The paradigm is shifting. Together we can bring a revolution to improve lives. We can seize the opportunity to tackle social and environmental issues in new and more powerful ways. We can do so by setting measurable outcome objectives for social sector and for-profit
organisations alike and by measuring their progress in achieving them. … Regular businesses, large and small, will become increasingly aware of their social impact, setting social,
environmental and financial objectives and measuring progress towards achieving them. This is the revolution that impact investment portends. Across the world, we can harness
entrepreneurship, innovation, capital and the power of markets to do good. If we achieve our goal, in future the invisible heart of markets will guide the invisible hand to improve the lives of those who would otherwise be left behind.
From the Social Impact Investment Taskforce’s main report, Impact Investment: The Invisible Heart of Markets (2014) p42 In this thesis I set out to develop a critique of social investment. My intention has been neither to dismiss SI as problematic, nor to cheerlead for this new way of doing things, but to bring to the surface the underlying assumptions and taken-for-granteds that make this field of activity possible. In this way, it becomes easier to see both what opportunities are opened up and what possibilities are foreclosed by recent developments.
The past four chapters have set out a detailed exploration of the logic of social investment.
Distinguishing between the principled and innovative modes of reasoning helps us to pull apart quite different ways of thinking about social change and the role of finance in bringing it about. This provides us with much-needed clarity in getting to grips with the debate, and for making the argument that the innovative version of SI (in particular) stakes out neutral grounds for action. As we have seen, interests are (assumed to be) aligned, facts are gathered, and decisions are made. The vision for social investment is about building the right mechanisms, ensuring that the market is encouraged into life, and that we crack the problem of measuring impact in a standardised, straightforward way. I have suggested that, in navigating the considerable ambiguity present in the debate, the interpretation that makes most sense hands over the question of social problems, as far as possible, to the market, not least by construing social change as fact-based, and accountability as entailing not oversight or regulation but the production of evidence – facts – about impact.
But this neutral, technical domain of activity has been set out in an undeniably political space. What do I mean by ‘political’? I mean it in the everyday sense of the word – social problems are the domain of politics to sort out. Political systems are set up to try and ensure the needs of everybody in society are met. Democratic processes enable a choice between competing versions of how these systems should work. The epigraph to this chapter is provocative in using the language of politics – talk of
“revolution” and “improving the lives of those who would otherwise be left behind” – but attaches this rhetoric to neutral, technical processes of investment.
I also use the term ‘political’ in the more precise sense that is the inverse of ‘neutral’. Where the vision for social investment assumes the alignment of interests, we can ask: on what grounds is such an assumption made? Should we not assume instead that interests, sooner or later, will not align? That one person’s version of what counts as good and desirable will be different from, and quite possible
incompatible with, the next person’s? I want to call out the social investment project – and particularly the ‘innovative’ version of this project – for what it is: an intensely political attempt to change the way we understanding what social problems are and our options for addressing them.
After all, should we not be wary of a group of people who in many ways are accustomed to their interests being served by the way the world is set up – that is, wealthy investors – setting out a vision for solving social problems that happens to leave their position of privilege intact? This is a crucial point, but it needs immediate qualification. I am in no way suggesting that every investor in the SI market, or even the architects of this market, have set out deliberately to create a foil just for their own benefit. I make no charges of disingenuousness. I am not challenging their many heartfelt statements of good intentions. That would be to diminish the power of this analysis. Social investment is not a story of the powerful oppressing the weak. It is a story of those who believe in the power of markets, and of data, to change the way the world works. The point is to accept these good intentions but to continue to ask: what effects are being created by conceiving of possibilities in this way? My approach is to accept the reasoning as it is set out by those advocating this model, and to bring to the surface the implications of this way of viewing the world. As a result, the argument I present gains far more traction on how things are being done, and gives reason to pause and think again.
There are a number of political implications that follow directly from accepting the problematisation on which social investment is based. First among these is the assertion that the state has proven itself ineffective in dealing with social problems, not just because it does not have the resources to do so.
Accepting this assertion cuts out whole swathes of possibilities for addressing social problems, and obscures options for replenishing the state’s resources by revisiting the rules governing the transfer of wealth from private to public hands. Reform of corporate tax simply does not feature in social investment’s vision for solving social problems.
But we can pursue a more detailed and nuanced account of the politics of social investment. As set out in the introduction, the word ‘political’ is used here to refer to the inverse of ‘neutral’, where neutrality is found in the assumption of (possibility of) the alignment of interests, and in the (possibility of) generating disinterested knowledge about the market and about impact. The politics of social investment, then, lies in exposing the way in which the ‘neutrality’ of social investment is created.
