For a brief moment following its launch in November 2009, David Cameron’s idea of the ‘Big Society’ burned very brightly. But the star that burns twice as bright burns half as long, and Cameron’s star idea quickly burnt itself out, extinguished by critique, ridicule and street demonstrations. ‘Does my society look big in this?’, taunted participants in Britain’s (equally short-lived) anti-austerity movements of 2010-11.
Despite the apparent cooling of Cameron’s Big Society star, however, 2012 saw the launch — again to much fanfare — of Big Society Capital. Big Society Capital is just the latest development in a much longer-lived and less-brightly burning project, the project to create a social investment market in the UK. According to its website, ‘Big Society Capital is transforming social investment in the UK to improve people’s lives’. More generally, the watchword is ‘doing well by doing good’. Indeed social investment has been promoted by progressive think tanks, such as the New Economics Foundation.
However, as research I’m conducting with Emma Dowling demonstrates, social investment is not a progressive counterpoint to rapacious neoliberal capitalism. Rather, it is a part of the on-going neoliberal project. Social investment, we argue, is designed to harness for the purposes of profit-making the wealth creation that takes place in communities. Moreover, the drive of social investment is to subject such wealth-creating activities to objective measures and, thus, to effect a real subsumption of the social. Social investment is, we argue, a new frontier of capitalist accumulation.
The future of socialism?
We can perhaps trace the idea of social investment back to 1956. In that year academic and Labour politician Tony Crosland published his The Future of Socialism, still influential in Labour-party circles half a century on. Here Crosland argued, for example, that ‘as an investment, education yields a generous return: we badly need more of it’. In its more recent history, the concept has been promoted by ‘Third Way’ sociologist Anthony Giddens, whose thinking so shaped the New Labour project of John Smith, Tony Blair and Gordon Brown. According to Giddens’s formulation, the ‘Third Way’ promised an alternative social, political and economic route between and beyond the post-war welfare state and neoliberalism. But, for the Third Way to deliver on its promise, the welfare state ‘need[ed] to be reconstructed as a “social investment state”.’
The principles underlying social investment and, by extension, the social investment state are straightforward. Government spending on services such as health, education, social security and the like is not to be understood as consumption spending or as part of a redistributive project. Instead, it is to be conceptualised and justified as investment — investment that will yield a return in terms of higher labour-market participation, more productive workers, higher personal incomes and higher economic growth. (Of course, the notion of return invites the questions of rates of return and the way such rates of return might be measured. I’ll return to these questions later.) Such an approach has become dominant in national and international policy debates over the past few decades. It underpins, for example, World Bank recommendations for Third-World countries’ spending priorities. It explains, at least partly, the way micro-finance has become a favoured policy tool for development. And it has informed, and been developed through, a series of OECD reports focusing on the spending of First World states.
The United Kingdom has been in the frontline of these policy developments and experiments. A key moment was the establishment in 1992, by then Labour leader John Smith, of the Commission on Social Justice. When elected five years later, New Labour (now led by Tony Blair and Gordon Brown, Smith having died in 1994) began putting some of the Commission’s ideas into practice. Sure Start, Best Start, the New Deal, Connexions, Child Tax Credit, Childcare Strategy… a whole range of policies was launched, all against Blair’s background mantra of ‘education education education’. The over-arching objective — the hoped-for return — was to enhance present and future ‘employability’, with a focus on children, young people and their mothers, and to integrate people into labour markets.
To the market!
A key figure in moving UK policy thinking from social investment state to social investment market is venture capitalist and New Labour backer Sir Ronald Cohen. In 2000 Cohen was appointed chair of the Social Investment Task Force. In 2002 he co-founded — with Michele Giddens, Anthony’s daughter — a social investment group Bridges Ventures. Between 2005 and 2007 he chaired the Commission on Unclaimed Assets. In 2007 he co-founded Social Finance (UK) Ltd. Finally, since its launch in 2012 he has been chair of Big Society Capital. (Cohen is also influential internationally. He leads the G8’s Social Impact Investment Task Force, for example, and is involved in both Social Finance US and Social Finance Israel.)
A more or less consistent message runs through the reports of these various commissions and projects. Two decades of neoliberal capitalist development has resulted in enormous wealth creation. It has also resulted in widening inequality and increasing poverty. Poor people do not lack entrepreneurial skills, and this is not the cause of their poverty. What they lack is capital. Redistribution of wealth via the (welfare) state, whether to poor individuals or poor communities, although understandable and possibly even necessary in some cases, will never solve such problems and may even exacerbate them. Instead the poor’s entrepreneurial skill must be encouraged, enabled and harnessed through finance and through capital. What follows are proposals for the creation and promotion of various financial tools, institutions and practices. These include: a social investment bank (Big Society Capital), the social impact bond, and the practice of social investment which takes place within a social investment market.
The social impact bond (SIB) is the instrument that lies at the heart of social finance. Not really an ‘ordinary’ bond, a social impact bond is in fact more like a so-called structured product, a financial asset in which cash flows are dependent upon some underlying index or other metric. According to Social Finance:
Social Impact Bonds are a form of outcomes-based contract in which public sector commissioners commit to pay for significant improvement in social outcomes (such as a reduction in offending rates, or in the number of people being admitted to hospital) for a defined population.
