A Social Enterprise Investment Fund

Aside from Senscot, few in the world of social enterprise would be aware of an article written in 2009 by Patrick O'Heffernan who'd been a regular contributor to Skoll Social Edge where Profit for a Purpose was discussed openly a decade ago.

Of presidential candidate Barack Obama, he wrote:

"The second thing I’ll do is invest in ideas that can help us meet our common challenges, because more often than not the next great social innovation won’t be generated by the government.”

With these words, candidate Obama promised to create a Social Entrepreneurship Agency within the Corporation for National and Community Service. He proposed $3.5 billion a year for social investment, paid for by ending the war in Iraq and eliminating corporate tax loopholes.

 The idea is still conceptual, but it was accompanied by words that indicate that President-elect Obama – a former community organizer - understands the importance of the NPO sector and the role of social entrepreneurs in the economy".

In February 2008, Obama was a member of the Senate Foreign Relations Committee, to whom we directed our call for support in Ukraine.  We introduced them to a 'Marshall Plan' proposal which said:

"It is proposed that the United States of America be actively engaged in supporting this project, financially and any other way possible. Ukraine has clearly demonstrated common will for democracy. Ukraine has also unilaterally taken the first critical step to fulfill this program, thus clearly demonstrating initiative and commitment to participation required in the original Marshall Plan sixty years ago. The US side is presumably attempting to foster democracy in another country, which never expressed much interest and shows little real interest now. That of course is Iraq, where recent estimates indicate a cost of $1.5 billion per week.

That same amount of money, spread over five years instead of one week, would more than cover the investment cost of the initial components of this project, and allow a reserve fund for creating new projects as Ukraine’s intelligentsia invents them in the Center for Social Enterprise. It is proposed that Ukraine and the US provide equal portions of this amount. Ukraine is certainly able to provide that level of funding, given that projects are designed with the same fiscal discipline employed in the traditional business sector. That means they pay for themselves, one way or another.

Project funding should be placed as a social-benefit fund under oversight of an independent board of directors, particularly including representatives from grassroots level Ukraine citizens action groups, networks, and human rights leaders.

Any number of other social enterprises can be created. Furthermore, any number of existing for-profit enterprises are entirely free to contribute any percentage of profits they wish to increase the proposed initial $1.5 billion social investment fund. If for example the total fund comes to $3 billion, that amount would generate at least $300 million per year in a hryvnia deposit accounts at any one of several major Ukrainian banks, to provide ongoing funding to continue to create and expand social enterprises.

This strategy places adequate funding for social benefit under control and management independent of government and the very obvious vicissitudes and conflicts inherent therein.

This is a long-term permanently sustainable program, the basis for "people-centered" economic development. Core focus is always on people and their needs, with neediest people having first priority – as contrasted with the eternal chase for financial profit and numbers where people, social benefit, and human well-being are often and routinely overlooked or ignored altogether. This is in keeping with the fundamental objectives of Marshall Plan: policy aimed at hunger, poverty, desperation and chaos. This is a bottom-up approach, starting with Ukraine's poorest and most desperate citizens, rather than a "top-down" approach that might not ever benefit them. They cannot wait, particularly children. Impedance by anyone or any group of people constitutes precisely what the original Marshall Plan was dedicated to opposing. Those who suffer most, and those in greatest need, must be helped first -- not secondarily, along the way or by the way. "

The "Genesis" letter also called for their support in an anti-corruption network and new investment vehicles.

"There is increasing congruence and synchronicity in play now, to the point of attunement. What Ms. Fore is describing has been central to P-CED’s main message, advocacy and activity for a decade. That, and helping establish an alternative form of capitalism, where profits and/or aid money are put to use in investment vehicles with the singular purpose of helping the world’s poorest and most vulnerable people. The paper on which that is based is in Clinton’s library, dated September 16, 1996, author yours’ truly. That is reflected in P-CED’s home page and history section. In fact, you might notice a number of ideas and writings there that have now made their way into the mainstream of economics and aid thinking, how to make business and aid work smarter and more effectively in relieving poverty and the misery and risks that result. Bill Gates – as hard-edged a capitalist as has ever existed – reiterated the same things in Wall Street Journal a couple of weeks ago (ref below.) It sounds as though Ms. Fore’s remarks very much reflect this sort of thinking. Now it’s time to move forward and get it done."

