The squeezed middle

Social investment finance intermediaries, often known by the acronym, SIFIs, don’t generally enjoy a positive reputation among UK charities and social enterprises. As with MPs, many of us like and respect SIFIs and their employees individually but the emerging industry is not popular.

That’s mainly because, since social investment hit us (in a big way) in 2012, there’s at least been a perception that the government (in particular) has put loads of money into subsidising the process of and support for social investment, while not spending enough making social investment affordable or useful for charities and social enterprises.

As someone who talks to and works with lots of people in the intermediary business, I’m yet to meet one I’ve disliked or felt was in it for the money but genuine intentions are not the same thing as delivering value.

Never one to play to the gallery, Clearly So boss, Rod Schwartz uses his latest column in Third Sector to make the case for SIFIs (or ‘impact investment intermediaries’ as he’s calls them, possibly in order to communicate with a global audience) charging funders £1,000 a day for their services.

Schwartz’s motivation to speak out is a conference-based conversation with a funder who claims that intermediaries are “incredibly greedy” and that their £1,000 a day charges are ‘indecent'; Schwartz responds with the request that we ‘look a bit deeper’.

The fact that Schwartz is initiating this conversation at all is positive and increases the credibility of both Schwartz himself and the wider ‘intermediary’ sector. He deserves respect for tackling that issue head on rather than blithely pretending it doesn’t exist.

He’s also at least partly right, because a large part of his response to the funder’s charge of indecent greediness consists of an explanation of why buying a set number of days of professional services, delivered by skilled people, is often expensive: “Behind each professional is a team that carries out HR, administration, finance, legal and so on, but whom you don’t bill for their time. In addition, there are sales teams that generate costs and do not win every pitch – and that, even if successful, cannot bill that time to the client. Nearly half the fee is eaten up this way.

This is pretty uncontroversial stuff in itself and strong rebuttal to anyone who really thinks the/a problem with intermediaries is the grasping personal character of the individuals working for them.

Unfortunately, when Schwartz moves beyond the general, rather defending intermediaries fees’ based on either commercial or social value they deliver, he ends up on more contentious ground: firstly by explaining that intermediaries are expensive because they’re based in London, then by pointing out that they do complicated work on ‘transactions’ that ‘are no less complicated than in the mainstream’.

It seems that, possibly due to a decade or two of exposure to voluntary sector thinking, Schwartz has gradually ditched venerable market-based approaches to pricing and value, and is now on the verge of coming out as a supporter of our umbrella bodies’ much-loved, if semi-mythical, ‘full cost recovery’ model.

I’ve been to the workshops and I know that in a market system this stuff  is not really very complicated at all. Intermediaries either prove their commercial value to their customers – a funder pays £10,000 for 10 days work and is satisfied that at least £10,000 of value is delivered to their organisation as a result – or they don’t.

The funder doesn’t need to know where the intermediary is based or how complicated their work is, they just need to know that they’re getting value for money. And frankly, if an intermediary can convince you their input will make the difference between you making a £1million investment that clearly delivers major social returns and some financial return, and making a £1million investment that loses you money while delivering nothing much, that there’s no obvious reason why they shouldn’t earn their £10k in 5 days.

Unfortunately (or otherwise) most intermediary activity in the UK takes place in the dark and distorted world of subsidised markets, where the label ‘intermediary’ or SIFI covers organisations who deliver (some of) a wide variety of different functions, including managing investment funds on behalf of government and other investors, and supporting organisations to become ‘investment ready’.

Intermediaries whose role is to manage and invest social investment funds on behalf of government and other non-City-based investors, or to support organisations as providers on a national programme of government grant-funded investment readiness support, such as ICRF, do not need to based in London for practical reasons but they generally are based there.

Currently some non-London-based charities and social enterprises receiving grant-funded consultancy from London-based intermediaries find themselves paying both high day rates – because intermediaries have to fund the high living costs of their London-based consultants – and peak time travel costs for those consultants to travel up from London for the day.

Fortunately, even in this deeply distorted marketplace, genuine market values still offer an obvious solution. If you’re an ICRF or Big Potential provider and the cost of living in London is forcing up your day rate and leading you to pile huge travel expenses on top, you can move. You can get somewhere quite nice in, for example, Leeds for £200,000.