Foucault, Poovey and Hacking together help us to see the mechanisms by which neutrality, or objectivity, is created. This has been a point of discussion throughout the thesis; in this last chapter, the emphasis is on demonstrating that we are thereby engaged in identifying the politics of social investment. As the notion of the political suggests, this is a way of setting out why this (creation of) neutrality matters – it matters because it has effects on what is thought of as possible or impossible.
This final chapter identifies these effects by looking to three examples of where the logic internal to SI is under strain. This helps to reveal where actors, having accepted the basic framework provided by SI, end up employing strained reasoning rather than challenging the basic assumptions of the field. The first example is the ‘puzzle of low demand’ – the confusion caused by low levels of demand for social investment from SSOs in the first few years of the SI market, despite the significant undercapitalisation of the sector. The second is the challenge of doing social impact measurement, and the reaction of those who have attempted to implement the guidance. The third is the risk of ‘impact washing’, and the attempt to hold oneself accountable.
THE PUZZLE OF LOW DEMAND
Chapter 3 explored the way the market for social investment was introduced as a way of understanding the current state of capitalisation of the social sector, and the strategies needed to improve this state of affairs. SSOs came to be understood as the ‘demand side’ of the market. This framing of reality brought with it a series of expectations, one of the strongest of which was that the creation of the market would lead to a healthy volume of investment transactions taking place. The creation of BSC, in particular, in the words of one of its founding management team, adopted a “very
‘build it and they will come’ approach to the market.”458
We are now in a position to see that actors in the market create a puzzle for themselves. They assume that building the market mechanism will enable parties to transact. The questions then start to arise:
why are these transactions not occurring in sufficient volumes? Why is the market developing more slowly than expected? What can be done to grow the market? What are the barriers to its development? Given that we have demand for and supply of social investment capital, the question becomes: what is preventing them from interacting properly? How can this nascent market be brought to maturity?
It is in this way that the market framework inserts itself into reality, and becomes invisible. While there undoubtedly were examples of organisations that were looking for investment capital, which found their needs met by the new sources of capital made available under the banner of social investment, overall the levels of demand for SI were lower than expected. In the words of an interviewee at BSC:
Interviewee: …you know the SIFIs should be coming to us with lots of proposals and yet, you sort of feel, there’s a lack of, we need to have more engagement with the SIFIs. There should be more actively coming to us with deals. We should be holding back the doors, them coming to us, you know, … all these intermediaries should be desperately trying to put together proposals. Instead of which you sort of feel they’re holding back and taking their time and not being quite as aggressively trying to get this investment as you thought they were.
Interviewer: do you think that’s partly because of their own deal flow?
Interviewee: Yeah. Or lack of ambition or possibly… I don’t know - or maybe the terms on which we are able to lend won’t be as attractive as elsewhere.
In this discussion, and in most of the other discussions around the development of the market, the question is not asked: should we reassess how the expected level of demand was arrived at? Instead, actors in the market, committed to seeing matters in terms of supply and demand, end up finding sometimes quite convoluted ways of reasoning through the supposed ‘lack of demand’.
One example of this comes from a discussion from the BSC interviews between a senior staff member and the interviewer about the idea that they might have to take social investment to the social sector, rather than waiting for them to come and ask for it. He made the statement: “I think the thing we are going to have to do now more of is a lot more rolling up our sleeves and going to find deals ourselves.”
The exchange goes on:
458 Interviewee.
Interviewer: what was interesting [about what you just said] was the “going out and doing deals”. It is starting to behave more like a traditional market. So in a traditional venture capital market you have a lot of deals come to you but, generally, good VCs [venture capitalists] go out. The hard part is going out and finding the good deals.
Interviewee: Is that right? See, I don’t even know.
Interviewer: The VCs, even the big ones, even the ones that are doing fund of funds will get tonnes of proposals, but the really good proposals are generally the ones that they go out and find. Because the guys that don’t need the capital actually are the ones you need to go negotiate with to actually be able to be put into the fund. Those are the really good funds.
Interviewee: That is very interesting. Anything that helps us make that comparison can be very useful for us, because it is beginning to get a bit of traction but it is a different way of working. It is quite a lot more work, quite a lot more shoe leather, it is quite a lot more sitting on trains…
Interviewer: And it is also possibly convincing intermediaries that they don’t necessarily see all of the value of having to take the money with some of the strings attached. Even going into – this is a bit outside of the conversation – but going into places that are used to getting grant money and trying to convince them to take and/or equity money, because they have been doing a great job and they could actually use the equity money or debt money to expand, but that is not always an easy sell, because grant money comes in with a lot less strings attached.
