Social investment has been hyped as the solution to myriad problems. And there’s much to recommend it—but the new government should steer clear of the over-excited rhetoric
Five years ago, ‘the Big Society’ was central to the Conservatives’ pitch for power. But it collapsed almost immediately on coming into contact with the tough realities of government.
The project’s vaguely-defined intention was to inspire communities into coming up with their own sustainable solutions to local problems; but the charities and social enterprises expected to lead this work were suddenly staring down the barrel of funding cuts, especially from local authorities. Many of the groups heralded as potential ambassadors for the Big Society became, swiftly and unsurprisingly, deeply sceptical about it. The only surprise is that the project is back again, re-appearing as a headline in the 2015 Tory manifesto—albeit buried away in the middle of the document.
As these trials and tribulations grabbed the headlines, ministers and aides were busily promoting another grand idea for the charity sector. Social investment was unveiled to wonks and policy-makers as the new dawn of finance for charities and other non-profits. Among this group, the hype was turned up high.
This idea may have more longevity. But if the strongest advocates for social investment want to see it develop to the full, they may find the accompanying excitement more a hindrance than a help.
Such excitement hasn’t been hard to find. According to ministers and their key advisors, we were going to see an explosion of finance that moved away from the musty world of boring, old-fashioned fundraising from rich philanthropists, or ordinary folk putting their shilling in the collecting tin. Instead dynamic, private-like loan finance would be the funding of choice. The language of the city and of private equity, about risk and return, would all come into the scene.
The godfather of social investment, Sir Ronald Cohen, spoke of us being in the ‘early days of a social revolution’ and about the ‘First $trillion’. Iain Duncan Smith said ‘we cannot underestimate the difference social investment could make’, while at the G8 summit on Impact Investing David Cameron talked about the power of impact investing to ‘tackle the most difficult social problems…problems that have frustrated government after government, country after country, generation after generation.’ And he gave out generous tax breaks to enable that—even while the national debt soared.
So while in fact much of this was a continuation of what had been put forward as long ago as 2000 in a report by Sir Ronald for Chancellor Gordon Brown, the drive from the Coalition was certainly on. But why?
Social investment or finance, and its cousin impact investing, looked to be the answer to a number of things. Austerity economics meant there were cuts to public sector grants and contracts on which many voluntary groups relied, so it was a sop to up-against-it charities. And in its role funding payment-by-result contracts, it seemed to help focus any available money on the outcomes the government actually wanted to buy—a sensible move when cash is tight.
More generally it gave a sort of narrative to try to fit into the mood of the post-crash distaste towards corporates and the desire to create a more ‘social’ economy—as well as harnessing the power of markets and finance towards this end. This meshed with the increasing interest of younger generations in social enterprise and social value. And it gave people somewhere to put their money while there were lousy interest rates out in the market.
But getting social investment going takes time. And it may never reach the scale, nor play the role, being asked of it.
There have been developments, for sure. A new wholesale ‘bank’, Big Society Capital, was created using money from unclaimed dormant bank accounts, and has made progress in getting investment out where it’s needed. But it has proved a slow and laborious task to try to build this new market, especially where, by definition, there can really be no big upside financial returns.
Payment-by-results contracts have grown. In theory, they open the way for more social investment to fund them, as non-profits look to negotiate the cash-flow issues which often result from such contracts. But as recent developments in criminal justice show—where private companies have got the big contracts, and non-profits will scrap for bits and pieces as sub-contractors—this hasn’t really worked out for the charity sector.
Social Impact Bonds have emerged here and there—but given the level of promotion they’ve enjoyed, and public and private subsidy around for them, the activity is hardly overwhelming. They have helped push innovation on issues like children in care and re-offending, as well as helping with cash constraints. But they are an over-complex system for many areas where we really just need to get on and do what works.
So progress has been fitful and slow. Social and impact investment were both there in the Conservative manifesto, and the other parties seemed pretty keen too.
But none of this is helped by too much hype.
The last thing the next government needs, whatever its colours, is to promote the potential of social investment so that rhetoric outstrips the reality. There is a good idea here, and one which could bring long-term help to people who most need it. If this is to be achieved, though, it’s time to turn down the volume a bit. Social investment needs a period of steady but quieter advance.
(This article first appeared in Public Finance magazine)