When it comes to the problem of intermediaries being so costly because their work is complicated, market philosophy once again offers a stark, clear route through the swamp of subsidy. That is, that if intermediaries’ work is so complicated that it’s not possible for them to do it for the money available, they should stop doing it. If all these skilled people quit the market, and the market needs them, it will pay them more to come back.

Or it won’t. It probably won’t but plenty of us want to go and live on full cost recovery island and many would like to fly there on Concorde, sadly (social?) business doesn’t work like that and we have to choose whether or not to do what we want to do for what we can get for doing it.

Schwartz illustrates with his own discussion when he says:

I asked him what his outfit paid its lawyers a day, ‘That’s different,’ he said. ‘What about your accountants?’ I asked.

He argued that too was different.

I’m no legal expert but I understand that being a legal aid-funded defence lawyer for a penniless person is not, in itself, less complicated and skill dependent than being a privately-funded defence lawyer for a billionaire.

It is a bit less lucrative. In June 2013, Law Gazette reported that within the UK’s legal aid system (according to The Bar Council): “under the current rates, the most experienced silks doing the most serious cases such as murder get paid £550 a day (covering a full day in court and two hours preparation). Half of that has to be taken out to cover overheads… So in reality, she said they earn £275 a day.  

Fortunately, our government is now socking it to the highly subsidised  fat cats so that:  “Under the proposed cuts, those figures will fall to £350 and £175 respectively.

The point is not that it’s right that experienced lawyers are now being paid £175 per day (or that there’s any directly comparison between their work and that of intermediaries) but that highly skilled professionals are often paid extremely badly in situations where their work is not commercial.

We’re a nation with some strange approaches to valuing social good – in many local areas the average hourly rate the state pays people to care for an old person is less than the average hourly rate private individuals pay people to walk their dog – but it’s not clear that social investment intermediaries are getting a specifically bad deal in non-commercial markets. Where their customers are paying directly, they just need to get better at selling their services.

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Purpose unclear

One of the most baffling developments of 2014 was the emergence (at least in social enterprise policy-world) of the ‘Profit-with-Purpose’ business.

For those who missed it, the ‘Profit-with-Purpose’ business is an idea primarily championed by social entrepreneur support provider, Unltd, to explain their support ‘for-profit’ businesses (companies limited-by-shares) dedicated to fulfilling a social mission.

Unltd ceo, Cliff Prior, chaired the Mission Alignment Working Group (MAWG) of G8 Social Impact Investment Taskforce and their report explains the idea at length.

Prior also explains the idea (to some extent) in this interview with Pioneers Post, where he responds to criticism from Unltd’s former partners in Scotland, Can and Senscot, who ended their relationship with the storming assertion: “UnLtd has developed into one of the UK’s leading advocates against the regulation of social enterprise and for the inclusion of private profit companies in the sector.

While I understand that many readers are experts in the minutiae of social enterprise policy debates present and past, less firmly embedded readers may appreciate some explanation of the terrain on which this battle is being fought.

Very roughly, it’s this (from the MAWG report, p18): “From a legal point of view, the main difference between profit-with-purpose business and social or solidarity enterprise is the degree of flexibility regarding the distribution of profits and use of assets.

What, in a UK context, is the nature of the inflexibility that Unltd are railing against?

Umbrella body, Social Enterprise UK, state that in order to be considered a social enterprise (for the purposes of membership): “the majority (more than 50%) of an organisation’s profits should be reinvested to further its social or environmental mission.

That’s a pretty flexible definition, even without creative interpretation, it enables a company to pay 49.9% of its profits out to private investors and retain the other 50.1% in the company ever year if appropriate.

When it comes to assets, SEUK’s position is: “We believe that an asset-lock can be effective in ensuring that a social enterprise operates in the wider interests of society for perpetuity and is not at risk of sale. But we recognise that many social enterprises receive no public funds or assets. Some have benefited from considerable personal investment on the part of the entrepreneur and need the money back.

So the official social enterprise position on profits and assets – to the extent that there is one – is that a social enterprise can distribute half its profits to private investors and doesn’t need to have any sort of asset lock (as long it can bear the ignominy of failing to pursue an approach that SEUK believes can be effective).

Elvis and Kresse, the business used in the Pioneers Post article as an example of a ‘profit-with-purpose’ business is (entitled to call itself) a social enterprise (if it wants to) by the SEUK’s definition.