So that is where is will start getting interesting, is when you guys start to push some of these providers to provide more equity and debt-like instruments – and again it goes down to the front line: how do you convince some enterprises, when it is easier to get grant money, why would you get debt or equity?… And I think it is an overall big market problem that needs to be addressed.
In other words, they agree that SSOs need persuading that grant funding should be turned down in favour of loans or equity. It is a “big market problem” that SSOs do not understand the opportunities that are available to them through investment, and the persuasion of SSOs that they do in fact want investment is part of what needs to happen for the market to develop. They do not appear to consider the possibility that the lack of demand is exactly that – a sign that potential investees do not want investment, for whatever reason. They have already accepted the designation ‘demand side’ applies to the social sector, and so they search for explanations why this demand is not being realised.
A similar logic is at play in this report on investment readiness:
Culturally, it appears there are still considerable barriers to charities taking on social investment – almost half of our survey respondents were not interested in investment. The majority view of this group believed that charities should not use loans to finance their work.459
The survey showed that almost half of the SSOs surveyed “were not interested” in investment. But this fact is framed as a barrier to social investment – that is, the SSO that is not interested in social investment is supposedly experiencing their own lack of interest as a barrier to accessing investment that they do not want. This is a nonsensical statement, and it arises because the authors are having to
459 ClearlySo and New Philanthropy Capital, Investment Readiness in the UK (2012). pv
somehow consolidate the fact that (on the one hand) the demand for social investment, by definition, comes from SSOs, and (on the other) that SSOs often say that they do not want social investment.
Something similar is happening in this BSC strategy paper, which lists a lack of investment readiness as one of the reasons for a lack of demand:
This lack of demand [for social investment] is partly a reflection of lack of supply of capital, but it also reflects the lack of investment readiness in the social sector as well as the lack of relevant services available to help frontline social sector organisations become investment ready.460
Does it make sense to claim that lack of demand for SI can be attributed to SSOs not being ready to take on investment? Perhaps, if we think of demand in terms of the number of applications being made for finance – the more SSOs who are ready to make applications, the more demand there is. But the claim becomes a good deal murkier when we think of demand as an expression of the interest and motivation of organisations on the demand side. The statement that a lack of investment readiness helps to explain a lack of demand is built on the assumption that SSOs want social investment, and that they want to reach a state where they are deemed ‘ready’ to take it on. On what grounds are such assumptions made? On the basis that SSOs make up the demand side of the market.
Of course, in itself the slightly awkward reasoning used to understand the social sector in these reports is not a particular cause for concern. It is far more significant that this new way of doing things introduces changes to what is expected of actors in the market. One of the clearest signifiers of such change is the emergence of the notion of ‘investment readiness’. It is not just that organisations on the demand side are expected to seek out social investment, it is also expected that they will display certain attributes deemed necessary by investors. As the idea of building the SI market took hold in the UK social sector, investment readiness became something of a conceptual touchstone, and several reports have been published examining the ‘state of investment readiness among SSOs’, and what needs to be done to improve it.
Tellingly, just like accountability, investment readiness is not closely specified. Even the evaluation of the UK Government’s ‘Investment and Contract Readiness Fund’ (ICRF) does not provide a definition.461 The meaning of the phrase is assumed, attaching to the intuition that investors need certain assurances in place if they are going to invest their capital. SSOs who cannot convince investors that they are a viable proposition can be thought of as not yet investment ready. The success or otherwise of the fund in improving investment readiness was judged by the success of support recipients in taking on new contracts or investments. That is, you know investment readiness has been achieved when an organisation takes on an investment.
It is worth drawing attention to an aspect of the shift from grant funding to investment that easily gets lost in the self-evidence of what it means to be investment-ready. Repayable finance means introducing the return requirement. Recall that social investment is built on the problematisation of a social sector that is dependent on grant funding, a practice deemed best left behind. The presentation of investment as a solution to the problem of undercapitalisation effaces a crucial difference between grants and investment: unlike grants, investment requires a return, or at the very least the repayment
460 Big Society Capital (2012a). p22
461 Ecorys et al., In Pursuit of Readiness: Evaluation of the Investment and Contract Readiness Fund (2015).
of capital. Except for the minority of SSOs who already operate on a model that generates revenue, many SSOs, in order to realise their demand for SI, would have to fundamentally alter their mode of
of capital. Except for the minority of SSOs who already operate on a model that generates revenue, many SSOs, in order to realise their demand for SI, would have to fundamentally alter their mode of