper… except for a few issues:

  1. Who defines what constitutes “recidivism”
  2. Who looks to see if Goldman is investing in other instruments that bet against the success of the bond
  3. When money is involved, who makes sure the “experiment” involving recidivism is done in a scientifically rigorous fashion?

Later in her post, O’Neill describes the social impact bond “success” touted by Goldman Sachs as evidence that these new instruments can solve thorny educational problems:

Here’s a big red flag on the whole social impact bond parade: Goldman Sachs was caught rigging the definition of success for a social impact bond in Utah. It revolved around a preschool program that was supposed to keep kids out of special ed. Again, it was hailed by the Utah Governor as “a model for a new way of financing public projects.” But when enormous success was claimed, it seemed like the books had been cooked.

Basically, Goldman Sachs got paid back, and rewarded, if enough kids who were expected to go into special ed actually didn’t. But the problems started with how find the kids “expected to go into special ed.”

Namely, they administered a test known as the PPVT, and if the kid got a score lower than 70, they were deemed “headed to special ed.” But the test was administered in English, when up to half of the preschoolers didn’t speak English at home. And also, the PPVT was never meant to measure kids for special ed needs in the first place. In fact, it’s a vocabulary test.

Unsurprisingly, many of the non-English speaking children did NOT require special education services when they got older because… they learned how to speak English more proficiently. That is, they didn’t require special education services later because they never should have been identified as likely candidates for those services to begin with!

MAYBE these social impact bonds would be a good idea if someone in the Utah State Department of Education was asked to determine the method for predicting future special needs children… but my hunch is that the Governor of Utah wanted to see this method work to “prove” that financial incentives can leverage solutions to difficult social problems and so avoided seeking advice from social scientists on the best means of screening for potential special needs students.

And here’s my other hunch: IF someone in the Utah State Department of Education determined the method for predicting future special needs children the funds needed to solve the problem through intervention would erode the profit margin… because early intervention requires a net increase in funding for schools and/or social services and not a reallocation of existing funds. Investors and politicians who think that there is enough money in the “inefficient” government system to solve problems rooted in poverty are engaged in magical thinking. The only way to reduce special education spending is to increase spending in regular education.

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