That said, there’s absolutely no reason why a socially-minded entrepreneur should sign-up to SEUK’s commitments if they don’t want to. In that situation, they can start an ethical business like Ecotricity or Lush, that does business in the open market using a conventional ‘for-profit’ structure – attracting ethically-minded customers on the basis of the way they do business rather than their corporate set-up.

In the UK context, a ‘profit-for-purpose’ apparently fills the gap between social enterprises and ethical businesses. Look carefully. Can you see it yet?

Profit can be good

Despite, this deeply inauspicious premise, Prior and the Unltd team are neither bad nor stupid people so there must be some reasons why they’ve ended up on this bizarre wild goose chase.

There’s at least one good one, based on what are (whether or not you agree with them), honorable principles. In a recent discussion on social media, Dan Lehner, formerly Head of Ventures at Unltd and now working at CLS social enterprise/profit-for-purpose business, Oomph!, explained his support for the thinking that mutated in ‘profit-for-purpose': “My biggest reason to push the issue is because I think there’s need for a new level of awareness-raising (partially with consumers/government and funders/investors but mostly with really talented, imaginative, ambitious entrepreneurs) that it’s ok to make money out of social purpose – if social outcomes are genuinely achieved and evidenced.

Why shouldn’t people who want to earn a decent living, provide well for themselves and their families and make the world a better place in the process be encouraged to do so? It’s difficult to imagine many of us in social enterprise world offering any suggestions as to why not (although some of might argue that that’s often possible using a social enterprise structure, too).

Why should, Unltd, a charity set-up to support ‘social entrepreneurs’ (rather than ‘social enterprises) support those people? Senscot and Can, amongst others, clearly do have some suggestions but others of us are pretty relaxed about that, too – School for Social Entrepreneurs is another example of an organisation that supports ‘social entrepreneurs’ without specifying the type of organisation they have to work for or set-up.

Two bald men lose will to live during ethically-produced comb brawl

The less principled driver of ‘profit-for-purpose’ is as one skirmish in the distastefully absurd scrap over the £400million worth of ‘unclaimed assets’ allocated for investment in ‘Social Sector Organisations’ via the government’s semi-detached social investment wholesale finance institution, Big Society Capital.

The starting point is that: “The statute under which BSC was established defines third sector (or social sector) organisations as those that ‘exist wholly or mainly to provide benefits for society or the environment’. BSC has interpreted this to include regulated social sector organisations such as charities, Community Interest Companies or Community Benefit Societies as well as some profit-making companies or enterprises that have a clear social mission where these entities can meet the specific criteria set out in the attached Governance Agreement.

The ‘Governance Agreement’ definition combines the clarity of wool with the flexibility of nylon to deliver a set of criteria that virtually any business could meet if it could be bothered.

It states that: “the payout of cumulative profit after tax to shareholders will be capped at 50% over time” but doesn’t specify how much time so, presumably, as long as time (or your business) doesn’t stop you can pay as much profit out to private shareholders as you like on the basis that you’re firmly intending to start the process of reinvesting the majority of overall profit generated over the lifetime of the business at some as-yet-undefined point.

Big Society Capital’s view (as I understand it) is that a key reason why the social investment market didn’t really get going in 2013/14 was that social investors were spooked by this potentially confusing situation.

In August 2013, BSC ceo Nick O’Donohoe stated: “We need to more clearly segment the social impact investment market and also define more specifically what should count as a social enterprise.” and that: “That definition, in my view, will need to be driven by a specific legal form or golden share which guarantees a lock on social mission and also allows capital providers to earn a reasonable return consistent with the risks they are taking.

‘Profit-with-Purpose’ clarifies that situation so that, in the words of MAWG report, p19, there is: “a way for social investors to identify eligible profit-with-purpose businesses with confidence and familiarity.

In a UK context, this means a way for social investment intermediaries to investment UK citizens’ unclaimed assets in businesses that are not ‘regulated social sector organisations’.

Few within either civil society or social investment world disagree with the idea that if government is going to provide money for a social investment and (tax relief for it) it should provide a regulated registration system for those eligible to receive it (particularly if their social mission is not already regulated in some other way).

