Digital Nudging: Data, Devices & Social Control

Reposted with permission from Wrench in the Gears.

Digital exhaust, virtual selves

…“Choice architects” create these systems and weave them into public policy. Through strategic application of “nudges,” citizens,  otherwise “irrational actors” in the market, can be guided to conform to economists’ expectations. Through nudges, human behaviors are redirected to fit mathematical equations and forecasts….

The way we live our lives generates enormous amounts of data. Keystrokes; online payments; photos with embedded meta-data; cell tower pings; fit bits; education management apps; search histories; avatars; social media posts all contribute to a cloud of digital exhaust that threatens to engulf us. Our world is being increasingly data-fied as smart phones mediate our daily activities, and Internet of Things (IoT) sensors become integrated into our homes and public spaces.

In the coming decade we’re going to have to navigate environments defined by ubiquitous computing and surveillance. Virtual and real worlds will meld in unsettling ways. The threat of state repression will intensify, especially for black and brown people, immigrants, refugees, the poor, and dissidents. As the former CIO of the City of Philadelphia Charles Brennan noted at the end of an October 22, 2017 meeting, the future of policing will encompass predictive analytics, facial recognition software, and drone surveillance.

With UPenn’s GRASP lab currently managing a $27 million contract with the US Army Research Lab to develop distributed intelligence, autonomous weapons, it’s not too soon to be thinking about what comes next. To get a feel for where we could be headed, the write up, “Singapore, City of Sensors” describes what it’s like to live in a “smart nation”  where EA3 devices track “Everyone, Everywhere, Everything, All The Time.”

Bits and bytes of data build up like passes from a 3-D printer; and as the data is aggregated, our digital doppelgangers emerge. Of course they’re merely shadows of our true, authentic selves. They magnify certain aspects of our personalities while suppressing others. The data of our online counterparts can be incorrect or incomplete, yet even with all those flaws our online profiles and reputations have begun to profoundly influence our offline lives.

As Eric Schmidt of Alphabet (Google’s parent company) says: data is the new oil, so valuable nation states will fight over it. From Cambridge Analytica to Cornell-Technion’s Small Data Lab to Wharton’s Behavior Change for Good program, social scientists are teaming up with venture capital, government agencies, and NGOs to devise new and intrusive ways to monitor people and extract profit from the management of our data-filled lives.

The relationship map below (click here for the interactive version) features individuals and organizations associated with the Small Data Lab, a program of Cornell-Technion based on Roosevelt Island in New York City. This research and development program is backed by influential impact investors and technology companies, including Google. If you know your way around social impact bonds, you’ll see quite a few familiar names: Goldman Sachs, Bloomberg Philanthropies and Atlantic Philanthropies. The aim is to come up with sophisticated ways to analyze digital exhaust and devise technological “solutions” that pressure individuals to conform to neoliberal economic conditions. The technological underpinnings of these app-ified “solutions” enable the capture of “impact metrics” that will fuel the growing social investment sector.

Cornell-Technion also aims to grow the STEM/cyber-security human capital pipeline, having recently accepted at $50 million gift from Tata Consulting, one of India’s most highly-capitalized IT companies, to build an innovation center on their campus. The program plans to do outreach into New York City schools to promote skill development in AI and human-computer interaction.

PTB Ventures, Project Trillion Billion, is one example of a company positioning itself for this new market. A financial backer of Learning Machine, spun out of the MIT Media Lab and specializing in Blockchain education credentials, PTB has also invested in Callsign (digital identity authentication), Element (biometrics), and DISC Holdings (digital payments and credit on blockchain). Their website states the company anticipates a future where trillions of devices will be connected to billions of humans and create trillions of dollars in economic value. These investors hope to use connected devices and sensors to mine the lives of the global poor and dispossessed for the economic benefit of the social impact and fin-tech sectors.

Proposals for online platforms are beginning to emerge that aim to combine decentralized identifiers (DIDs used to create self-sovereign digital identities), e-government transactions, and online payment systems (including public welfare benefits) with “digital nudges” grounded in behavioral economics. See the screenshot taken from the Illinois Blockchain Task Force’s January 2018 report. It shows a desire to digitally incentivize healthy eating purchases for people receiving SNAP benefits.

Behavioral economics is the study of how psychological, cognitive, emotional, social, and cultural factors influence the economic choices a person makes. It challenges the idea of homo economicus, that people maintain stable preferences and consistently make self-interested choices in relation to market forces. The field was popularized in the United States by Nobel-prize winning psychologist Daniel Kaheneman. University of Chicago economist Richard Thaler built upon this work. Thaler won a Nobel Prize in Economics for his research last year.

