Blog: Inequality and the Social Finance One-Percentage

Blog: Inequality and the Social Finance One-Percentage
Robbie Davison – Director, Can Cook
03.05.16

 

To make this dialogue interesting, I hope there is data out there to prove that what you will read next is wrong – I look forward to reading it and any responses. Also if there is evidence that anyone is listening in the South and equitable investment change will arrive in the North sometime soon – point me in their direction. Finally, please point me towards the evidence that social finance and its intermediary chain has worked and is working for community based social enterprise – because I can’t find any.

 

Read on…

 

A short history lesson. 20 years or so ago the term social enterprise was mooted to combat social and environmental poverty of all kinds. 10 years or so ago, social investment was supposed to join in and be the money tool that enabled the enterprises to do their work. It appeared to be a good pairing – so what happened?

 

Austerity grabbed the UK and financiers took hold of the ‘investment’ model and that changed everything. It has meant years of real social enterprise being cut off from any sort of growth opportunity the investment model was supposed to bring. It has seen £millions used and in no small part wasted creating the delusory group of intermediaries who clearly know ‘everything’ about finance and little or nothing about the business of community based social enterprise. It has seen others wanting to join the intermediaries as they see the money available as an easier target. Collectively it has meant that we now have a social money system that is broken pretending to be otherwise – it’s almost criminal and it’s time to get angry about the insular world of social finance and its intermediary group. A group so detached, protected and inactive that in time (let’s say within the next 2 years) community based social enterprise could well become nothing more than a plethora of small projects, making lots of local noise, costing more than they gain and achieving little else than churn – with no route back. It’s that serious.

 

Yet look around and surely this points to me being wrong? We are told there is £1.5b ready to be invested in social enterprise and we are also told that the biggest ever social investment deal has been done = £10m.

 

But £1.5b means nothing if it’s the wrong money and let’s set the BIG-DEAL in context. The £10m investment reputedly soaked up £500k in set-up fees and was done to aid a company that already has an annual income of £45m. This of course is fine for HCT and those intermediaries clamouring to do the deal with them.  However outside this back-slapping group, since 2008 (which is roughly the same timeframe social finance came to prominence) community based social enterprise has never been so underfunded and out there in the poverty world – only 1 in every 40 jobs created was full time, meaning a corresponding loss of over 700,000 full time positions. Millions of UK children are hungry everyday and unemployment rates amongst young people is becoming a national crisis.  So what is going on and why don’t the BIG-DEALERS seem to care?

 

Put simply, social finance is not concerned with poverty and it was never going to be as soon as financiers got hold of the money. Consequently inequality is running amok in a social finance world so absorbed in its own self-importance. There are those making up the rules and spending most of the money, and there are those who wonder whether the money will ever be available to them (community based social enterprises), scraping around… hoping for a bit of what is left.

 

This is inequality driven by the purpose of all those intermediary actors who dedicate their time to shaping the ‘market’ in their own image. It’s worth remembering that markets are not real but made up by the dominant actors who, in the case of social finance, are nearly all ex-banker/investment-thoroughbred-capitalist types pretending that what they know can be made to fit social enterprise. They are wrong. Nevertheless, being wrong does not matter to these actors because there is enough of their kind in enough influential positions to make sure their version of the inequality gravy train continues almost unopposed.

 

If you live in the North and take an interest in all things social investment, you have little option other than to become a money voyeur. Watching all that happens in the South; reading about all the BIG-DEAL claims, sometimes responding to the silly let’s-make-it-better surveys and hearing about those new products (as they like to call them) although they are not new at all. Whilst up in the North it’s all the stuff of voyeuristic fantasy, stuff that you can’t touch, stuff that just doesn’t concern you even if you run a good, successful social enterprise which I do.

 

Why is it then with all this money sloshing around (if you believe the hype) that up in here in the North we are starving whilst all the time those London based BIG-DEALERS are able to announce deals like I have said take £500k to set up. I could run my organisation for most of the year with all the social impact that comes with that amount of money. But in London it’s just an admin fee. These are deals so far removed from real social enterprise, that we can all only watch with some wonderment and massive amounts of disdain which over time naturally leads to anger. Similarly leading to yet more anger, there are games within games pretending that investment schemes have worked and all the time protecting the bad decisions of the incumbents and further safeguarding the activity of the intermediary gravy train. Here is one current and important example.