My strong expectation is that vast majority of organisation who could be bothered to register would meet SEUK’s definition of a social enterprise. For Unltd, the idea that might be a few that might not but would be keen to receive ‘social investment’ is apparently justification for the creation of ‘A New Sector’.

The more worthwhile stuff that’s ignored

BSC’s money is a relatively small, specific chunk of cash set aside to support ‘Social Sector Organisations’. The parochial battle over whether (or which) private companies should be eligible to receive it ignores the far bigger and more interesting discussion about the promotion of social purposeful activity in the private sector.

Dan Lehner’s point that: ‘it’s ok to make money out of social purpose – if social outcomes are genuinely achieved and evidenced‘ – is an important one but the last thing it suggests is the need for the creation of ‘A New Sector’ of businesses for a bemused public to attempt to get their head around.

Whether we’re using the term ‘social investment’ or ‘impact investment’ there’s huge potential investors to invest in companies and customers to buy products based on the social good generate by those activities. This is not necessarily about companies demonstrating their impact through SROI, it could be about being Living Wage Employers, using sustainable materials or demonstrating their support for their local community.

If what the company does with its profits and assets doesn’t matter, then why else should an investor be interested in what it is as opposed to what to what it does? If an investor is investing what an organisation does, social requirements can be just as usefully written into an investment agreement as written into a company’s mem and arts. If a social entrepreneur running a private business doesn’t what their social mission distorted by an investor, they should get that mission written into the deal.

Shoving the good stuff done in the private sector into the cul-de-sac of ‘Profit-for-Purpose’ businesses serves no one other than a support organisation struggling to explain what it does, and some social investment organisations struggling to do what they’re meant to do.

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Pretty good year

If you want to know what’s been happening in social investment in 2014, the answer is that Iain Duncan Smith (IDS) thinks it’s going brilliantly and I think the market is experiencing a ‘different level of success’. That’s the headline news in Big Society Capital (BSC) CEO, Nick O’Donohoe’s blog-based review of the year.

It’s an honour that O’Donohoe is taking my views into account in his assessment of the current challenges facing his organisation but (while I can’t speak for IDS) he’s wrong to suggest that I’m one the ‘stakeholders’ continuing to ‘judge success or failure by a rather one dimensional yardstick’.

As regular readers will know, the vast majority of my blogs on social investment over the years have explained why the market is failing at least two different interest groups in at least two completely different ways but O’Donohoe is clearly right to highlight the difficulties BSC faces in supporting the development of a social investment market that works for different people who want different things to happen.

Ironically, the one unequivocal aim that BSC has – to support the development of the social investment market – is a ‘yardstick’ that no one apart from BSC staff and trustees, and possibly few civil servants, is particularly interested in (in itself).

In fact, the main argument for the existence of ‘the UK social investment market’ as a specific sector or space within the UK economy is the fact the BSC exists to develop it and the clearest, if not necessarily the most (socially) useful way of outlining that markets parameters is based on whether or not an activity is something that BSC could invest in.

O’Donohoe’s blog post reviews progress against in priorities areas outlined in BSC’s current strategy (launched in May 2014): small and medium-sized charities; innovation; mass participation; scale. It encompasses a wide range of activities from community shares to hedge fund-led housing investments that BSC invests but which have nothing much to do with each other plus some – such as Nominet Trust’s grants programme – that BSC isn’t involved in.

This not a bad thing. It’s vastly preferable to BSC investing in a narrow range of activities relevant to a tiny segment of the social economy and taking no interest in anything other funders/investors are doing but it doesn’t do much to alleviate confusion about what the social investment market is and what BSC is ultimately for.

For all the positive news in 2014, there is no realistic expectation that Nick Hurd’s claim on BSC’s launch day that: “For many years, charities and social enterprises have been telling government how hard it is to access long-term capital. We have listened and within two years have delivered a new institution that will make it easier” – will ever be fulfilled in the sense that that most observers would understand the terms ‘make’ and ‘easier’.

And Prime Minister David Cameron’s statement that day that social investment: “is a self-sustaining, independent market that’s going to help build the big society” – now reads like a message in a bottle from a land beyond our comprehension.

2014 has seen BSC gradually move beyond its initial failure to get money out the door to distribute its own funds with growing competence primarily (if not exclusively) into funds and institutions intending to make relatively safe asset-backed investments, while also providing some of the financial muscle to back up the government’s (as-yet undimmed) enthusiasm for Social Impact Bonds.