Thaler worked closely with Cass Sunstein, who headed Obama’s Office of Information and Regulatory Affairs. In 2008, they co-wrote Nudge, a book espousing “libertarian paternalism.” People make “choices,” but systems can be designed and implemented to encourage a preferred “choice,” generally one that prioritizes long-term cost-savings. “Choice architects” create these systems and weave them into public policy. Through strategic application of “nudges,” citizens,  otherwise “irrational actors” in the market, can be guided to conform to economists’ expectations. Through nudges, human behaviors are redirected to fit mathematical equations and forecasts. David Johnson’s 2016 New Republic article Twilight of the Nudges, provides useful background on this technique and the ethical implications of applying nudges to public policy.

Sunstein Obama

The first “nudge unit” was established in the United Kingdom in 2010 as the Behavioural Insights Team (BIT). It operated as a cabinet office for several years before reinventing itself as a global consultancy in 2014. BIT is now owned in equal parts by staff, the UK government and NESTA, a social policy innovation / impact investing foundation funded with proceeds from the UK lottery system. Thaler is on their Academic Advisory Team. From 2015 to 2018 BIT had a $42 million contract with Bloomberg Philanthropies to support development of their “What Works Cities” initiative in the United States. Results for America, the organization that co-hosted the $100 Million “Pay for Success” celebration in Washington, DC last month, currently manages the What Works Cities program on behalf of Bloomberg Philanthropies.

Ideas42 has also been very active at the intersection of social science, behavioral economics and impact investing strategies. It was founded in 2008 as a program of Harvard University with support from scholars and experts at MIT, Princeton, the International Finance Commission (IFC), and the Brookings Institution. Focus areas include education, healthcare and financial inclusion. Numerous mega-philanthropies that are actively implementing the Ed Reform 2.0 agenda have partnered with the organization: Gates, MacArthur, Arnold, Lumina, HP, and Dell. Other partners are involved in deployment of global aid: USAID, the World Bank, the International Rescue Committee (see my previous post re BIT and IRC involvement with Syrian refugee children), and the UN Environment Programme. There are representatives of global finance including Citi Foundation and American Express; insurance companies, MetLife and the Association of British Insurers; and impact investors focused health and wellness, the Robert Woods Johnson and Kellogg Foundations.

Over one hundred experts are allied with this program, including Angela Duckworth and Katherine Milkman of the University of Pennsylvania. They created the ninety-second video “Making Behavior Change Stick” as part of their application to the MacArthur Foundation’s $100 Million and Change challenge. While the proposal was not a finalist, Duckworth and Milkman’s research continues to move forward with private support, housed within the Wharton Business School. Their first $1 million came from the Chan Zuckerberg Initiative (founded with Facebook stock), that interestingly enough is also currently working with the Philadelphia District Attorney’s office (Larry Krasner) on criminal justice “reform.” More opportunities for our technological overlords to encourage “good” decision making while completely disregarding “broken on purpose” social programs, I suppose.

Take note of the partners identified in Duckworth and Milkman’s MacArthur proposal:

Duckworth and Milkman’s premise is that technology can be used to encourage people to make “good choices,” which the begs the question, “Good for whom?” I suspect what will make a certain choice “good” is the likelihood it will enrich social impact investors while furthering the austerity that drives reduction in public services, increases outsourcing, and fosters the creation of public-private partnerships. The desires of those needing to access services will not be factored into the computer code that sets up friction points and establishes preferred outcomes. Citizens are simply inert, raw material to be molded, for profit, by inhumane digital systems. In the nudge model, economic systems that create mass poverty are not addressed. Instead, the impetus is placed upon the individual to better navigate existing systems steeped in structural racism.

As you may remember from my previous post, Duckworth has been working closely with human capital and labor economist James (7-13% ROI on Early Childhood Education Investments) Heckman. She is one of five leaders of the “Identity and Personality” division of his Human Capital and Economic Opportunity Working Group, based out of the University of Chicago and funded by the Institute for New Economic Thinking (INET). In May 2017, Duckworth brought an interdisciplinary group of experts in behavior change to the University of Pennsylvania for two-day conference sponsored by the Center for Economics of Human Development. Fourteen presentations, including  a “Fireside Chat With Daniel Kahneman” were recorded and are viewable here.

The prior year, Philadelphia became the first city in the US with its own municipal level “nudge unit.” Though Duckworth does not appear to be directly involved, Evan Nesterak, a researcher in Duckworth’s Characterlab, co-founded The Philadelphia Behavioral Science Initiative (PBSI) with Swarthmore Professor Syon Bhanot. Bhanot is involved with theSwarthmore Professor Syon Bhanot, as well. According to a 2018 report on PBSI published by Results for America, the initiative’s other academic partners include: the University of Pennsylvania, Drexel, Temple, St. Joseph’s, Yale, Columbia and Princeton. The report, viewable here, was funded by the John and Laura Arnold Foundation. John Arnold, a hedge-fund billionaire who made his fortune at Enron, has since moved on to education reform, gutting public pensions, and promoting pay for success “evidence-based” finance.

