When people come to assess the success of the Big Society, one initiative will surely stand out – the setting up of Big Society Capital. The establishment of this provider of wholesale social finance, funded with £600m from dormant bank accounts, is a globally unique “big bet” on the potential of capital to unlock the power of social entrepreneurship – provided they can pay it back with interest.
Political commentators with little knowledge of the social sector may think the Big Society is just hot air and platitudes, but those of us working on social innovation and public sector reform know that Big Society Capital is serious stuff – a game-changer if it works. But the question of whether it can work depends on which problem it was designed to fix.
In an ideal world, Big Society Capital would have been designed to meet the needs of a capital-savvy social sector demanding access to venture capital to allow them to start delivering services already proven to generate both a social and financial return. In turn, a cash-strapped state would benefit from private investors sharing the cost of providing first class public services.
We know we have a cash-strapped state, but do we really have a mature market of social enterprises making demonstrable social impact, able to produce a return on investment and with the capacity to absorb large amounts of capital? At the moment, there isn’t much hard evidence either way, but upcoming research from BIG Lottery Fund will report on the “investment-readiness” of the social sector. The impetus for this work comes from the conviction of many sector experts that the sector simply isn’t ready and that the vast majority of charities do not have the infrastructure in place to deal with investment, the responsibilities and the activities it involves. Big Society Capital, with its goal of transforming the social investment market, supplies the investment but cannot stimulate the right kind of demand. This is not a recipe for market success.
The missing trick is the first step: the relatively minuscule committed investment in the capacity of the most innovative and effective charities and social enterprises. This is the work that Impetus and a few peer organisations do, and this type of capacity-building needs to be much more widespread and accessible to social sector organisations. There is an urgent need for funding that allows social sector organisations to scale up and extend their reach to help more people – precisely the goals most likely to lead to an organisation becoming investment ready.
Big Society Capital is exciting, but it risks becoming a victim of its own pioneer status. One scenario is that the social investment vehicles it will fund end up indistinguishable from ethical investors, providing capital to businesses that do no harm, but not much good either. Worse, social investment might distort the funding environment so that voluntary and social sector organisations are pulled away from their primary missions and towards activities that generate a return, but no social value. In this scenario, nobody benefits except private finance.
In the two and a half years until the next election, the government must match its action on providing social investment with action on building the capacity of ambitious and innovative charities. There are many partners willing to help with this work and it should be the primary focus of the government’s engagement with the social sector to 2015. The future’s assessment of the Big Society depends on it.
Daniela Barone Soares is CEO at venture philanthropy organisation Impetus Trust.