The world’s first SIB was launched in 2010 to finance a probation scheme in Peterborough, a small city 120 kilometres north of London. This particular bond was structured such that bondholders would receive a payout if reoffending rates fell by 10% or more. The Peterborough SIB was successful to the extent that investors purchased all the bonds issued, thus making the £5 million scheme viable. However, at the end of the scheme’s first phase, reoffending rates had fallen by only 8.4%, insufficient to trigger the payout to bond holders. A second phase will proceed, allowing investors to get their money back in 2016 (provided there is a sufficient fall in recidivism); a planned third phase has been cancelled by the Ministry of Justice.
Despite this setback, the proponents of social investing — Big Society Capital, Social Finance along with a wide range of social investment groups (such as Cohen’s Bridges Ventures) and so-called Social Investment Financial Intermediaries (SIFIs) — continue creating and launching new social impact bonds (and other ‘payment by results’ contracts), along with many other innovative instruments for social investment. The British government remains keen. As mentioned above, the G8 has established a social investment task force, chaired by the omnipresent Cohen. And, following their interest in micro-finance, a number of the financial behemoths (Goldman Sachs, for instance) have established social investment departments, leading Forbes magazine to declare: ‘social impact bonds are going mainstream’.
So, what is the appeal of social investment? As Emma Dowling and I argue in a paper recently published in Sociology, ‘Harnessing the social: state, crisis and (big) society’ (also available here), social investment seems to promise to address three crises.
- The crisis of social reproduction. Here the hope is that social investment will ‘unleash up to $1 trillion of new investment to tackle social problems more innovatively and effectively’ (in the words of a recent G8 Social Impact Investment Taskforce report, Impact Investment: The Invisible Heart of Markets).
- The fiscal crisis of the state. In a period of austerity and deep public spending cuts as policy response to the ‘sovereign debt crisis’, there is a clear political appeal in getting private investors to provide the upfront capital to finance projects once paid for out of the public purse. Although the state pays in the event of successful — as defined by the agreed metrics — projects, risk is transferred to the private sector.
- The crisis of capital accumulation. Although the latest IMF statistics suggest countries such as the US and the UK ‘are leaving the crisis behind and achieving decent growth’, more generally the future remains ‘cloudy’ and, even for the US and the UK, ‘potential growth is now lower than in the early 2000s’. Capital needs new drivers of growth, that is, new sources of profitability. One place it is looking for them is the social sphere: this $1 trillion of ‘unleashed’ new capital will not only tackle social problems, it will also earn a rate of return.
Unleashing capital, harnessing the social
But social investment promises — or threatens — more than to merely ‘unleash’ private wealth for social good, while simultaneously rendering profitable for capital ‘third sector’ (community and household) activities. The project is to create a social investment market — including a secondary market on which social finance instruments such as the SIB might be traded. (See, for example, this report by ‘innovation charity’ Nesta.) A consequence of this is that financial-market logic — financial-market discipline — will be imposed on such activities. While capital is unleashed, the social will be harnessed.
My thinking here is inspired by the work of cultural scholar Randy Martin, who has described the ‘financialisation of daily life’, and political economists Dick Bryan and Michael Rafferty, who, in Capitalism with Derivatives and a series of papers provide what is for us the most persuasive understanding of finance (see here for a review and here for a short, popular piece inspired by their ideas). For Bryan and Rafferty, the financial markets (including those arcane instruments known as ‘derivatives’), are all about measure — the measurement of value production and the measurement of capital accumulation. Finance enables the ‘performance’ of all the different ‘bits’ of capital, as represented by financial assets — across sectors, across space and across time — to compared, to be measured, to be commensurated, to be priced. To be competitive — and thus to survive — each ‘bit’ of capital, including the workers put to work by that ‘bit’ of capital, must deliver a competitive rate of return.
Financial investors, speculators — call them what you will — do not care whether they trade cocoa futures, the Argentinian peso or some index linked to the FTSE100. They seek simply the greatest return (taking risk into account). By their trading actions, the ‘performance’ of those ‘top’ 100 companies is compared to the ‘performance’ of the entire Argentinian economy and to cocoa farmers everywhere. And thus, the workers in those 100 companies are made to compete with economic subjects in Argentina and with cocoa farmers.
The social investment ‘imaginary’ involves integrating the ‘third sector’ activity financed by its capital into this global web of commensurated labours and market discipline. For social investment means more than ‘doing well by doing good’. Big Society Capital expects that many social investors will seek not only ‘a clearly articulated and reported social impact’, but also a ‘competitive’ rate of return. ‘Competitive’ invokes… competition. In this social investment imaginary probation workers (along with their ex-prisoner ‘clients’) in Peterborough, UK will compete with probation workers in Liverpool. They will compete with the waged workers and unwaged volunteers running a youth employment skills project in East London. And all of these actors ‘doing good’ will compete with workers employed by FTSE100 companies and with economic subjects in Argentina and with cocoa farmers and with…