Could Goldman Sachs' new project help reform the prison industrial complex?

James Dennin, Kapitall: Goldman Sachs is launching a new security called social-impact bonds, with the goal of reforming the prison industrial complex.

When you think of  Goldman Sachs (GS), social impact might not be the first thing that comes to mind. But they're trying to change that (while still making money).

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The company has recently expanded its prison recidivism program from New York City to Boston. The program utilizes a new kind of security that it's calling "social-impact bonds."

In essence, Goldman invests money in prison reform programs. If the program works, and fewer people end up back in jail, then the state pays Goldman back with its savings. In some instances, Goldman stands to make as much as a million dollars in profit. 

On top of that, Massachusetts could save big, as much as $47,000 for each person the big bank helps keep out of jail. 

It almost sounds too good to be true, and there are a lot of people who say it is. On one hand you're introducing the discipline of market pressure to social justice programs, but on the other you're potentially adding another layer to the bureaucracy. 

It's still too early to get much reliable data on how well the programs are working. Most that have already launched are only in their second or third year. If the idea works, it could potentially help trim millions in waste from the prison industrial complex—not to mention generate tax revenue off of working people, as opposed to supporting felons.

That could pressure America's robust for-profit prison industry. There are about 1.6 million Americans incarerated in for-profit facilities like the Geo Group (GEO) and Corrections Corp. of America (CXW). They support an industry that generates around $4 billion in annual revenue. 

Will Goldman's bet on former prisoners pay off? Use the list below to begin your analysis and let us know what you think in the comments. 

Click on the interactive chart to view data over time. 

1. Corrections Corporation of America ( CXW): Operates privatized correctional and detention facilities in the United States. Market cap at $3.87B, most recent closing price at $33.50.

 

 

2. The GEO Group, Inc. ( GEO): Provides government-outsourced services specializing in the management of correctional, detention, and mental health and residential treatment facilities in the United States, Australia, South Africa, and the United Kingdom. Market cap at $2.46B, most recent closing price at $34.40.

 

(List compiled by James Dennin, a Kapitall Writer. Monthly returns sourced from Zacks Investment Research.)

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