By: Martin Pharand
The 2013 Conference on Responsible Investing is taking place in Vancouver, and all the promotional material has got me thinking… Ever since I wrote my first blog for 1837, about social impact bonds and their potential to bridge the gap between the public and private sectors; I’ve asked myself, why is it that we will do anything to see government virtually disappear?
I do believe that the potential for social finance and the social sector to create positive change is undeniable. I think it is a lovely thing, to reduce the size of government and replace that void with socially conscious and entrepreneurial organizations dedicated to creating public value in a fiscally sustainable way.
I imagine that the ultimate vision shared by these organizations goes something like this. A market of social financial products (like funds or bonds) is created, as well as a consistent and legitimate meeting place for the, mostly private, owners of capital and those with a social conscience to connect, make money, but also make a difference.
But as a whole, what does social finance do but move cash flow out of reach of government? This social financial market still needs to be regulated, and the allocation of social impact investment still needs to be accounted for (i.e all private capital cannot be concentrated on the same cause and leave other social issues in the dust). Still the allure remains for many because, what social finance is asking of the private sector is to fund and profit from social programs because government can no longer do so, at a loss or to break even.
If we set aside the moral implications of profiting from the solutions to social problems, consider the FIRST recommendation by the Canadian Task Force on Social Finance.
“To maximize their impact in fulfilling their mission, Canada’s public and private foundations should invest at least 10% of their capital in mission-related investments (MRI) by 2020 and report annually to the public on their activity.”
So what we are asking of some public and private institutions, since financial resources are drifting away from central governments and into private hands, is that a defined amount of income be set aside to address social issues. What is this, more than an unenforced tax? Are we so out of touch with the collective good that we need to reduce taxes to a donation? Or is this whole thing simply a telling indicator of the level of inefficiency in government?
Regardless of your answer, the sequence of events that I foresee unfolding is troubling, or at minimum, incredibly intriguing. I suspect that if a social financial market and a meeting house for lenders and social enterprises is created, it will be preceded first and foremost, by a more profitable equivalent. By that I mean IF social finance is going to take off, venture capital will take off first. This is because the type of risk social finance is asking investors to incur is the same as that required to make investments in start-ups that actually seek to make a profit, whereas solving social problems does/should not.
Letting this hypothetical situation unfold, it is foreseeable that social finance could materialise. But by this point, government will have been transformed to an enforcer of rules, and nothing more. And when a state’s government is nothing more than a guarantor of rules, I think that state has hit its lowest form of statehood, one with the highest potential for being subject to any form of dictatorship, or collapse into anarchy.
So, I will finish this blog similarly to my first one. If you are interested in the future of government in Canada, consider social finance. Consider the potential implications this might have and the number of variables at play. Consider the changes that may take place in parliament, demographically, the Canadian economy, and more. But consider most of all the impending reality of social finance in Canada, and let us know what you think on Facebook or in the comments below.