Recapitalise the poor rather than just the banks

It's about "recapitalising the poor rather than just the banks". said David Cameron at Davos in 2009.

As we'd demonstrated in Russia, recapitalisng the poor meant giving those who need it most access to funding. The Tomsk community bank introduced collateral free lending and was self-sustaining in the second year.   .

It's now 8 years since I brought up the issue of funding for social enterprise with the former chair of the Social Enterprise Coalition in a letter to the House of Lords which was never replied to:  .   

3rd February 2005

Baroness Glenys Thornton

House of Lords

London SW1A OPW

Dear Baroness Thornton,

I write having entered into discussion with Jerr Boschee who responded with some advice regarding the difficulties I have encountered in attempting to promote a Social Enterprise initiative within the UK. He mentioned your name as a possible contact.

Over the past year, together with Terry Hallman, an American pioneer in this field, I have been working on a business plan aimed at tackling poverty overseas. Terry was instrumental in promoting the idea of Social Capitalism to the Clinton administration and went on to source a successful microfinance project in Tomsk, Siberia. He followed this with a similar project for the repatriated Tatar Community in Crimea which is currently deemed to be ‘on hold’ by US Aid sources.

The plan, in essence, is to deploy technology which will compete in the for-profit world. It will direct 100% of surplus revenue to fund microfinance initiatives to empower the poor, relieve the plight of orphaned children and promote democracy by bridging the information divide. It will also sponsor a legal framework for Social Enterprise in this emerging democracy.

Our original project was to be based in the United Kingdom. This proved impossible for reasons I will describe below. We are now active in Ukraine, where we aim to deploy this effort directly and have been approaching government sources both here and in the US for seed funding. Currently we have stimulated interest from only one source - Eric Boyle president of the Eurasia foundation in Kiev is now actively involved in promoting our efforts to the US government.

Our primary problem in the UK initiative was that Terry Hallman, invited by me as a having carefully verified the legitimacy of his being in the UK to prepare a humanitarian relief plan unwaged, was subsequently refused entry to the UK, ironically on the grounds of his own poverty and in spite of my declaration of support.

We proceeded with our aims, with him then working overseas only to run into a brick wall regarding seed funding. Having originally made the decision that representing ourselves as a Social Enterprise rather than a charity was an important definition, People-Centered Economic development was incorporated as a UK company limited by guarantee. We were in fact advised on this by the then Chairman of ICOF who subsequently turned down our application for loan funding without comment on the proposal.

The difficulty is this: Funding sources serve 3 general categories of organisation – a) The bona-fide cooperative, b) the charitable sector and c) Venture capitalists anticipating some share of profit. Our conclusion therefore is that what we see as Social Enterprise cannot attract seed funding without accepting one of the above operational paradigms.

This brings me on to government commitment as promoted in the publication: ‘Social Enterprise - a Strategy for Success’ I regret that this is not present in my experience. It is not so much a case of having a vision that others do not see, more one which other refuse to look at.

Having approached many organs of government with out aims in the last few months, the response has ranged from indifference to open hostility. This includes the Social Enterprise Unit, The APPG on Ukraine, APPG on Microfinance, DfID in Ukraine and not least my own MP Tom Cox who serves as secretary on the APPG for Ukraine.

The unfortunate consequence is that a UK designed Social Enterprise initiative; following stated government objectives and having a side benefit which promotes UK manufactured technology has its only champion in a US funded NGO. To date as a UK taxpayer, I have funded this initiative solely from my own resources.

I regret that in all this, the greatest effort is now deployed not in convincing others of the social benefit, sustainability and scalability of our project as persuading our own government to stand by its stated convictions.

I welcome your comments and particularly any advice you may wish to offer in helping our effort progress.

Yours sincerely,

Jeff Mowatt

People-Centered Economic Development

With hindsight, I now realise that we were just months away from the announcement of the Community Interest Company. Yet when the CIC became reality, it failed to offer any ideas on how such a model could be propagated by investment. Today, we are not alone in seeing lack of investment as the problem.

Writing of pre-distribution and living wages, I describe the funding mechanism set out in the proposal offered to government and the social enterprise community the year before.

The  social invstment mechanism we proposed was a business model where at least 50% of profit was placed in community development trust funds with the remainder retained by the business. In this way the business and independent investors would have been eligible for Community Development Tax Relief (CDTI) making seed funding available for new social enterprises in the local community.   It made a key points about the need for government support:

"Traditional capitalism is an insufficient economic model allowing monetary outcomes as the bottom line with little regard to social needs. Bottom line must be taken one step further by at least some companies, past profit, to people. How profits are used is equally as important as creation of profits. Where profits can be brought to bear by willing individuals and companies to social benefit, so much the better. Moreover, this activity must be recognized and supported at government policy level as a badly needed, essential, and entirely legitimate enterprise activity.”