“Innovative” programs are being incubated within the planning and policy departments of many US cities now via fellowships and loaner “experts” who plan to advance an “evidence-based,” “big-data,” “platform-government” agenda. Anjali Chainani, Mayor Kenney’s Policy Director and Manager of the city’s GovLab, has gone through the Results for America Local Government Fellow program.  The Philadelphia Behavioral Science Initiative is an outgrowth of the City Accelerator and GovLabPHL, which she manages. While the initial program areas are strategically uncontroversial (it would be difficult to speak against seniors taking advantage of discounted water bills or public bike sharing), it seems likely an “evidence-based” campaign of nudges, once normalized, will be extended into more lucrative and ethically-dubious areas like policing, health care delivery, family services, and behavioral health.

Below is an extensive relationship map that shows interconnections between data-driven public policy / privatization programs originating out of the Harvard Kennedy School of Government, the global financial interests represented by the members of Citi Group’s “Living Cities” program, and how those interface with government operations in the city of Philadelphia. Many of these programs were put into place by our former mayor, Michael Nutter, who went on to become a senior fellow for Bloomberg’s “What Works Cities” program. His wife Lisa is now a principal with Sidecar Social Finance, an impact investing firm.

Click here for the interactive version.

Feeding this machine is our gradual yet irresistible slide into a financial world of digital economic transactions. My next post will focus on that. Please take some time to explore the maps above. They are complex but convey a great deal about the forces at work. Sometimes a nudge is actually a shove. I think our city is being positioned for some serious shoving.

The footage above is from the violent July 5, 2018 police intervention against peaceful OccupyICEPHL protestors at 8th and Cherry Streets outside Philadelphia’s ICE detention center.

-Alison McDowell

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Making Childhood Pay: Arthur Rolnick, Steven Rothschild, and ReadyNation

Reposted with permission from Wrench in the Gears.

Pre-K Teachers Heart Tech

The push for early childhood education access is NOT being driven by a desire to meet the basic human needs of children. Rather financial interests that view children as cogs in a national workforce development program are pushing it; and they see preschoolers as lumps of human capital to be plugged into economic forecasts. This is all happening at a time when human services are being privatized in the name of scalable, outcomes-driven social entrepreneurship. The trailer for a new documentary, The Invisible Heart, on social impact bonds indicates how much capital is flowing into this new market.

This post provides additional background on the ReadyNation Global Business Summit on Early Childhood Education that will take place at the Grand Hyatt hotel in New York City November 1-2, 2018. No U.S. educators or policy advocates may attend unless they come with at least four pre-approved business sponsors. Review the draft agenda here.

This is the second in a series. Read part one here.

Where did ReadyNation come from?

The idea emerged from a conversation three men had on a conference call during the summer of 2003:

  • Arthur Rolnick, senior researcher at the Minneapolis Federal Reserve
  • Robert Dugger, financial policy analyst and venture capitalist
  • James Heckman, University of Chicago economics professor

Its first incarnation, the “Investing in Kids Working Group,” focused on researching returns on early childhood investments, developing finance mechanisms, and crafting policy recommendations. Over the past fifteen years Dugger, in consultation with Heckman and Rolnick and with support from the Pew Charitable Trusts, gradually built a structure to undergird a global investment market fueled by debt associated with provision of early childhood education services.

The push for early childhood education access is NOT being driven by a desire to meet the basic human needs of children. Rather financial interests that view children as cogs in a national workforce development program are pushing it; and they see preschoolers as lumps of human capital to be plugged into economic forecasts. This is all happening at a time when human services are being privatized in the name of scalable, outcomes-driven social entrepreneurship. The trailer for a new documentary, The Invisible Heart, on social impact bonds indicates how much capital is flowing into this new market.

Arthur Rolnick, Steven Rothschild, and Pay for Performance

Much of my research has focused on the Boston area (global finance), the Bay Area (tech), Chicago (blockchain), and New York (urban policy). So I was surprised to find what may be a key piece of this puzzle actually comes out of Minneapolis Minnesota. Though perhaps the fact that Minnesota is home to the nation’s first charter school, City Academy that opened in St. Paul in 1992, indicates local conditions favor neoliberal reforms.

Arthur (Art) Rolnick spent his 40-year career as a senior economic researcher at the Minneapolis Federal Reserve Bank. During that time he also served as an associate professor in the economics department of the University of Minnesota and was co-director of the Human Capital Research Collaborative in the Humphrey School of Public Affairs. The Collaborative houses the Chicago Longitudinal Study whose researchers are tracking the short and long term effects of early intervention on 1,000 students who attended Chicago’s Child-Parent Centers in 1984-85.

The Chicago Child-Parent Centers were service providers for one of the nation’s first two early childhood social impact bonds, begun in December 2014. The Chicago SIB included payout metrics tied to third grade literacy scores. Thus far the program has issued maximum payments to investors including Pritzker, Goldman-Sachs and Northern Trust. According to this report from the Institute for Child Success, it is possible that over the seventeen-year time horizon for the SIB, $34 million could be paid out on the initial $16.9 investment.