 

In Liverpool there is something called Local Impact Fund (LIF). LIF was supposedly set up to offer social enterprises here in Liverpool new investment opportunities. First take a look at the shoddy reports here and here. Then let me get you closer to the facts. Here is a quote from the evaluation report that talks up the Intermediary gravy train and again talks down the capability of social enterprises.. Whilst growth capital is required across the social economy, the majority of social enterprises will require support to become investment ready. LIFs require a supporting revenue programme, which is specifically tailored to supporting charities and social enterprise to become investment ready and create a pipeline of investable propositions. The findings from the pilot suggest that whilst there are likely to be a small number of organisations who are investment ready/quick wins, new funds may encounter the same challenges in developing a regular flow of investable propositions without prior revenue support to help the sector become investment ready.

 

Now for the inside track. For more than a year after the launch only 2 deals were done (3 now). Those first two deals were offered at strongly preferred rates because there was no enterprise able to take the money using the 6-12% interest rates and the investor had to get the money out the door. This money is so tough to get out that the funder is now approaching the previously funded to offer them more. Also, the report makes the strange claim that there were 3 anonymous organisations funded but not really funded – only in social finance would you get a report written in such a spurious way – saying absolutely nothing and everything at the same time. The reality was/is the money was/is simply too expensive and completely wrong for the local social marketplace. But no fear, all this will now be dressed up as a pilot there to inform new LIF approaches all still pretending that social enterprises were/are not ready and to get it right the intermediaries need much more cash.

 

So what is really happening in this unequal finance hemisphere? Well let’s take a bit of time to argue its social finance is now played out in two courts;

 

Court 1 contains the The ‘One-Percenters’ the self-proclaimed ‘BIG-PLAYERS’ – mopping up all that look-after-themselves ICRF type money pretending it’s needed to do the BIG-DEALS that could be done with any bank. Making sure they feed themselves first, last and always in any deal and never moving too far from a linking tube station.

 

Read this BIG-DEAL link, pick out any intermediary you see on the list and there you have some of the One-Percenters.  Also in this context I’ll share this quote from someone who clearly sees himself as the BIGGEST player; moaning that investment-hungry social entrepreneurs dare to try and break into his golden money bubble. His organisation also appears as the dealmaker in the above linked article. He said… This bubble also runs the risk of encouraging artificial behaviour in the UK. Some of this was evident in the government-funded Investment and Contract Readiness Fund; some entrepreneurs cheekily saw this subsidy as a way to generate a bit of extra income instead of paying advisers for contract and investment readiness, which was the main intention of the programme.  Which means those of us who are looking to get a piece of the money action and for the right reasons, have now been told…keep your hands out of our money trough because we are still feeding.

 

In Court 2, are those who aspire to be in the One-Percent gang, launching their more-of-the-same products to ensure they lock on to the same made-up-deal-making that requires their money to make it all happen. Pushing debt but never knowing how to calculate debt’s negative impact. And all the time hiding behind soft data surveys that claim social enterprises want debt and using it to contort towards feeding the One-Percenters enough play-dough, to cajole another bankable deal. In this space, the CEO of the Access Foundation said just last week “There is plenty of money in social investment looking for a home. This is “the secret that investors have kept hidden from charities and social enterprises” No kidding! What he doesn’t say is that money is sitting there because it’s the wrong money and most social enterprises can’t take it. He does though go on to say “At the moment there is a massively growing size of money… but quite often that money comes in relatively large chunks. Deals tend not to be under £250k… whereas for charities and social enterprises considering taking on their first investment the average size is around £60,000” There we have it, he is saying the money is not for the real social enterprises it was meant for – it’s a size matters approach. His second statement also begs a question…Is he claiming that his ‘new’ money can magic those social enterprises away from their £60k ask into the £250k zone using the ingenuity that his money will pay for by exporting it out to all those clever intermediaries who pretend it’s possible?…I guess he is because the Access offer so far, is money-for-old-rope as far as intermediaries are concerned and wholly patronising to good social enterprises – it is an important opportunity missed.

 

But have no fear these-times-they-are-a-changing… Big Society Capital (BSC) the main feeders of the trough of the One-Percenters, have now gone out to the social finance market asking what can be done better? Yet their telephone survey relates only to talking to those who sit in Courts 1 and 2. Oh, there is a little online form for others to fill in to make it look a touch broader of intent.  I took part online and scored BSC no more than poor throughout, giving my reasons. Let’s see who else did the same and whether anything changes?