It’s also successfully completed part two of its lobbying operation to secure the introduction of Social Investment Tax Relief, with the eligible limit raised to £5million in the Chancellor’s Autumn Statement.

Alongside this activity, BSC has been furiously seeking ways to outsource the wider obligations bestowed on it by the fundamentally political nature of its creation. In particular, providing finance for small charities and social enterprises (which, in reality, is most of them) – which O’Donohoe told me in February is ‘just not possible’ on a commercial basis.

We’ve seen Big Lottery Fund step in to take some of the pressure off with the (much trailed build up to the) launch of the £150million Power to Change grant fund for ‘sustainable community-led enterprises’.

Behind the scenes, BSC and Big Lottery have also been working together to develop a new institution to work with intermediaries to provide blended finance/mixed-funding products/loans with grants (delete according to taste) to organisations who aren’t in a position to take on fully commercial investment.

While it’s not exactly prizes for anyone, there’s been enough happening to keep enough ‘stakeholders’ happy to keep some kind of social investment show on the road – even before you consider the phenomenal pdf action generated by monumental solution-in-search-of-a-problem of the year ‘Profit with Purpose Businesses‘.

When you add in success stories like community shares, the messier social investment market that’s emerged in 2014 is more useful to more organisations and (hopefully, ultimately) more people than the pointless venture capital tribute act that was on offer in 2012.

It’s less clear what moral or functional principles, if any, hold it together and, as a result, on what basis any forthcoming battles for BSC resources will be fought. Dan Gregory’s question: ‘What’s so social about social investment anyway?‘ has not been answered.

If the UK social investment market of 2015 was a social enterprise emerging from a programme of investment readiness support what would it’s shiny, new elevator pitch be?

Another BSC employee, Development Director, Danyal Sattar, has recently published a series of blogs that provide a brilliant overview of the ‘what’ of social investment but still don’t really address the why.

The Alternative Commission on Social Investment is not going to provide a single, direct answer to that question but hopefully it will provide some useful suggestions on what a more social ‘social investment market’ could look like.

2014 has been a pretty good year for UK social investment. It’s a year that seen most people working in social investment move decisively beyond rhetoric towards doing. In 2015, it may become clearer what we’re doing and why.

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How bad is the bad news, how good is the good?

Apologies for the lengthy silence from me in recent months. It’s been a busy time for Social Spider CIC. Amongst other things, we’ve launched a community newspaper and a national mental health blogging project. I’m also heading up The Alternative Commission on Social Investment: an initiative set-up to investigate what’s wrong with the UK social investment market and to make practical suggestions for how the market can be made more accessible and relevant to a wider range of charities, social enterprises and citizens working to bring about positive social change.

The last few weeks have seen (at least) two major events in the UK social investment market. At the end of October, the Ministry of Justice announced the preferred bidders for Transforming Rehabilitation (TR) programme. Then the following week, social investment finance intermediary (SIFI), Social and Sustainable Capital, launched a £30million ‘Third Sector Loan Fund’, complete with £13.5million investment from high street bank, Santander.

The former story is seemingly terrible news. In fact, the apparent failure of charities and social enterprise-led bids to secure any significant contract value as prime contractors for TR may mark the death of the ‘plan A’ vision for the UK social investment market conceived in the mid-2000s.

The wonderful blog post (at least, as wonderful as a blog post can be when it’s essentially a cry of pain emitted through the medium of analysis of a government procurement process) from Big Society Capital‘s Christine Chang and Matt Robinson, explains what went wrong from a social sector point of view.

Ultimately, the key demands of the TR procurement process were not having a great plan, high level skills and a track record of competence in delivery the services being commissioned, they were: be a massive company with the ability to engage in a 13-month procurement process and to provide a ‘Parent Company Guarantee’ worth 100% of annual contract value. Not surprisingly:

Preferred bidder consortia all have at least one multinational member with assets in the hundreds of millions, if not billions, with the exception of one (Seetec with total assets of £43mm).

While many social sector organisations have a role in TR bids, the BSC blog suggests they’re unlikely to end up with big roles and the big resources that come with them.