Click here for the interactive version of this map.

Rolnick connected with Steven Rothschild, a former vice president at General Mills who left the corporate sector and launched Twin Cities RISE!, an “innovative anti-poverty” program that provided workforce training for low income adults, in the mid 1990s. Rothschild arranged with the state of Minnesota to provide services via an outcomes-based contracting arrangement where the organization was only paid when the “economic value” they provided to the state by increasing taxes (paid by those placed in jobs) and decreasing state expenditures (reduced costs for social services or incarceration) met approved targets.

Arthur Rolnick and Gary Stern of the Minneapolis Federal Reserve worked with Rothschild and Twin Cities Rise! to develop the economic analysis in support of the outcomes-based contracting initiative. Rolnick’s work with Rothschild eventually led him to examine the economic implications of early childhood interventions using data from the High/Scope Perry Preschool Study. In 2003, the year Rolnick had that auspicious phone call with Robert Dugger and James Heckman, he and and Rob Grunewald, regional economic analyst, put out the following report for the Minneapolis Federal Reserve: Early Childhood Development: Economic Development with a High Public Return.

In a 2006 profile of Rolnick, Minnesota journalist and blogger Kevin Featherly notes that report catalyzed $1 million in seed money for the Minnesota Early Learning Foundation, a project of the Minnesota Business for Early Learning. It also put Rolnick and Grunewald on the lecture circuit for the next several years where they touted early childhood education as a prudent economic investment. Weatherly likened Rolnick’s schedule after the release of the report to that of a presidential candidate, sharing the stage with Jeb Bush at the National Governor’s Convention, the head of the Gates Foundation at the National Council of State Legislatures, and presenting to a global audience at the World Bank.

Rothschild who served on the boards of the Greater Twin Cities United Way and Minneapolis Foundation, went on to found the consulting firm Invest in Outcomes and write the Non Non-Profit, a book that exhorted non-profits to focus on the Return on Investment (ROI) and measurable economic outcomes of the services they provide. These ideas eventually led the Minnesota legislature to adopt the “Pay for Performance Act” in 2011 that appropriated $10 million for a pilot program to develop Human Capital Performance Bonds or HuCaps.

Rothschild provides a detailed explanation of how HuCaps function in a 2013 article for the San Francisco Federal Reserve’s publication Community Development Investment Review. HuCaps differ from social impact bonds in that they are true bonds and tap into the state bond markets; which, in theory, could give them access to significantly more capital-trillions of dollars rather than millions. In this podcast with the St. Louis Federal Reserve, Rothschild describes the model developed by Twin Cities RISE! as the basis for much of the social impact investing activities that have emerged over the past decade.

Source for this slide.

As structured in the Minnesota legislation, the service provider is the one that takes the risk rather than the investor. If the provider is not able to meet the target metrics they are the ones who will not be paid. As a consequence, HuCaps have not yet taken off; see Propel Nonprofit’s analysis here.

Source for this slide.

Nevertheless, there are those who have not given up on the Human Capital Performance Bond approach. Arnold Packer, former director of the education reform and workforce development SCANS 2000 Center based out of Johns Hopkins University, wrote about HuCaps for the Brookings Institution in 2015 (the co-chair of the Commission on Evidence-Based Policy Making is Bruce Haskins also of Brookings). He noted that Milton Friedman was among the first to float the idea of leveraging private investment in human capital development. Take a minute to watch this one-minute video, from Institute for the Future, that portrays a college student contemplating entering into an income-sharing arrangement in exchange for tuition.

The idea that states could issue bonds for human capital in the same way they do for infrastructure like bridges, and that future savings will be created as people attain higher paying jobs due to their improved human capital, is central to the HuCap premise. In order to justify future cost savings, those receiving services must be tracked, so their “outcomes” can be measured over time. According to Arnold:

“This reform requires a shift in thinking on all sides, investors in human resources (early childhood education falls into this category) will have to consider statistically estimated benefits in terms of future cost savings and revenue as equivalent to projected revenue from a toll road. Government agencies will have to coordinate in order to structure attractive Human Resource bonds, since different agencies at different levels of government, benefit from the savings resulting from earlier investments.” Source

This model of finance, if ever widely adopted, would demand all recipients of public services (including education) be part of the government’s statistical estimate. Because many early-intervention services are directed at families, a person’s predictive profile would likely start to be amassed prenatally; babies assigned a Decentralized Identifier (DID), before they are even born. Estimates would be made about the likelihood a person would need to access services in the future, what those services would be, and what they would cost. Assessments would be made about the anticipated tax revenue a person would in turn generate over their lifetime. All of this data would need to be calculated in order to determine the impact metrics for the investors and structure “attractive human resource bonds.”

Before the rise of cloud-based computing, such a level of tracking would have been impossible. Having access to data to make those predictions would have been difficult to obtain. But that is rapidly changing in this world of Big Data, digital identity and “moneyball for kids.” The bi-partisan Commission on Evidence-Based Policy Making concluded public hearings in February 2017, and the vast majority of those providing testimony favored creating enormous pools of data to inform public policy decisions.

