Britain’s Prime Minister has cause for a small (nice cup of tea, rather than pop the champagne cork) celebration today, now that his Big Society idea has had its first positive headlines in quite some time, with the long-awaited launch of the £600 million Big Society Capital (BSC) social investment fund. BSC has cost the Treasury nothing – its capital comes from unclaimed bank accounts plus some an additional contribution screwed out of the major UK banks under threat of further regulation known as Project Merlin – and the hope is that it will leverage a further £2.5 billion of private investment in social enterprises and community development finance organisations. Whether this is the beginning of the fightback for David Cameron’s big political idea remains to be seen, but it is certainly an important new development for the philanthrocapitalism movement.
Leaving aside the usual complaints that Big Society is a ‘smokescreen’ for cuts in public spending, even those who might be sympathetic to the idea have sounded notes of caution. Dan Corry, the CEO of New Philanthropy Capital, stresses that for BSC even to have been born is a ‘triumph of perseverance’ and warns that most charities are not (yet) sophisticated enough to be able to benefit from this type of risk-based financing. Toby Blume, a charity CEO, raises the concern that, as a wholesale rather than retail provider, BSC is not going to be getting funds to organisations on the ground any time soon.
The likelihood is that Mr Cameron will have to put this one down as an investment that is more likely to benefit his legacy than win any votes. But we believe that it is an initiative that history will look at in a positive light. As Michael argued earlier this week, the success in Britain of housing associations that have raised tens of billions of pounds of private investment for social housing indicate the scale of the potential prize. And, as BSC’s CEO Nick O’Donohoe observed, what the UK is doing is part of a wider global trend to explore ways of harnessing private capital for public good.
For BSC to succeed it will, first of all, need to stay free from political interference. A nightmare scenario would be politicians trying to steer it towards pet causes or shy from making financial returns. BSC also needs continuing political support to create a supportive environment for social investment. Social enterprises need assets and cashflow to secure their borrowing, much of which will come from transfers of government assets and from the welfare system. The government’s reforms to public service delivery and the welfare system could make or break the social enterprise sector, the BSC’s ultimate clients. BSC’s long-term growth will also depend on whether mainstream finance can be lured into social investment. As we argue in ‘The Road From Ruin’, that is going to require root and branch reform of the incentives on investors to put long-term value ahead of the quick, unsustainable buck.
So, there is much still to do but a warm welcome to BSC and congratulations particularly to its chairman, Sir Ronald Cohen, who has been championing this idea (along with much else that is good in social investment) for a decade or more. BSC may not win votes for Mr Cameron, but as a pioneer of philanthrocapitalism transforming how government and the private sector can work together, we think it is going to have a big impact in Britain and, by example, beyond.