Ironically, given that Justice Secretary, Chris Grayling, is not widely regarded as a left-wing politician, he has done more than any other individual actor in public service markets to ensure the scenario most feared by traditionally left-wing voluntary sector campaigners – that significant numbers of charities and social enterprises will ditch independent voluntary action to become direct competitors to Serco, A4E and Sodexo in battles for government prime contracts – remains as unlikely as ever to become reality.

Pre-TR, Grayling’s CV in his previous role as Employment Minister, included the creation of the Work Programme – a programme which saw large private companies mop the vast majority of prime contracts, leaving charities and social enterprises to sub-contract themselves towards bankruptcy.

This is not to suggest Grayling hates the voluntary sector and is opposed, in principle, to charities and social enterprises secured large government contracts but that the overarching priority in the commissioning and procurement processes for the Work Programme and TR has been to save public money and transfer risk from the government to organisations providing services.

This is not an issue that’s going to bring protestors on to the streets. Some people to in the UK do strongly support largescale public service outsourcing whilst also believing passionately that this outsourced market should be set up in a way that provides genuine opportunities for charities and social enterprises to win contracts. Unfortunately, while there may almost be enough of those people to fill the away end at a non-league football ground, they definitely don’t represent a social movement big enough to swing the next general election.

On the other hand, for social investment as a market/professional activity, the TR process is a big deal. It’s confirmed once and for all that the current government – for all it’s support for social investment in theory – when faced with competing priorities, does not see a diverse outsourcing market supported by social investment as a priority.

For those, both in the voluntary sector and the social investment market, who were dreaming of a social Serco, this is disastrous news. Those most angrily opposed to social sector contracting will probably be too busy being angry about everything that’s happened since 1976 to even notice the significance of what’s happened. For social sector pragmatists, the death of (at least, a big chunk of) social investment plan A, may help create the space to get on with creating plan B.

If the biggest bit of bad news in UK social investment isn’t necessarily all bad, it’s equally unclear whether the good news is all that good. Once again, there’s no doubt that it is big news. A high street bank, Santander, have made a £15 million commercial investment in a social investment fund.

As Social and Sustainable Capital (SASC)’s chair, Nat Sloane tells Civil Society: “What excites me most about this is the mixture of philanthropic and commercial capital.” He adds: “Santander has come in on the same basis it would make an investment in a mainstream fund.” While Bridges Ventures have recently attracted some private money to their Social Impact Bond Fund, both the level of investment from Santander and the fact that it’s in a loan fund do mean that SASC have achieved something significant.

There is a ‘but’, though. The ‘but’ is that it’s one thing to set up a fund and another thing to successfully invest the money in charities or social enterprises (let alone successfully get it back with interest). After years of hype, many in the social sectors now greet SIFIs’ announcements of new funds with the same level of scepticism they deploy in response to government ministers’ announcements of ‘new money’.

It’s important to remember that in its latest annual report, Big Society Capital had made £149.1million worth of commitments to SIFIs but that – at that point – only £47.9million had actually been invested in funds and just £13.1million had been drawn down by frontline charities and social enterprises.

SASC should be congratulated for doing the first part of their job really well but, while the fact that a high street bank is involved in this deal is pretty exciting for social investment insiders, it’s of no major relevance to charities and social enterprises trying to work out whether what’s on offer is appropriate to them.

Ultimately, not investing Santander’s money is not significantly more useful than not investing the government’s money. The number of charities and social enterprises in the UK in the market for a loan of £250,000-£3million is pretty small – the average UK social enterprise has an annual turnover of £187,000. The hardest part of SASC job is still ahead of them.

 

 

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Do all public services have to be delivered by professionals?

One of the most prominent 20th century proponents of ‘deprofessionalisation’ was the Austrian-born priest and philosopher, Ivan Illich. Illich railed against what he viewed as the ‘monopoly’ control of education and healthcare by teachers and doctors…” – my latest blog on public services and social innovation for Pioneers Post.

 

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Who pays when the state can’t?

We don’t need public services and welfare spending primarily because commercial markets are a bad way of meeting social need but because they’re a bad way of determining what ‘social need’ means… ” – the latest in my series of Pioneers Post blogs on public service reform and social innovation.

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Delivery costs?

