Helping the least needy?

Following on from my recent post responding to Robbie Davison’s insightful report ‘Does Social Finance Understand Social Need’, Nick Temple pointed me in the direction of this post from Clearly So’s Rod Schwartz.

I don’t know Schwartz personally but he’s always seemed, from blog posts and conference talks, to be one of the more thoughtful voices in the world of social investment. While I profoundly disagree key elements of his latest post, it certainly makes a valuable contribution to the debate.

The title of his blog post ‘Social Finance: The Case for Helping the Least Needy’ has the potential to be misinterpreted. Schwartz is not calling for social finance to be directed towards helping the least needy people in society, he’s calling for social finance to targeted at the least needy companies – those who are most likely to be able to take on investment and pay it back.

His initial argument is that charitable foundations need to be more pragmatic about assuming the riskiest positions in deals that also involve private investors: “On occasions they are asked to assume the ‘first loss’, or take a ‘capped return’, or sometimes a combination of the two. A sense of indignation emerges that their capital is being exploited so that those with a market return requirement can profit from social investment transactions they would otherwise not participate in.

For Schwartz, the point is that without the prospect of a market return, the private investors wouldn’t invest at all and the investee wouldn’t get the money they need.  And the fact that private investors might be getting better deal doesn’t, as of itself, mean that the charitable foundation is getting a bad one: “These foundations would willingly offer grants where 100% loss of funding is assured. But by using their capital in structured transactions sometimes far more social impact can be generated, AND they might see some return. Not to do so just because other investors (with very different criteria, beneficiaries and rules) might do well seems odd and reduces social impact generated.

That position seems fair enough to me. I’ve got no objection in principle to charitable foundations (or government-backed social investors) investing in a way that enables social enterprises to draw in further investment from investors who don’t share their social mission. Any grant to an organisation with an overdraft facility from a high street bank is doing that to some extent.

By extension, I accept Schwartz’s point that charitable and social investors shouldn’t avoid investing in ‘those social enterprises or projects which are close to viable’ simply on the basis of their near-viability.

Where I profoundly disagree with Schwartz is that the correct approach is to do the exact opposite: “To get the most out of our money, a critical discipline in today’s capital-starved times, and generate the most social impact, we need to start with the least needy and work our way backwards.”

Schwartz is right to the extent that social enterprise or projects that can’t be sustained, can’t continue to deliver a positive social impact. The problem he ignores is that there’s no direct correlation between the relative commercially viability of social enterprises and projects, and the importance or severity of the social needs they’re attempting to have an impact on.

The phrase ‘get the most out of our money’ apparently means ‘get the highest possible volume of socially-impactful stuff, irrespective of the specific nature of that stuff.

Helping a busy office worker improve their work-life balance and giving a pensioner a chance to attend keep fit classes are two possible ways of delivering positive social impact. Enabling someone with learning difficulties to live an independent life or helping someone to manage their diabetes are two more ways to deliver a positive social impact.

Social enterprises or projects doing any of these things could be worthy candidates for social investment but a social investment market that allocates investment to one social purpose or another primarily on the basis of relative commercial viability will not play are very effective role in tackling social need.

As Robbie Davison’s report makes clear. Often social enterprises and projects in the most deprived areas are least likely to be commercially viable because the people who live in those areas are less likely to be able to pay for things. By Schwartz’s logic social investors could put their money into supporting lots of near viable organisations in better-off areas – which would generate a high volume of positive social impact – while leaving deprived areas to rot.

As Nick Temple’s ‘horses for courses’ piece in Third Sector suggests, there is (rightly) a place in the social investment landscape for low-risk, large scale investments but if we’re going to develop a social investment eco-system that, as a whole, provides an effective response to social need, then Schwartz’s starting point is wrong.

It’s vitally important that our social investment eco-system develops approaches that can manage the trade-offs between short-term financial viability, innovation and social need. That means finding ways to invest in risky social enterprises and projects that have the potential to deliver big social impacts. And also finding ways to invest in less commercially viable social enterprises and projects that tackle the most severe social needs.

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3 responses to “Helping the least needy?

