Could an energised social sector produce better solutions for international development?
Reflect on the state of our society during these troubled financial years and its tough not to mistake prospective trends in community and international development as evidence of a collective loss of marbles. Developed European economies have hardly seen a greater demand for a social safety net while governments continue slashing welfare budgets and planning further austerity. At the same time old ideas, mere sidenotes to growth prior to the financial crisis, are figuring prominently in discourse coming from community leaders, politicians, and even those in the now-less-glorious world of high finance: business for no profit, banks for society, philanthropy as investment. And in the middle of all of this a small project underway in the UK town of Peterborough has the attention of local social entrepreneurs and the US State Department alike, standing as it does to reorient our understandings of how best to deliver social welfare and aid internationally. Bonkers, hey?
Business is booming for the “third” social sector as new and innovative thinkers use the conditions created by the global economic downturn to maximise their opportunities for doing good. A social enterprise is a business that trades for a purpose other than to maximise financial profit, one that applies entrepreneurial strategies to problem areas unenviably dealt with by government departments or charities: poverty alleviation, development of infrastructure, homelessness, health, education, and so on. Where groups of individuals fall through a shrinking (or absent) government safety net and are passed over as insignificant by commercial actors, social enterprises find markets ripe for consolidating, space where they can use a business model to create jobs and a flow of sustainable benefit for their community. The for-profit vs. non-profit distinction matters less for social enterprise than in the distribution of profit; the most successful social enterprises have worked on a model that generates a stable income stream to reinvest and that empowers stakeholders by producing pubic goods like education or credit for the poor.
Large-scale social enterprises are usually found in developing countries where resource-limited governments and underdeveloped commercial sectors create fertile conditions for social innovation. Take VisionSpring for example, an organisation that has identified a massive market failure in the hundreds of millions of people in South Asia and Africa that lack access to affordable eyeglasses, the primary locus of the $3 trillion cost poor vision imposes on the global economy. VisionSpring have designed a cost-effective intervention where local people are trained to provide eyeglasses in remote communities; eyeglasses are sold, not donated, and are designed to be affordable, functional, and also stylish, thus empowering target individuals as consumers.
This final point is a key feature of many social enterprises whereby the business must attract consumers to its product/intervention with the same marketing guile as regular companies. “We offer a future to people who want a hand-up, not a handout,” is the motto of Create, a social enterprise operating not in Ethiopia, but in England where it facilitates the transition of homeless people into catering work at one of their many bustling restaurants and cafes. There are around 62,000 similar social enterprises in the UK, employing 800,000 in a recession-hit economy. A £50bn future social sector might just be the blessing of austerity, and new regulations and support from government and industry are prompting innovation in the field that could take the world by storm.
An astute observation from one of Britain’s most pioneering venture capitalists Sir Ronald Cohen outlines the downfall of the social sector in the past: despite huge assets and a passionately dedicated base of people working for non-profits, “the common characteristic of the whole sector is nobody has any money.” So in harnessing the forces of entrepreneurship and capital for social issues Sir Cohen has launched Big Society Capital (with US$1bn in funds acquired from government and banks) to nurture the sector in the UK. If social entrepreneurs are to innovate and effect similar change on the world as their commercial counterparts have in previous decades, then they require access to resources and capital in much the same way.
Big Society Bank is also breaking new ground in how charities, NGOs and social enterprises are funded, from the promotion of impact investment as options for firms, and now to the issue of the world’s first Social Impact Bonds (SIBs) in Peterborough. With this scheme private investors front the money for an NGO or public service provider to achieve a specific social outcome in a stated time. Come pay day if the service provider has delivered then the government returns the investment with a little extra on top (coming from the economic savings it should have accrued in the meantime from less crowded hospitals or petty theft). If not, then there is no payout back to the investor.
That’s right, nothing. It’s payment-by-results but with the risk shifted entirely over to the private sector, giving service providers more room to breathe and think creatively about using their money instead of guiding it through extensive and expensive bureaucratic frameworks.
In Peterborough, Big Society has sourced investors to provide funds for a collective of organisations that work to reduce the rate at which inmates from the local prison reoffend after they are released. In 2014 if the recidivism rate in Peterborough is lower than other control areas, the Ministry of Justice will return the investment plus a little extra it has saved from fewer ex-prisoners thieving or assaulting or taking up time in hospital.
Now imagine if this model proves successful. Involving the public, private, and social sectors in a productive partnership could treble the efficiency, innovation, and above all hard cash being channelled into resolving social issues around the world. Already the Centre for Global Development is looking at ways that “Development Impact Bonds” could be used to spend aid dollars more effectively in developing countries. A DIB could remove the risk from cash-strapped governments and incentivise longer-term targeted interventions into very specific areas, like womens’ education in sub-Saharan Africa or building fresh water systems in rural India. Including a number of partners to observe progress and manage performance could lead to the best results.
It might not be a panacea to the financial stresses of international development, but could this be the future of how our aid budgets are used to benefit others around the world? Experiments such as those being undertaken by the Big Society Bank stand to recreate social enterprises as serious propositions for charitable global investors. Unlocking just a fraction of some of the US$100tn in assets these managers oversee could spark a philanthropic revolution in the social sector. Billions could be injected this decade. Sure it’s ambitious, but sounds a little less bonkers now though, right?
Caleb Connor completed a Bachelor of International Relations at Bond University in 2012. Caleb is currently working for Care International in Dublin, Ireland.