Britain must attend to its mutual interest

Britain must attend to its mutual interest
Geoff Mulgan

This year is bringing a remarkable but little-noticed change, one that is likely to be accelerated by the UK general election in a few weeks’ time. Traditionally, the world of business and the economy had been seen as quite separate from the world of social action, non-governmental organisations and charity. But now the two spheres are being forced together at a sometimes bewildering speed.

The first cause is the financial crisis It is no coincidence that Britain’s privatised building societies fared worse over the past three years than those that remained mutual. We have been reminded of the major role that civil society once played in the economy. Co-operatives, mutuals, building societies and social enterprises pioneered financial services in the 19th century, before big business and big government moved in. They were also important in retailing and some areas of manufacturing.

Now politicians from all parties are becoming interested again in supporting this sector, partly to create jobs and services, but also to make the economy more resilient. Only on Thursday, the shadow chancellor talked of the third sector’s potential to play a far bigger role <> in reducing unemployment, reducing reoffending and improving public health. Experience shows that although social businesses do not usually grow as quickly as commercial ones, they do not shrink as much either and weather recessions more successfully.

So proposals are being made to expand social investment, for example through tax breaks for local investment trusts. There are suggestions that regulators should require major investors such as pension funds to direct a proportion of investments into this social economy. Some make the case for mutualising rather than re-privatising banks now partly owned by the state; others argue that the UK needs an equivalent of the US Community Reinvestment Act <>. Not all of these changes will happen. But the breadth of opinion moving in this direction is startling.

The second shift is taking place in innovation policy. In the last decades of the 20th century, this was essentially about research and development for hardware and technology. Now innovation policy is being broadened, partly to reflect the continued growth of services, and partly the rising importance of sectors such as health. Late last year a European Union business panel recommended “a broader sense of innovation” and a reorientation of support towards “compelling social challenges”. In the US, President Barack Obama has created an Office of Social Innovation in the White House. In Japan, China and Korea, too, the idea is also turning up in public policy pronouncements.

The third shift is in public services. Social enterprises already play major roles in fields such as housing and care, while fiscal pressure has spurred interest in their potential to take over parks, libraries and rural transport services. The UK now has some 62,000 social enterprises <>. Their total turnover is around £24bn; that of the co-operative movement is £28bn.

The net result is that we are on the verge of an election campaign in which civil society will figure more than ever before. David Cameron, the Conservative leader, promises a bigger role for co-operatives and social enterprises – the “big society” that will take over from big government. Gordon Brown claims with some justification that his government has invested at least £1bn in social enterprises over the past few years.

The debate is heading towards a new approach to growth. Instead of seeing the economy as the wealth creator that generates taxes to spend on social needs, we increasingly focus on the connections between social and economic issues. A strong economy depends on socially owned institutions as well as social investment. But effective social solutions cannot rely solely on government provision; they also depend on entrepreneurialism, innovation and competition.

This new world remains baffling to much of big business, still stuck in an era when corporate social responsibility provided proportionally tiny gifts largely divorced from the core business. It is also baffling to economics and industry ministries used to a world of subsidies for big companies in steel and ships, cars and computing. But it is a world that is arriving much faster than anyone anticipated.

/The writer is director of the Young Foundation and chairs the Inquiry into the Future of Civil Society, supported by the Carnegie UK Trust/