  1. To quote Mandy Rice-Davies – “Well he would say that, wouldn’t he?”

    Rod had jumped ship from Lehman Brothers some time before they crashed and burned in September 2008 and showed up writing on Skoll Social Edge. Prior to that, the subject of Profit For A Purpose was perhaps a key conversation in the the evolution of social finance.

    http://www.socialedge.org/discussions/business-models/profit-for-a-purpose-september-2006

    Our position, from the POV of a social business with a track record of sourcing microenterprise development was quite the inverse of Rod’s. A statement made at the end of an article I offered to the Guardian in 2011.

    “Hallman concludes that social business and social enterprise must be done by working backwards, from the problem: identify the worst social conditions in any given location, then analyze why the problem(s) exist. This method will always reveal all factors and barriers. Only then can the problem be understood, and then possibly fixed. But, he notes, barriers are often found in various organizations who are supposed to be trying to fix the problem, but have vested interests in direct conflict with achieving actual solutions.”

    If a social enterprise business plan isn’t viable then nobody else would attempt it. Simply saying something isn’t viable or trying to undermine the company is a classic move to reap the benefit of other’s work. It was pulled on us more than once.

    In 2010, effectively shut out of the UK dialogue, it was a Canadian publication that allowed us to make the point about the usual suspects getting in to dilute the social impact . It was said from experience.

    http://www.axiomnews.ca/node/966

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  2. The matter of using profit for a social purpose arose recently in the context of the Social Value Act. A conversation on the Social Enterprise Mark group.by Anne Mountjoy who I correspended with directly about our own work in this area 5 years ago. I referred to “our services as a profit for social purpose business” aka people-centered economic development.

    The Linked discussion is one of the many conversations I can’t participate in because this forun is one of those that will not approve my comment on the current conversation about social investment. It was interesting to read what Pope Benedict wrote in his 2009 encyclical, ‘Caritas in Veritate’ on this matter:

    ‘This is not merely a matter of a “third sector”, but of a broad new composite reality embracing the private and public spheres, one which does not exclude profit, but instead considers it a means for achieving human and social ends. Whether such companies distribute dividends or not, whether their juridical structure corresponds to one or other of the established forms, becomes secondary in relation to their willingness to view profit as a means of achieving the goal of a more humane market and society’

    ‘Striving to meet the deepest moral needs of the person also has important and beneficial repercussions at the level of economics. The economy needs ethics in order to function correctly — not any ethics whatsoever, but an ethics which is people-centred.’ .

    The ‘profit for purpose’ business model as we concieved it, was distributed from 1996 onward free for others to use.

    Now, this is what Lucy Findlay says in her blog on the matter of certification.

    “So why not self-certify after all it’s quicker, cheaper and potentially more accessible?

    Easy accessibility is its key downfall. It does not protect integrity, it is inconsistent and is open to self-interpretation and in the worst cases, abuse.

    Having run the Social Enterprise Mark since the beginning, we have developed the criteria in partnership with the sector and have protected and owned these criteria fiercely. It is our experience that interpretation of the criteria is a technical job and not easily carried out by anyone. We are constantly learning about new forms of social enterprise and the way that they operate. Our Assessment Manual has taken years of work to develop and our certification panel has taken its job very seriously in developing those precedents which have been set.:”

    Is it possible for one to “protect and own” what someone else has shared with you freely?

    All that was available to us in terms of certification was ‘See What You Are Buying In To’ which has more recently been rebranded as ‘Profit through Ethics’. A costly exercise for a small business which brought no business at all, not even an enquiry. I also approached B Corps with a view to collaborate. They were unable to extend to our shores.

    What we were attempting to “protect and own” was not a model but the sum of our investment and labours over many years. Protection not for our own benefit but for benefit of those in greatest need, I’ve descrribed earlier.

    By 2009, when Social Edge hosted the discussion about building the social economy, my colleague was battling for his own life and that of thousands of the most needy. He wrote about the need to protect IP for social benefit:

    http://economics4humanity.wordpress.com/2012/10/02/do-we-need-ethics-in-social-investment/

    It was he, who from the beginning, had warned about the risk from the unscrupulous and here we are today, with a suggestion that we are among the unscrupolous in not signing up with one of many organisations who declined our offer to collaborate.

    This is not safeguarding or propagating the social economy it is brand building. Whether by means of excluding others from conversation or referring to anonymous defamation, to allude to some kind of malpractice, it is building of reputation and income at the expense of others and perhaps even at the expense of their lives.. .

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  3. Pingback: Social investors can lend to anyone they like as long as they don’t need the money | Beanbags and Bullsh!t

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