IDEAS

The ideas below have emerged from recent policy and practice in the funding and finance of mutual and social enterprises. There is currently much excitement, passion and enthusiasm, not to mention a great need, for businesses which try to do things differently. So perhaps a considered and critical reflection on some of the activities and ideas in this space may help support their sustainability and success.

WHY WE NEED TO STOP TALKING ABOUT IMPACT

A Venn of Virtue

I’ve spent some of the last year or so working with Social Enterprise UK and partners like Co-operatives UK and the Employee Ownership Association, as part of our General Election campaign. This time we called it the Future Economy Alliance. while at previous elections, a similar coalition called itself the Social Economy Alliance. We also talked about mission-led business quite a lot, to reflect Labour’s language of missions. In the end, Labour made a manifesto commitment to support diverse business models.

PAYING FOR SUCCESS?

The UK Government describes how “Social impact bonds (SIBs) are designed to help reform public service delivery. SIBs improve the social outcomes of publicly funded services by making funding conditional on achieving results. Investors pay for the project at the start, and then receive payments based on the results achieved by the project. Rather than focusing on inputs (eg number of doctors) or outputs (eg number of operations), SIBs are based on achieving social ‘outcomes’ (eg improved health). The outcomes are predefined and measurable.”

M>R

The idea here is to stimulate debate and test consensus for a principle we might call ‘M>R’. The Alternative Commission on Social Investment suggested that one defining principle or characteristic of social investment is that “the mission of the investee should be the principle beneficiary of any investment”. In other words, the balance of interest should favour the investee, not the investor. This could be called ‘M>R’ (M being mission and R being return to investor) with acknowledgements to Thomas Piketty. The French economist Piketty received much attention last year for his analysis of how returns to investors have historically outperformed underlying economic growth - aka "R>G" - a trend which leads to ever greater economic inequality

FLEETING VALUE

In recent years, significant public and media attention has fallen on a growing number of innovative temporary land use projects in the UK. But this phenomenon has not yet been met by any rigorous in-depth analysis of the financial, social and environmental contributions of these projects. 

THE ACCELERATION OF SPIN

The Coalition Government claim that in 2009 that there were 9 mutuals delivering public services and 100 in 2014. Francis Maude and leading official Rannia Leontaridi have described mutuals as a “Cabinet Office success story”. Many observers are under the impression that this mutualisation programme has accelerated. Has it?

 

BEGINNER'S GUIDE TO SOCIAL INVESTMENT FOR CREATIVE DESIGNERS

So you’ve been commissioned by that nice chap from a social venture fund (is that right?) to deliver the creative design service for their forthcoming report on social investment. To be honest, you didn’t really understand what he was on about – ethical banking? Social finance? Is that actually a thing? Is this some kind of wind-up? 

IS THERE A CO-OPERATVE ALTERNATIVE TO CAPITALISM?

In 2012 Ethical Consumer launched an essay prize based on the question 'Is there a co-operative alternative to capitalism'. 2012 was the International Year of Co-operatives but it was also a year when the clamour of serious questions about capitalism was getting louder. Europe and America were, and still are, facing their worst economic crises for a generation, 'occupy' movements around the world are calling for sweeping social reforms, and scientists and academics point to increasingly dangerous levels of climate and habitat destruction.

SOCIAL ENTERPRISE CONFERENCE BINGO!

Social enterprise conference fatigue? Tired of the same old discussions and clichés? Bored? No signal? No biscuits? Need to stay awake until the canapés?

THE COSTS AND BENEFITS OF SOCIAL IMPACT MEASUREMENT

In the blue corner… we have the high priests of metrics, measurement, outcomes, impact, evidence and what works. Those who worship at the altar of McKinsey, RCTs and bemoan the absence of scientists on Question Time (conversely, I sometimes wish we could put more politicians on the Moon).

In the red corner… we have the hippies who want to let it all hang out, the Marxists who maintain that ownership is everything and the radical heretics who dare to trust in people and believe in compassion.

ANGELS IN THE ARCHITECTURE

In early 2013, the Big Lottery Fund and Big Society Capital commissioned a report into the future of social investment, with particular regard to the infrastructure that supports the market.

This report - Angels in the Architecture - explores the evolution, characteristics and infrastructure of other markets and draws lessons which could help the development of social investment. This includes acknowledging the time it takes for an emerging market to reach maturity, what is meant by 'infrastructure', the role of subsidy, the significance of governance, ownership and business models, tensions between social and financial value, the role of tax incentives, the need for honesty about return expectations and the importance of cultural and political factors.

SITR IN THE 21st CENTURY

It seems you can’t open a paper or check your smartphone without reading a review of Thomas Piketty’s economic blockbuster Capital in the 21st Century. Piketty’s revolutionary message is that capitalism inevitably breeds inequality as, over time, returns to capital exceed growth and so wealth accumulates with the 1%. The rich get richer faster than the poor get richer. Or, in short, r > g.

Piketty’s answer is for greater tax on wealth, which he also acknowledges is utopian and unlikely to ever happen. Does this offer us any guidance for social investment?