Evidence Based Policy Making

Read the report.

Responsibilities of the Commission on Evidence Based Policy Making:

Things seem to be on hold for the moment with Human Capital Performance Bonds, but I feel strongly they may be simply waiting in the wings until Blockchain sovereign identity is normalized. An Illinois state Blockchain task force (note Pritzker, backer of early childhood SIBs is running a well-funded campaign for governor of Illinois now) has developed preliminary recommendations linking public service benefits to citizens using Blockchain technology. They even envision building in behavioral incentives tied to the provision of services through digital economic platforms. See the diagram below for an illustration of how they might incentivize food purchases.

Read the report.

Of course the implications of this type of manipulation for people who live in food deserts with limited access to fresh produce remains unaddressed. And it doesn’t take a stretch of the imagination to see how other choices might be economically incentivized: which online course to take (the evidence-based one); which training program (the evidence-based one); which therapy provider (the evidence-based one); which medical treatment (the evidence-based one). But by whose measure? Who sets the metrics? Who profits when “evidence-based” standards are imposed?

How will independently-owned, neighborhood-based child care centers fare in this new landscape? If they are shuttered, what will the economic impacts be for communities, especially in economically distressed neighborhoods where such businesses are important sources of employment? Will small-scale providers be willing to collect the “human capital” data required to take advantage of pay for success investments? If they are willing, would they even have the money to purchase the technology (smart tables, anyone?) required to gather their “impact” evidence?

Rob Grunewald, Rolnick’s collaborater on the Federal Reserve Early Childhood paper, is on the ReadyNation Summit planning committee. Rolnick is part of a workshop, “Scalable Success Stories in Early Childhood Programs,” at 11:45 on Friday, November 2nd.

The “pay for performance” finance mechanism dreamed up by Rothschild and Rolnick in the 1990s is particularly well-suited to this age of Internet of Things data collection, surveillance, predictive analytics, financialization, and economic precocity. This is why we should all be very concerned about ReadyNation’s Global Business Summit on Early Childhood; especially because it so clearly discourages early childhood educators and policy advocates from attending.

Next up, Dr. James Heckman and the Institute for New Economic Thinking.

-Alison McDowell

 

Pre-K Profit: ReadyNation Hosts Global Business Leaders in New York City this November

Reposted with permission from Wrench in the Gears.

Data Driven PreK

The rise of pay for success, social impact bonds, development impact bonds, and outcomes-based contracting will usher in privatization of vast new areas of public services, including education and training at all levels from infants through human resource management (lifelong learning, reskilling). This is not merely a phenomenon of the United States; this summit is intended for a global audience, a neocolonial project driven by late-stage capitalism.

Business executives, government officials, and representatives of non-profits and NGOs from across the globe will gather in New York City this fall to discuss the business of early childhood. These are not people looking to open childcare franchises. No, that is not their “business.” The intent is more sinister, transforming our youngest learners into points of profit extraction under the guise of social justice and equity. Through technology and forms of “innovative finance” they aim to catalyze a speculative market in toddler data, using the lives of young, vulnerable learners as vehicles to move vast sums of social impact venture capital.

ReadyNation, a program of the Council for a Strong America, is hosting the summit, set to take place at the Grand Hyatt Hotel on November 1-2, 2018. Council for a Strong America, a bipartisan coalition of leaders from the law enforcement, military, business, religion, and athletics spheres, has placed influencers guiding early childhood education policy in every state. Their intent is to promote public-private partnerships that will generate investment returns for global finance while shaping children into a compliant citizenry conditioned to accept economic precariousness and digital surveillance while doing the bidding of the power elite.

The rise of pay for success, social impact bonds, development impact bonds, and outcomes-based contracting will usher in privatization of vast new areas of public services, including education and training at all levels from infants through human resource management (lifelong learning, reskilling). This is not merely a phenomenon of the United States; this summit is intended for a global audience, a neocolonial project driven by late-stage capitalism.

Remember the 2007 housing market crash? The fraud Goldman Sachs perpetrated, misleading investors to purchase financial instruments tied to sub-prime mortgage bonds? The $16.65 billion penalty Bank of America had to pay, the largest settlement between the government and a private corporation? Seeing financiers from both companies on stage at a 2014 ReadyNation event promoting early childhood social impact finance should give us pause. Watch the hour-long talk here. The excerpt below is taken from a two-minute clip where the moderator, Ian Galloway, introduces a panel on potential financing structures. Watch that here.

“Christina Shapiro is a vice president at Goldman Sachs. You know, I’ve heard a lot that if you’ve seen one social impact bond, other people may have heard it, too. If you’ve seen one social impact bond, you’ve seen one social impact bond, right? That is true with one exception, and that is that just about every social impact bond out there has Goldman Sach’s fingerprints all over it. They are by far the leaders in the space. They are creating this marketplace out of thin air, and I commend Christina and her colleagues for their hard work on that front.”