We joined the SEC in 2006. inttoducing our work to be told it was outside their current focus.

The CIC model introduced by government made no provision for investment  and many criticisms were made of this oversight, John Mulkerrin of the CIC Association wrote 'No More Scraps' criticising government failure to invest in development infrastructure.

Speaking at Davos in 2009, of a "capitalism with a conscience" and "a recapitalisation of the poor", David Cameron said:   . 

"If markets, and capitalism, and the activities of individual businesses conflict with our vision of the good society and a better life, if damage is being done to our environment, or if family life is being undermined, we must not sit there and take it. We must speak out."

There is of course something of a distance betwwen activism and political rhetoric and in 2010, the day he became Prime Minister  I took the opportunity to speak out again, with a petition introducing the practitioners of 'conscious capitalism' and our focus on family life overseas 

With our own plan to recapitalise the poor in 2004, we'd made a warning:

"While the vast majority of people in poverty suffer quietly and with little protest, it is not safe to assume that everyone will react the same way. When in defence of family and friends, it is completely predictable that it should be only a matter of time until uprisings become sufficient to imperil an entire nation or region of the world. People with nothing have nothing to lose. Poverty was therefore deemed not only a moral catastrophe but also a time bomb waiting to explode."

In 2011, widespread rioting was seen on the streets of Britain and the talking heads asked what could be done.   Many pointed to inequality, something drawn to the attention of US Presisdent Bill Clinton in 1996, who was first to be pitched with the concept of business for social benefit:

'It is only when wealth begins to concentrate in the hands of a relative few at the expense of billions of others who are denied even a small share of finite wealth that trouble starts and physical, human suffering begins. It does not have to be this way. Massive greed and consequent massive human misery and suffering do not have to be accepted as a givens, unavoidable, intractable, irresolvable. Just changing the way business is done, if only by a few companies, can change the flow of wealth, ease and eliminate poverty, and leave us all with something better to worry about. Basic human needs such as food and shelter are fundamental human rights; there are more than enough resources available to go around--if we can just figure out how to share. It cannot be "Me first, mine first"; rather, "Me, too" is more the order of the day.' 

Finally in 2012 Big Society Capital was launched, but it was far from the expectations of many grass roots social enterprises, who soon discovered that funds would only be available through financial intermediaries.

We now have an impasse with would be social investors who can't find projects able to deliver a return on investment and social enterprises which flounder for want of investment.   Now there's a Social Stock Exchange, but even that excludes those who need investment most.

Adrian Henriques raises an interesting question about purpose:

"A second, much harder question, is how far the creation of social impact has to be part of the purpose of the company. Must the company intend to produce a positive social impact – or will the fact of delivering it be enough?"

Speaking as ne who introduced the concept of a "profit for purpose" model to the UK, I offer this answer from an article written in 2008, which recognises that most business has a positive social impact, going on to say:

'The term “social enterprise” in the various but similar forms in which it is being used today — 2008 — refers to enterprises created specifically to help those people that traditional capitalism and for profit enterprise don’t address for the simple reason that poor or insufficiently affluent people haven’t enough money to be of concern or interest. Put another way, social enterprise aims specifically to help and assist people who fall through the cracks. Allowing that some people do not matter, as things are turning out, allows that other people do not matter and those cracks are widening to swallow up more and more people. Social enterprise is the first concerted effort in the Information Age to at least attempt to rectify that problem, if only because letting it get worse and worse threatens more and more of us. Growing numbers of people are coming to understand that “them” might equal “me.” Call it compassion, or call it enlightened and increasingly impassioned self-interest. Either way, we are all in this together, and we will each have to decide for ourselves what it means to ignore someone to death, or not.'

We are all in this together echoed David Cameron in August 2011. Perhaps it may escape the notice of some, but those who government have determined to disregard, those who fall through the cracks through being disabled and disenfranchised, are on the brink of an uprising that will put them out of office.   

.As he spoke, the man who'd put his life on the line to "recapitalise the poor " was within hours of death speaking only of those disabled unlucky children he'd tried to place in loving family homes. The man from whom David Cameron borrowed so much thinking to turn into actionless political rhetoric.

Never had Kipling been more relevant:

"If you can bear to hear the truth you've spoken
Twisted by knaves to make a trap for fools,
Or watch the things you gave your life to, broken,
And stoop and build 'em up with worn-out tools"