Governments, led by the UK, embraced “social enterprise” as the “third way” – income-generating charities that did not depend wholly on public coffers but dealt with the increasing number of social problems that defied government solutions. My main concern about this viewpoint is that it stripped the notion of innovation and systems change – the essence of social entrepreneurial endeavour – right out of the approach.  In the UK and those countries that have followed, social enterprises have become part of the ‘social enterprise industrial complex’,  sub-contractors to government and feeding into a dysfunctional system.

Pamela Hartigan, Director of the Skoll Centre for Social Entrepreneurship, announces herself as the Dwight Eisenhower of the social enterprise world in a recent blog for Oxfam. The next sentence is: “But that is for another blog” so we don’t yet know what the ‘social enterprise industrial complex’ actually is but, from what precedes it, the suggestion is that Hartigan may have some concerns about the role of social enterprise in UK public service outsourcing.

The service is brilliant because we’re brilliant and we’ve got the contract

She’s not the only one. July saw the publication of (at least) two papers looking at the changing relationship between the social sectors and the state. In ‘Failing the public?‘, a ‘provocation paper’ published by NPC, Fiona Sheil asks whether charities’ increasing focus on delivering contracts within existing public service systems inhibits their ability to innovate and advocate for change.

While acknowledging the value of specialist services funded by the state, Sheil questions the assumption (widely held by many in social enterprise) that the fact that a social organisation ends up delivering a public contract is a good thing in itself: “in more generic, universal provision, how much value does a charity add when under contract? Many charities argue strongly that service delivery by a mission-driven organisation with a beneficiary focus can produce better results, and that taking on contracts is the best way to prove this. However, studies show that in some cases contract terms and pricing is so tight that charities end up delivering services of no better quality than providers from other sectors.

For Sheil, charities need to be able to provide better evidence of the kind of services that are needed. She explains: “Research work is often considered a nicety, not a necessity. Funding tends to be sporadic, and limited, and systems and skills for collecting evidence and demonstrating impact are often not planned or embedded. As a result, the charity sector is operating in a public service system that is itself deficient, because of its lack of commitment to evidenced based decisions, and the charity sector is doing too little to alter that.

Even more important is the role of people who use services. While politicians of all parties have been ramping up the rhetoric about co-production, Sheil believes that it’s up to the charity sector to demonstrate the reality: “The charity sector itself is a demonstration of user and peer-led activity. Charities should be knocking down the doors of Whitehall to promote all methods of service and system structure that give users greater power and control.

Ultimately, Sheil’s point is that charities need to focus on how they can best work with and influence public services to achieve a positive social impact rather than assume there’s a direct correlation between positive social change and growth in their own turnover: “The sector needs to identify where it adds specific value through the delivery of public services, and where delivery by any competent provider would achieve a similar result. If the system is well structured, and its principles and evidential basis sound, it matters less who delivers the actual service to people.

The key difficultly with Sheil’s paper is that, primarily due to the fact that it’s a relatively short opinion piece, it’s easy to endorse many of sentiments without being clear how they’d translate into practice.

Your grants are lovely but your contracts are instruments of neo-liberal co-option

Equally sceptical about the voluntary sector’s role in public service outsourcing, albeit for slightly different reasons, is Glasgow Caledonian University academic and former MP, Les Huckfield. Huckfield’s paper, ‘The Rise and Influence of Social Enterprise, Social Investment and Public Service Mutuals‘ is part of the National Coalition for Independent Action(NCIA)’s ‘Inquiry into Voluntary Services‘.

The NCIA are a campaign group known for their robust, if not especially nuanced, arguments in favour of a voluntary sector that either campaigns for social change or delivers mostly small scale, grant-funded activities that fill the gaps left by the public sector. These organisations may also develop innovative approaches that could be adopted by the public sector in order to be rolled out on a larger scale.

In his paper, Huckfield starts from the assumption that the marketization of public service delivery is a very bad thing and provides a blow-by-blow examination and denunciation of the policies and organisations connected to it (some more directly than others). He claims that: “the landscape in which NCIA organisations operate has been completely transformed by New Labour and Coalition Government promotion of Social Enterprises and Social Investment, and by the Coalition Government’s introduction of Public Service Mutuals. ‘Social Enterprise’ has become a generic term for Third Sector organisations delivering public services.