Ian Galloway, Senior Research Associate, San Francisco Federal Reserve

To dig the hole deeper, the Council for a Strong America has accepted over $10 million from the Gates Foundation since 2006, including a $4.2 million grant in October 2015 to “engage stakeholders around the Common Core and high quality preschool.” Last summer in the run up to the fall 2018 elections, Gates granted the organization $300,000 to “educate potential future governors about the importance of college and career readiness in their state.”

Gates Grants to Council for a Strong America

ReadyNation’s speakers range from the World Bank, UNICEF, Omidyar Network, and the Girl Scouts to KPMG, the Massachusetts Business Roundtable, Learn Capital, and Sorenson Media (founded by Jim Sorenson, Utah tech entrepreneur and impact investor). A previous summit launched early-childhood campaigns in Romania, Australia, and Uganda in 2015. ReadyNation Romania and The Front Project (formerly ReadyNation Australia) will be participating.

What do summit attendees get for their $200 registration fee? ReadyNation touts the event as “the only training ground in the world for business people from outside the children’s sector to become unexpected and uniquely influential advocates for public and private investments in early childhood…Summit attendees from the U.S. must be business people or public officials; those from outside the U.S. can come from other sectors.” Children’s advocates and policy experts in early childhood education are specifically excluded from the conference unless they attend with at least four business people. In order to attend, one must to submit an online request.

Why is ReadyNation so emphatic about excluding early childhood educators and policy advocates? Find out in Part 2: Making Childhood Pay: Arthur Rollick, Steven Rothschild and ReadyNation.

-Alison McDowell

Social Impact Bonds — a Primer

Reposted with permission from Parents Across America Oregon.

Monopoly

This post is the first in a series on social impact bonds. The idea is rather simple, but the devil is in the details.  Although the concept has been around for a few years and caused controversy in other places,  it has only recently come to my attention in Oregon. That topic will be the subject of a future post. Goldman Sachs is a purveyor of social impact bonds. It seems only fitting that they should be our guide through a first look at SIBs.

 

“Goldman Sachs is a pioneer in the creation of the “social impact bond” – an innovative and emerging financial instrument that leverages private investment to support high-impact social programs.”  Goldman Sachs, 2014

 

During the past few years while parents and educators have been struggling to protect students from the  harmful effects of high stakes tests and edtech, the billionaire class has been salivating over their most devious scheme yet: social impact bonds (SIBs). While they sound benign enough as portrayed in the graphic below, social impact bonds are the proverbial “wolves-in-sheep’s-clothing.”   Below is a Goldman Sachs’ explanation for the 1%:

 

For a printable 11″ x 17″ back-to-back copy of both posters, click here.

 

 

Using the Goldman Sachs poster as a template,  I’ve taken the liberty to expand and improve on that description in plain speak. Please feel free to share widely. Below is a translation for the 99%:

 

Social impact bonds are also referred to as Pay for Success programs. More about that in a future post. What questions and concerns do you have?

-Deb Mayer

Is Wall Street About to Take Over Public Education Once and for All?

Reposted with permission from Save Maine Schools – Helping You Navigate Next-Gen Ed Reform.

Wall Street

And so, unbeknownst to most of the public, our schools – and the teaching profession – are being remade in order to facilitate this market.

Organizations like the Global Impact Investing Network (GIIN),  formed to advance impact investing, are developing banks of metrics on social services like education to help inform investors as they build their portfolios, while nonprofits like Strivetogether are building public-private data sharing networks across cities.

Across the country, teachers are being asked to collect, record, and slog through mountains of data that “experts” insist is meant to improve their practice.

There are pre-assessments and post-assessments, habits of work rubrics, writing prompts, social and emotional screeners, standards-based grading systems, RTI data, student learning objectives, professional growth goals, student surveys, self evaluations, administrator evaluations, office discipline referrals, results from progress monitoring programs  …the data demands go on and on, and all of it must be entered and stored in learning management systems.

Recently, a few brave teachers have begun to publicly state the obvious: that we don’t need all of this data to do our jobs well.

Unfortunately, no one seems to be listening, as there is a far more powerful entity that does need all this data:

Wall Street.

As Pay for Success schemes – also known as Social Impact Bonds – sweep the country, data collection in schools is reaching new heights.

“[It’s] an approach that has come of age,” Andy Sieg, Managing Director and Head of Global Wealth and Retirement Solutions at Bank of America Merrill Lynch said of Pay for Success contracts. “We see the confluence of investor demand, government innovation and access to data leading to the dawn of this new market.”

Here’s how they work: private investors provide upfront capital to start a program (a pre-K, for example). If the program meets a set of agreed-upon metrics of “success” (reducing the number of children receiving special education services, for example), investors get repaid with interest.