 

As a voyeur wanting more than a sneaky-peek and hoping that there are others with influence that care about this stuff, I often wonder where SEUK stands on all this?  Of course they have got to agree there is a problem. Well one of their senior staff told me they do care, although that was 2 years ago now and so, at this point, I am guessing/observing.

 

My observations are drawn from ongoing conversations with other practitioners and from reading blogs like this, which do nothing more than to help along the spurious claim that £1.5b is sloshing around as social investment.  It’s stuff like the blog that make it easier to take the view that they too now sit as a One-Percenter; enjoying the proximity of the same tube-rides, sitting on the BIG committees, and, amongst other things, making money releasing the aforementioned soft data in partnership with those aspiring players in Court 2. Moreover, their approach may now be that much more conflicted as they have key policy staff with skin-in-the-game asserting that they can Flip the current Finance model making it more appropriate to real social enterprise. Thus far those Flipped ideas return us back to that more of the same DEBT game. It is important to understand that most if not all of those involved in trying to legitimise DEBT in the minds of social enterprise have never operationally managed DEBT. They are always in the hypothetical, musing, philosophising  about a world wherein social enterprise will give in and take on their DEBT ideas and become ‘true-social-traders’ as if it is that easy or even right. Anyone interested in the welfare of social enterprise should beware the advice of former commentators now purporting to be intermediaries when they have significant knowledge gaps.

 

It’s sad really because every good sector requires good commentary, good representation and, most definitely, good money. Yet the sector is losing its operational capacity, the representation seems to depend upon avoiding any criticism of those who may next pay for services and as of yet almost all of the money seems to be bad (DEBT).

 

To change the status quo a number of things need to happen;

 

There needs to be a change to some of the Southern based usual suspects whose names appear across every BIG-DEAL, on every new board, every new ideas panel – until this happens we will be stuck with DEBT being the only model and the North will continue to be neglected.
BSC need to work harder at setting up the option they have of their own Foundation and learn from the very recent lessons of the Access Foundation; instead, take some risks on tackling poverty – using money for good rather than propping up big deals that would get done anyway.
We don’t need more of the same supply ‘stuff’ we need new demand led money instead. We need rid of this ­investment readiness nonsense – that gravy train for intermediaries and the tools they use to pretend that most social enterprises are not investment-ready, when everyone knows the main problem is the money (DEBT). Social enterprise requires a range of investment products and investors that understand the nuance of running impact first enterprises as they encounter the various stages of development. The sector equally needs investors in it to tackle poverty with real risk investment and if for whatever reasons new entities such as Access can’t provide it, they should not have taken the endowment in the first place.
SEUK need to do more than take train trips up North to say hello or pat old BSC friends on the back as they leave. The sector is gasping for investment and representation and SEUK appear conflicted and seem to be ignoring it.
In citing these changes, do I think they will happen? The evidence says no, so NO!

 

Staying with the emotive. The BSC trough remains full to overflowing and the gravy train is still full of One-Percenters convincing all the new money like Access that the money is not moving because social enterprises are not ready. Therefore by keeping the One-percenters fat, they in turn will promise to be the saviour of social investment and we will all live happily ever after. If that is so, how come in 8/10 years of trying that difference has not been made? It remains a ‘jam tomorrow’ model for social enterprise and always ‘jam today, tomorrow and everyday’ for the intermediaries. Anyone who cares about the social enterprise movement should be angry about this southern based, insular money game that has no bearing on tackling poverty.

 

Money-of-the-last-resort which DEBT finance should be for real social enterprise is here to stay and the intermediaries will see to that. Over time it will threaten the viability of the whole social enterprise sector. However the Star Chamber of Court 1 is so appealing to those in Court 2 that the adjoining complicity is unwavering.

 

In describing his antidote to worldwide inequality, Thomas Picketty calls for Paternalistic Capitalism; he means that those who can pay, pay, and those who can’t are offered alternative equitable means to survive and flourish. Unfortunately, our One-percenters are pure neo-liberal capitalists believing everything can be marketised with social impact a hoped for derivative – again they are wrong!  This pure capitalist approach is literally killing the sector and most who have the skill and knowledge to understand the implications of DEBT are aware of this and largely stand and watch.

 

To finish, let’s focus on what’s happening in good communities. Good communities are struggling within the vice of austerity. People are suffering, dying even and plenty of good social enterprises within the same communities will do the same – And it is in part due to what I have described above and that is a fact.

 

See more from Can Cook here