Anti Social Finance*

Senior Lecturer in Finance and Political Economy, David Harvie, suggests the UK’s nascent social investment market is more a matter of imposing market discipline and less a matter of ‘doing well by doing good’.  

David Cameron’s ‘Big Society’ star lit up the post-crisis landscape when it was first introduced in November 2009. As students of Ridley Scott’s Blade Runner will have come to expect, however, it burned too brightly and too quickly, eventually extinguished by a combination of critique, ridicule and protest. The 2010-11 austerity movement taunted the initiative and they were by no means alone.

‘Does my society look big in this?’ Photo Credit: Duncan C.

‘Does my society look big in this?’
Photo Credit: Duncan C.

2012 nevertheless saw the launch — again to much fanfare — of Big Society Capital. According to its website, the group ‘is transforming social investment in the UK to improve people’s lives’. This call for ‘doing well by doing good’ is echoed by progressive think tanks such as the New Economics Foundation.

While it’s hard to argue with people who believe themselves to be on the side of the angels, research I’ve recently published with my co-author Emma Dowling argues that social investment is anything but a progressive counterpoint to rapacious neoliberal capitalism. On the contrary, it plays an absolutely central role in neoliberalism’s extension. Social investment, we demonstrate, is designed to harness community based ethical concerns for the purposes of profit-making. Wealth-creating activities, in this sense, become subjected to measurement, helping bring about a situation what some scholars have called the ‘real subsumption of the social’. This should give us some cause for concern for reasons outlined below.

Social Investment: From State to Market

The principles underlying the social investment state are quite straightforward. Government spending on services such as health, education, social security cannot be understood as consumption spending or as part of a redistributive project. Instead, such expenditure becomes understood as a form of investment that might yield returns such as increased labour-market participation, labour productivity, wages and growth. This has become the dominant paradigm 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 also explains, at least partly, how micro-finance has become a favoured policy tool for development economics. And it has informed, and been developed through, a series of OECD reports (e.g. here and here) focusing on the spending of First World states.

We can trace the idea of social investment at least as far back as 1956, when the academic and Labour Party politician Tony Crosland published The Future of Socialism. Crosland argued that ‘as an investment, education yields a generous return: we badly need more of it’. This very idea was taken up by the ‘Third Way’ sociologist Anthony Giddens, whose thinking played an indispensable role in the New Labour project of the 1990s. According to Giddens, in The Third Way and Its Critics, the welfare state ‘need[ed] to be reconstructed as a “social investment state.”’ A key figure in moving UK policy thinking from the social investment state to the social investment market is the venture capitalist and New Labour backer, Sir Ronald Cohen. Other than leading the G8’s Social Impact Investment Task Force and being involved in Social Finance US and Social Finance Israel, Cohen has also:

  • Been appointed chair of the UK Social Investment Task Force, in 2000
  • Co-founded a social investment group called Bridges Ventures, in 2002, with Michele Giddens, Anthony’s daughter
  • Chaired the UK Commission on Unclaimed Assets, between 2005 and 2007
  • Co-founded Social Finance (UK) Ltd., in 2007
  • Chaired Big Society Capital since its launch in 2012
‘Sir Ronald Cohen: social finance mover and shaker’. Photo Credit:

‘Sir Ronald Cohen: social finance mover and shaker’.
Photo Credit:

The message running throughout these various initiatives is that two decades of neoliberal capitalist development have resulted in enormous wealth creation, on the one hand, with widening inequality and increasing poverty, on the other. The redistribution of wealth via the (welfare) state, whether to poor individuals or to poor communities, will never solve such problems, it may even exacerbate them. The poor do not lack entrepreneurial skills, in other words, what they lack is capital. These skills can be encouraged, enabled and harnessed through the creation and embedding of a social investment bank (Big Society Capital), the social impact bond (SIB), and a social investment market. SIBs, then, aren’t really ‘ordinary’ bonds: they are more like a structured product, a financial asset in which cash flows are dependent upon an underlying index or 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. It was structured so that bondholders would receive a return on their investment if reoffending rates fell by 10% or more. The Peterborough SIB was successful to the extent that all the issued bonds were purchased, thus making the £5 million scheme viable. At the end of the scheme’s first phase, however, reoffending rates had fallen by only 8.4%, short of the targeted rate of reduction, so pay-outs were not made. A second phase will proceed in 2016, granting investors another opportunity to get their money back, while the originally planned third phase has been cancelled by the Ministry of Justice. (See, e.g., reports here and here.)

Despite such setbacks, Big Society Capital, Social Finance, Bridges Ventures, as well as a variety of so-called Social Investment Financial Intermediaries (SIFIs) continue to launch innovative social investment instruments. The British government, for its part, remains supportive. The Department for Work and Pensions, for example, has launched ten SIBs through its ‘Innovation Fund’, mostly designed to support youth employability projects, focusing on so-called NEETs. Elsewhere, Goldman Sachs has established some social investment departments while Forbes magazine has recently declared: ‘social impact bonds are going mainstream’.

Where does the appeal of such instruments lie, given the failure of the Peterborough project to address its primary goal? In the above-mentioned paper we analyse the three crises which social investment’s advocates seek to address:

  1. The crisis of social reproduction: social investment will ‘unleash up to $1 trillion of new investment to tackle social problems more innovatively and effectively’.
  2. The fiscal crisis of the state: during times of austerity there is political appeal in getting private investors to finance projects formerly funded by the public purse.
  3. The crisis of capital accumulation: capitalism needs new drivers of growth and sources of profitability, the yet to be commodified social sphere becomes understood as a possible avenue.

The Social Costs of Finance

Social investment promises — or rather threatens — more than the mere unleashing of private wealth for social good, however. This is not just a situation within which community and household activities become productive parts of the economy. It is also a situation where a social investment market is created, the consequence of which is that financial-market discipline will be imposed on such activities. While capital is unleashed, that is to say, the social will be harnessed, with potentially devastating consequences.

‘Market discipline and punish’ (Peterborough prison). Photo Credit:

‘Market discipline and punish’ (Peterborough prison).
Photo Credit:

What I have in mind here are the processes outlined by the late Randy Martin’s ‘financialisation of daily life’, and by Dick Bryan and Michael Rafferty’s, Capitalism with Derivatives. For such critics, financial markets, including ‘derivatives’, are to be understood as processes which measure the production of value and the rate of accumulation. Finance, they argue, enables all the different ‘bits’ of capital to be measured, compared, and priced. This creates an imperative for each ‘bit’ of capital, including workers and community members, to achieve a competitive rate of return. Financial investors, speculators — call them what you will — do not care whether they trade in cocoa futures, the Argentinian peso or some index linked to the FTSE100. What they seek is the greatest rate of return with the lowest level of risk. In this sense, qualitatively divergent bits of the economy and society are rendered quantitatively comparable: FTSE100 workers are pitted against international currency flows and agricultural conditions, for the potential gain of the financier.

Social investment means much more than ‘doing well by doing good’, therefore. 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. So probation workers, along with their ex-prisoner ‘clients’, in Peterborough, UK, will — if the social investment market develops — be required to compete with probation workers in Liverpool, the waged workers and unwaged volunteers running a youth employment skills project in East London, the workers employed by FTSE100 companies, Argentinian citizens, global agricultural labourers, and so on, as well as each other. It almost makes you pine for the Big Society.




*An earlier version of this post was first published on the Progress in Political Economy blog, on 7 January 2015.

Originally published at

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