Despite ethical concerns and doubts about the actual public benefit of these contracts, they are rapidly advancing nationwide due to promises of big payouts for lenders. Goldman Sachs, for example, put up $16.6 million to fund an early childhood education program in Chicago, yet it is getting more than $30 million from the city.  According to The Rockefeller Foundation and Merrill Lynch, the impact investing market will reach between $400 billion to $1 trillion by 2020.

And they don’t intend for the profits to stop there. Investors also have plans to package these bonds up and turn them into a derivatives market. Using performance-based data to inform risk, investors will be able to gamble on these bond-backed securities just as they did with mortgages.

And so, unbeknownst to most of the public, our schools – and the teaching profession – are being remade in order to facilitate this market.

Organizations like the Global Impact Investing Network (GIIN),  formed to advance impact investing, are developing banks of metrics on social services like education to help inform investors as they build their portfolios, while nonprofits like Strivetogether are building public-private data sharing networks across cities.

In addition to directing federal dollars to incentivize Pay for Success schemes, the Every Student Succeeds Act of 2016 is jam-packed with grant money to shift schools to competency-based, blended, and/or personalized learning models – all conduits for data collection.

Meanwhile, Silicon Valley titans have grasped hands with investors to develop products and services that deliver data-based learning.  Most of their products rely on behaviorist-based approaches – a controversial method of stimulation and reward to produce target behaviors that can be easily tracked and measured.

Nationwide, private foundations are seeding the investment market by funding lobbying, “will-building,” and “building public demand” campaigns to remake education into one that facilitates a tradable market.  (See here for one example from education blogger, WrenchintheGears, of the networks that have been built between private foundations, research organizations, and investment firms.)

Teachers, who are being asked to navigate a profession that no longer makes sense, are now leaving in droves.

Fortunately, at least some organizations are beginning to take a stand against the Wall Street takeover of public education.  The Massachusetts Teacher Association, for example, recently announced  its opposition to a public-private partnership between the Massachusetts Department of Elementary and Secondary Education (DESE) and LearnLaunch. The partnership, known best by its acronym, MAPLE, was established with seed money from the Nellie Mae Education Foundation – the primary driver of data-based education reform in New England.

The question now stands: will other organizations follow suit?

Will more teachers get the courage to stand up and say enough is enough?

sheldon-throwing-papers-o

Or will Wall Street takeover public education once and for all?

Save Maine Schools

 

Pay for Success – Also Known as Social Impact Bonds, Senator Orrin Hatch & the Every Student Succeeds Act (ESSA)

two garbage trucks colliding

Back in the early 2000’s Sun Microsystems’ Scott McNealy described the pending merger between Hewlett-Packard and Compaq as “the sound of two garbage trucks colliding”.

Whenever I read through the 449 page abomination that is the 2016 re-write of the 1965 ESEA – later rebranded as the ESSA – I can’t help thinking of that phrase.

The law really is a never ending dumpster fire.

Thanks to boastful politicians, like Senator Orin Hatch, the public gets to learn in a round about way some of the awful things tucked into the ESSA.

For example:

From July 16th, 2015

Senate Passes Hatch “Pay for Success” Amendment

“With Pay for Success, state and local leaders will be empowered to fund initiatives that deliver real  results for their communities and schools. Rather than being limited by what federal bureaucrats at the Department of Education think best, funding should be more connected to local innovation and successful outcomes. I’m pleased the Senate has voted to approve my amendment, which builds on tremendous success leaders have already seen in my home state of Utah.”

What’s Pay for Success?

It’s telling that Hatch’s short statement is full of buzz works like “empowered”, “local innovation”, and “successful outcomes”, but really doesn’t explain what Pay for Success means or more importantly, how it works.

I think this is deliberate.

Pay for Success is an upbeat re-branding of social impact bonds or SIBs.

In the case of the ESSA, social impact bonds are a way for investors to speculate on education outcomes; essentially making bets on programs and then measuring if kids meet these benchmarks – which trigger a payout to investors by the state or local government agency that signed onto the contract.

In Utah, Hatch’s home state, Goldman Sachs and the investor J.B. Pritzker agreed to invest millions of dollars in an expansion of a preschool program in the Granite School District and later the state as a whole.

The payoff for investors would occur if the expansion of preschool to underserved populations cut down on the number of students requiring special education services later in their academic careers.

The bet was preschool would reduce the number of kids in special education based on scores determined by the Peabody Picture Vocabulary Test.

The sell to the school district was the potential savings of $2,600 dollars for every child who didn’t need special education or other remedial services.

The payout plan to Goldman Sacks and J.B. Pritzker is tricky, and makes me wonder if any of the politicians who supported the statewide preschool plan took the time to crunch the numbers and imagine worst case scenarios.

Here’s the terms for The Utah High Quality Preschool Program America’s First “Results-based Financing” for Early Childhood Education.