Those of us who are politically ambivalent about public service marketisation often ignore the work of the NCIA on the basis that they’re more focused on (re)stating an honourable position than suggesting ways that charities and social enterprise might respond to the everyday challenges of keeping going within the modern economy. In some areas of public service delivery (such as residential care) rejecting marketization, rather than campaigning for different types of markets, is practically irrelevant. In others (such as supporting independent living) it’s simply wrong.

It would be a mistake, though, for social sector pragmatists to ignore this paper entirely. Partly because while bemoaning the raft of initiatives aimed at ‘the transformation of voluntary services providers into quasi-businesses‘, Huckfield also does a good job of explained just how unsuccessful many of them have been.

Social investment is a particular area where successive governments have been so keen on the idea in principle that they’ve been broadly indifferent to the practical realities. Huckfield gives a concise of overview of how the UK social investment market arrived at its current predicament before concluding: “All these evaluations above show that ChangeUp, Futurebuilders and the Social Enterprise Investment Fund [SEIF]– all of which sought to fashion more of the Third Sector within the Government’s procurement agenda and to become vehicles for Social Investment – have not been very successful.

If anything, the assessment of SEIF as not being very successful is, as reported previously, unduly generous. Huckfield is right to point out the gap between the huge coverage given to initiatives such as Social Impact Bonds and the reality of the emerging social investment market: “As a proportion of all Social Investment, the [GHK] Report shows that 90% was for secured loans, mostly through social banks, and only 1% for Social Impact Bonds, These Reports shows that despite considerable Cabinet Office funding and continuing publicity hype by Big Society Capital and SIFIs, the concept of Social Investment is making only slow progress.

The problem is that Huckfield is so successful in demonstrating the failings of attempts to entice the voluntary sector in public service markets, he struggles to make a convincing argument for why those attempts must be defeated.

Brolly bad show

The other reason for reading paper, though, is to enjoy Huckfield’s charge sheet directed at umbrella organisations who have, as he sees it, functioned as ‘The Government’s ‘Little Helpers” in supporting an increased role for the voluntary sector in contracted public service delivery. The guilty parties include: Social Enterprise UK, Locality, ACEVO and NCVO.

Some of the charges levied at these umbrellas seem more relevant than others. For example, Social Enterprise UK is criticised for allowing private sector businesses to become supporter members and for being: ‘equivocal on the crucial issue of the role and power of equity and shareholding in social enterprises’.

We’re also told that: “Alongside Social Enterprise UK and ACEVO, NCVO forms a national triumvirate of Third Sector organisations which have underpinned Government policy on contracted and outsourced delivery of public services and has consistently argued for a ‘level playing field’ to allow voluntary agencies to compete with the
private sector for outsourced public services.

It’s not clear whether Huckfield believes these organisations should instead argue for their members to be discriminated against in commissioning processes, whether they should argue for a sloping playing field (perhaps with commissioners changing ends at half time) or whether they should just argue less consistently.

On the other hand, Huckfield is surprisingly matter of fact about ACEVO chief executive, Sir Stephen Bubb, and other voluntary sector leaders placing themselves at the heart of Andrew Lansley’s controversial Health and Social Care Act 2012. In Bubb’s case, by chairing the “Choice and Competition: Delivering Real Choice” Panel for the NHS Future Forum.

Huckfield notes that, while in that role, Bubb reiterated his support for: ‘the principles set out in the White Paper – the principles of diversity, of choice, of transparency, of free competition‘ but there’s no wider consideration of the extent to which the workings of Pamela Hartigan’s ‘social enterprise industrial complex’ may have been partially responsible for the legislative dog’s dinner that emerged at the end of the process.

Huckfield successfully proves leading umbrella bodies entirely guilty of following their publicly stated policies, policies which he and (presumably) NCIA members disagree with. He doesn’t prove that in doing so they’ve misled anyone, let down their members or made the world a worse place as a result. Nor does he suggest how charities and social enterprises, their members or the people who use their services, would be any better off if they followed the NCIA’s rejectionist line.

Ultimately, though, what Huckfield, Fiona Sheil and Pamela Hartigan all remind us of, in very different ways, is that charities and social enterprises don’t exist in a political vacuum. If a social organisation takes on a public contract, it isn’t just taking on a contract, it’s engaging with the system that produced that contract and the political assumptions and decisions that underpin it.

 

 

 

 

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