HOW TO MAKE SOCIAL INVESTMENT MORE SOCIAL - AND MORE FINANCIALLY VIABLE

The social investment farce moves into overdrive - several senior experts are now doubting that it’s even possible to make social investment models stack up at all.

THE COST OF CAPITAL

In September 2013, Charity Bank released the results of a survey on bank lending to charities. In summary, it says...

• almost 30% of charities who approached a bank had their application turned down
• 23% of potential borrowers were put off as they thought it was too complicated
• 46% of all who thought about borrowing were put off by cost
• 31% who approached high street banks for a loan ended up taking one.

How does this compare to bank lending to mainstream business?

SFI - A SOCIAL FINANCE INITIATIVE?

In November, the Chancellor announced he wanted to reform the much-maligned (but still used) Private Finance Initiative (PFI), admitting that it can be “too costly, inflexible and opaque”. So the Treasury is looking for ideas for “a new approach” which needs to deliver lower costs and better value for money, make more effective use of private sector innovation and skills, improve flexibility and transparency, get projects built to time and budget and create the right incentives to manage risk.

Could the solution be SFI - the Social Finance Initiative?

THE GREAT SOCIAL INVESTMENT LIE

The following is a tongue-in-cheek response to Rod Schwartz's blog on the great social enterprise lie.

INCUBATION OR FABRICATION?

Evidence suggests that mankind is fast approaching the point of 'peak incubator' - soon the human population will be no longer able to sustain the number of business incubators, accelerators, hubs and launchpads which are spreading across the surface of the planet.
 
Can you tell which of the following incubators are real and which are fictional?

TELLING TALES OF SOCIAL INVESTMENT

It seems a week doesn’t pass without a new report on social investment. It is sad, but perhaps not surprising - given the pressures on real businesses struggling through the current economic and fiscal climate - that the majority are written by the financiers, intermediaries and the money men. Their side of the story is quite legitimate, of course. But if we only ever tell one side of the story, then we risk peddling half-truths.

HOW COMMUNITY OWNED SHOPS HOLD THE ANSWER TO THE FUTURE OF RBS

RBS and Lloyds Bank are 84% and 43% owned by the state respectively. It seems the time has come for HM Treasury to work out how we unravel ourselves from this embarrassing state of quasi-nationalisation. These are the most talked about options:

THE FORMER YUGOSLAV REPUBLIC OF MACEDONIA AS METAPHOR FOR SOCIAL ENTERPRISE

If you try really hard (and spend enough time drifting off at social impact measurement events) it is possible to draw a number of tenuous comparisons between social enterprise and the Former Yugoslav Republic of Macedonia (FYROM). Their common embrace of the market as a mechanism to deliver social justice following the recognition of the shortcomings of a broken statist command and control model, for example. Or their naively optimistic symbolic imagery. There may be others, each less convincing than the last.

THROUGH THE WORKSHOP WINDOW

There are quite a few social enterprises out there who feel they are “not a bad little business”. Of course the economic climate is tough so survival is often success in itself.

Many social entrepreneurs have heard a lot about social investment in recent years but have yet to feel the benefit themselves. A huge number don’t want to borrow money, not least as they see debt as the instrument at the heart of the financial crisis. Grants are great, of course, but there’s only so many to go around and it would be nice to prove that the business can stack up without them. Equity simply isn’t on the table for the vast majority, set up explicitly to avoid paying dividends to shareholders.

MORE MORE MORE

Should the Government do more to support social enterprise access to finance? Before we try to answer that, let's have a look at what it's doing already.

The following public or quasi-public interventions to support access to finance have been in operation or announced since autumn 2008...

PUBLIC BANKS AND PRIVATE HEALTH

This article was first published by Charity Times.

The FT says the Government have been discussing the nationalisation of one of our biggest banks. Meanwhile, Serco are currently tying up the details of a £140 million contract to deliver NHS services in Suffolk, taking on 1000 public sector staff. Just a few weeks ago the creation of the new Canal and River Trust transferred the ownership of our national waterways away from the state and into the hands of an independent charity.

GEARED UP?

The 2012 NCVO Almanac contained one astonishing figure: the voluntary sector in the UK has liabilities of over over £18 billion. This makes a mockery of the so-called social investment market, making investments worth a couple of hundred million pounds over the last few years. Short term debts, lending from conventional banks and investment directly by individuals massively outweigh the significance of the handful of institutions occupying the emerging social finance space.

But when compared to the levels of debt in the wider public and private sectors, this staggering £18 billion figure becomes a tiny sideshow. To get any meaningful sense of the sector's appetite for debt, we need to look at the ratios - or levels of gearing - between debt and assets, or debt and income. How much is owed in the light of what is earned and what is owned?

SOCIAL IMPACT BONDS AND SPOT THE DOG

Politicians often explain the public finances by using personal finance analogies, saying “imagine for every £4 you earned, £1 went to pay off your credit card bill”. It’s not a bad idea. So let’s have a crack at it with Social Impact Bonds.