This article first was first published at www.clearlyso.com
Politicians and policymakers have three primary levers they can push and pull in the pursuit of a policy objective: spending, tax and regulation. Until recently, the 'go-to' lever for those looking to help civil society and social enterprises access finance has been spending (sometimes as investment - or at least advertised as such).
The creation of Big Society Capital may be the last great heave of this lever. Increasingly, the focus is turning to tax and regulation to help grow the so-called social investment market. This makes a lot of sense, particularly in a much harsher fiscal climate, by setting the rules for the market to then work sustainably for itself rather than relying on sporadic support and subsidy from a benevolent government.
The risk, however, is in how to ensure these emerging policy levers are deployed in a way that works for the sector we are trying to help. When spending was the man about town, citizens, social enterprises and civil society were well placed to influence the shaping of policy. Both the previous and current governments have created a number of social investment funds with significant and diverse input from others into their design and delivery. Let's use a hypothetical fund as an example called, say, ChangeBuilders, in order to illustrate how this co-production model has worked.
First, the creation of ChangeBuilders followed a lengthy consultation which anyone could contribute to. Government consultation responses in this field (whether you think they are taken seriously or not) are often remarkably democratic along the lines of one member one vote: “73% of respondents support the focus on community-based etc.” In this way, a grassroots organisation's opinion counts as significantly as that of a multi-million pound fund manager
Second, the ChangeBuilders investment panel, who took the decisions over how the money was spent, included a range of diverse voices from grant-makers, financial institutions and social entrepreneurs themselves. The balance of this panel (however imperfect) helped ensure that a range of views influenced the focus of the fund.
Third, the ChangeBuilders money went to those organisations which came forward with proposals. So everyone had a chance to throw their hat into the ring and - if their case was convincing - they had a good shot at being a direct beneficiary of the policy (although there is no guarantee the money went to the 'right' places). So the policy in practice was shaped by those it was intended to serve.
But now - and rather worryingly - as the emphasis shifts to tax and regulation, we are at risk of losing this more diverse, inclusive and democratic model. Spending money is fun! But tax and regulation are technical and tedious. So there is a danger that policymaking and priorities are left to be defined by the 'experts' and a much narrower set of vested interests.
Take tax incentives for social investment - how many frontline organisations feed into this debate? As someone who had a hand in two of the more significant pieces of work in this area, a report by the NCVO Commission and a piece of work by NESTA a few years ago, I can admit that the direct influence of social enterprises was pretty negligible. How many civil society organisations are being consulted by the Treasury as part of their current review? What Treasury Review? Exactly...
On the regulatory side, there has been a recent flurry activity in the 'social investment community' with submissions and papers from lawyers and other intermediaries feeding into the Government's Red Tape Challenge and seeking to influence the new Financial Services Bill. How are citizens and social enterprises feeding into this? Do they even know about it? Do they care? Did you know the FSA's Legislative Reform Order (Industrial and Provident Societies and Credit Unions) 2011 removed the limit on non-withdrawable shares that may be held by an individual member. Wait! Come back!
Why does this matter?
Because surely we have come to recognise in recent years that finance must be there to serve us and not the other way round. I don't want to wake up in 10 years' time and find the rules of the game have been rewritten by the financiers, lawyers and the middle men with no influence from entrepreneurs, consumers and the public at large, and waved through by a Government without either the expertise or will to apply a counterbalance or filter to the lobbyists' perspective. We've seen enough of that recently.
A concrete example: when the last Government came to review the dividend cap on Community Interest Companies, investors wanted it raised. Of course they did. It was raised. That may have been an entirely appropriate policy change and in everyone's interests. But it is critical that a wide range of views, including those of social entrepreneurs and the wider public, are heard in such decisions. What would we do if investors wanted to change the rules to allow charities to issue dividends? Indeed, this very issue is currently under some scrutiny, seemingly as a result of the impact on Charity Bank of financial experts in Basel redefining the Tier 1 capital requirements of financial institutions. Hey! Please! Come back!
Equally worrying is that this narrower, more closed approach to policymaking may be occurring even in those areas where spending is still the policy lever of choice. Some investors of public money are moving more towards a model of referrals from trusted contacts, rather than open competitions, Big Society Capital is being coy about who it's investing in and the recipients of the Government's Social Action Fund appear to have been hand-picked by Ministers, rather than through a more transparent and arms-length investment panel.
So what to do? First, there is a responsibility on the likes of NCVO, SEUK and Co-ops UK to stand up for their members, to reflect a diversity of views and ensure the voice of the investor community does not dominate. Second, we must each somehow try to find the time and enthusiasm to engage with this stuff. Please don't be shy - if we've learnt one thing recently, it's surely that those financial experts don't have all the answers. Isn't it the ambition of social and community finance to be more social, more democratic, more transparent, more honest and more in tune with those we are here to serve?