Determining Pay-for-Success Payments:

— Children participating in the high impact preschool program are given the Peabody Picture Vocabulary Test which is a predictive evaluation that will serve as an indicator of their likely usage of special education and remedial services. Students that test below average and are therefore likely to use special education services will be tracked as they progress through 6th grade

— Every year that they do not use special education or remedial services will generate a Pay-forSuccess payment

— School districts receive a fixed per annum payment of approximately $2,600 per student to provide special education and remedial services for students in general education classrooms from the State of Utah. The amount of the Pay-for-Success payment is based on the actual avoided costs realized by the State of Utah

— Pay-for-Success payments will be made equal to 95% of the avoided costs or $2,470 per child for every year, Kindergarten through Sixth Grade, to repay the senior and subordinate debt plus a base interest rate of 5.0%

— Thereafter, Success Payments will equal 40% of the savings, or $1,040 per child per year of special education services avoided, to be paid as Success Fees to Goldman Sachs and Pritzker

And this disclaimer, which in my mind seems to contradict the point made above. I’m thinking interpretation will hinge on whether Goldman Sachs and Pritzker are making money on their investment at the 7 year mark:

— Pay-for-Success payments are only made through 6th grade for each student; but all savings that are generated after that point will be captured by the school district, state and other government entities.

The New York Times took a look at the first year results of the Utah program and found some troubling issues.

First off, Goldman Sachs reported a payout of $260,000 dollars by claiming their program helped 99% of the students enrolled avoid special education, even though the highest rate of prevention in well funded preschool programs is a 50% success rate. Oh, and the Goldman Sachs program isn’t considered to be well funded.

Goldman said its investment had helped almost 99 percent of the Utah children it was tracking avoid special education in kindergarten. The bank received a payment for each of those children.

The big problem, researchers say, is that even well-funded preschool programs — and the Utah program was not well funded — have been found to reduce the number of students needing special education by, at most, 50 percent. Most programs yield a reduction of closer to 10 or 20 percent.

The program’s unusual success — and the payments to Goldman that were in direct proportion to that success — were based on what researchers say was a faulty assumption that many of the children in the program would have needed special education without the preschool, despite there being little evidence or previous research to indicate that this was the case.

Another problem was the Peabody Picture Vocabulary Test or P.P.V.T. overestimated the kids at risk for special education services, even though this test isn’t really used as a screener for special education in the first place.

Before Goldman executives made the investment, they could see that the Utah school district’s methodology was leading large numbers of children to be identified as at-risk, thus elevating the number of children whom the school district could later say were avoiding special education. From 2006 to 2009, 30 to 40 percent of the children in the preschool program scored below 70 on the P.P.V.T., even though typically just 3 percent of 4-year-olds score this low. Almost none of the children ended up needing special education.

When Goldman negotiated its investment, it adopted the school district’s methodology as the basis for its payments. It also gave itself a generous leeway to be paid pack. As long as 50 percent of the children in the program avoid special education, Goldman will earn back its money and 5 percent interest — more than Utah would have paid if it had borrowed the money through the bond market. If the current rate of success continues, it will easily make more than that. (bold mine)

Did you catch that, if the inflated rate of success continues – which it probably will based on a faulty benchmark not really used to screen for special education – the state of Utah will end up paying MORE than if it had just purchased a bond upfront to fund the preschool initiative.

Talk about selling snake oil to lawmakers who refuse to read the fine print.

Orrin Hatch and Goldman Sachs, Best Friends for Life.

Now that you know the setup and potential pitfalls of these risky investments, here’s some more information pertinent to Hatch’s fondness for social impact bonds.

First, Goldman Sachs is number 15 on Orin Hatch’s top 20 donor list. Second, Hatch has no qualms about going on Fox News to defend Goldman Sachs agains what the Senator claims to be suspicious government inquires into the investment firm’s behavior.

Another interesting aspect to Hatch’s detail-free praise of Pay for Success, was his demonization of federal bureaucrats.

Guess what?

Pay for Success just substitutes one group of bureaucrats for another. In the case of Utah’s preschool program, the bureaucrats come from the United Way, who act as the intermediary between investors and the district.

I find this troubling as well.

Incentives matter on Wall Street and what gets measured dictates the spoils.

Having the United Way run a program like the preschool initiative invites trouble. Who’s interests will be protected, the investors eager for a profit or a child’s right to an education.

By the way, since the United Way is private, they won’t have to answer to parents, school boards, or FOIA requests.

Would children be pressured to show success and be denied special education services? That’s a hard question with no easy answer.

The United Way also seems to be cozy with the U.S. Chamber of Commerce and the Business Roundtable, so meting out some business disciple doesn’t seem out of the range of possibilities.

To sum up, Third Sector Capital has put together a nice graphic which explains how social impact bonds work. Get familiar with the concept. It may be closer to your school than you think.

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Next Up

In my next blog post I’ll explain how some members of the Washington State Legislature see social impact bonds as a way of meeting the funding mandate for McCleary.

Stay tuned.

-Carolyn Leith