A New Year’s Resolution for our Politicians?

In terms of quantity of money spent for social purpose, government swamps the rest. Charitable and business contributions are important, but ultimately they pale in comparison to Government spending.

So if it is to ever achieve any significant change, the emerging world of Social Investment must work with government, this dominant funder, for social outcomes.

2011 has been encouraging for evidence of a cross-party appetite amongst politicians to make this happen. Excellent work over many years by both parties, culminating in the establishment of Big Society Capital, and universal support for the concept of the Social Impact Bond and emerging potential of ‘Payment-by-Results’ have transcended the political divides. This gives investors like us confidence. Politicians appear to have collectively reached the logical conclusion that the state will be hampered in its ability to spend for social outcomes for the foreseeable future, and so it is in the interests of society to see others step up to fill the gap left behind.

Call it the Big Society or the Good Society, it is about getting other players to invest for social outcomes. And these social investors will only operate in any material way if they can do so in collaboration with government. Competing with, or operating in isolation of, state spending would be futile given a context where government – to a considerable extent – is the market. Or at least the customer.

Yet any investor – whether they be a social or a purely financial investor – can only invest where there is a reliable counter-party. If the counter-party looks or smells unreliable, then investors cannot invest – they have a fiduciary duty not to.

Government has, since 1945, operated as a monopoly interest. It has been the dominant funder and has therefore called the shots. So it has been free to change its mind or move the goalposts ‘for the greater good’. This has led to an entrenched culture and set of behavioural norms.

Markets – whether they be financial or social investment – cannot tolerate such behaviour. It introduces uncertainty and risk, two bad words for investors. For example, by behaving in a way that the High Court said yesterday was ‘legally flawed’ – and, by doing so, causing certain social investors to potentially lose their shirts – government risks destroying the ability of social investors to participate in anything where it may be a counter-party. In doing so, it points a gushing hose with one hand at the flickering flame of an emerging market onto which it enthusiastically pours fuel with the other.

Politicians have rightly been declaring – as Adam Smith did in the Theory of Moral Sentiments – that markets must serve society or else risk losing legitimacy. They are urging, and forcing where possible, behaviour and culture change in the City.

Yet if they are serious about wanting social investors to turn up in the embryonic social investment marketplace, they must also set their own house in order. They must urge and force behaviour and culture change in government.

Perhaps a goal for 2012, a New Years resolution for politicians might be to embrace this need. A good start would be to act lawfully, as a reliable counter-party aligning with investors who respond to their own initiatives to boost social or environmental good.

  1. 22nd Dec 2011

    Presumably your comment relates to the volte-face on the feed-in tarrif. If so, Amen to you for spelling out the damage done to investors and small businesses alike.

    On another note, 2012 is Wigan’s year to show the UK how behaviour change can be systemised. Our work with NESTA is really exciting since it’s scaleable. The problem with our society and our economy, is that the incentives are wrong. They motivate people to make the wrong choices. Give people the incentive to make the right choices and society will look after itself.

    Peace, love and understanding for 2012.


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