Soon after we delivered the first of our presentation papers to the international Economics for Ecology conference, concluding

"At this point, the simple fact is that regarding economic theory, no one knows what to do next.  Possibly this has escaped immediate attention in Ukraine, but, economists in the US as of the end of 2008 openly confessed that they do not know what to do.  So, we invented three trillion dollars, lent it to ourselves, and are trying to salvage a broken system so far by reestablishing the broken system with imaginary money.

Now there are, honestly, no answers.  It is all just guesswork, and not more than that.  What is not guesswork is that the broken – again – capitalist system, be it traditional economics theories in the West or hybrid communism/capitalism in China, is sitting in a world where the existence of human beings is at grave risk, and it's no longer alarmist to say so.

The question at hand is what to do next, and how to do it.  We all get to invent whatever new economics system that comes next, because we must."

The following year presented the opportunity to petition newly elected Prime Minister David Cameron who like many others had been making noises about a more benevolent capitalism. I described our primary focus, transitioning children from institutions to loving family homes:  

In recent news we've learned of the Obama administration's aims. That "development will be "elevated as a central pillar of national security strategy, equal to defence and diplomacy".

May we suggest that UK government takes a similar stance, beginning with support in this instance for "those who suffer most, and those in greatest need, who must be helped first -- not secondarily, along the way or by the way".

 

On  the death of P-CEDs founder, local civic activists shared an extract from the Genesis letter. 

 

In 2003, our work in Crimea prior to establishing as a social enterprise in the UK called for a social investment approach to tackle terrorism. it described the model of a Community Funding Enterprise, a business which renders its profit for social benefit and how it could collaborate with a microfinance organisation to deliver more affordable financial terms.

 

"By combining a community-funding enterprise (CFE) with a micro-credit union, the limitations inherent in each one is greatly diminished. The CFE provides sufficient funding to ensure the operating costs of the credit union, reducing the risk that the credit union will have any need to use its capital to sustain itself. The credit union immediately makes available sufficient loan money to match the needs of the community, thereby eliminating the time needed for the CFE to generate the same amounts of money. Additionally, CFE profits over and above what is needed to help with the operating costs of the credit union can be put directly into the credit union. Over time, the amount of money used to originally fund the creation of the CFE is offset by CFE contributions to the credit union. The credit union is increased so that larger amounts of money become available either to make larger loans or to service more borrowers. Together, the CFE and credit union create an enterprise where the original funding not only remains but also increases with time. They complement and balance each other by addressing the economic goals both have in common and offsetting each other’s limitations."

 

This was the approach we proposed in 2004 with a business plan to address poverty in the UK which we distributed to the social enterprise community.

” Fifty percent of annual surplus will remain in each local community where income is derived, by way of deposit into a local community development bank serving that location. In that locales are part of EU and therefore subject to well-developed rule of law, corruption issues should not present insurmountable barriers such as in Crimea.

Fifty percent of surplus will be retained by P-CED for growth and expansion. Along the way, all employees of P-CED are to be paid at minimum a wage sufficient to guarantee a decent standard of living in accordance with the International Covenant of Economic, Social and Cultural Rights."

"Each community will then have its own Community Benefit Society (Industrial and Provident Society for the benefit of the community), such as P-CED Southwest Regional CBS, P-CED Midlands Regional CBS, and so on. P-CED will create each CBS as a UK legal entity under provisions of UK law. As the number of cells in each region increases and each regional CBS consequently becomes more complex, P-CED will utilize a portion of its 50% share of surplus to fund small offices for each regional CBS."

To my knowledge, no social enterprise investment fund created since has ever applied the principle of civic oversight, having turned over responsibility to intermediaries.

Today the blended approach to social enterprise investment is being offered by the Access Foundation 

Imagine the sufferng that could have been avoided if social enterprise had been open to new ideas. Whether these were shut out due simply to lack of understanding isn't clear. To the major support organisation for social enterprise, our work had been beyond their current focus, we were told, while a letter to the chair of the APPG on social enterprise simply didn't get answered.

Interestingly Senscot, who I mentioned earlier, have adhered to the non dividend distributing business model we introduced in 2004.  The only model to offer a challenge to Friedman's assertion of shareholder primacy. .  

Like ourselves Senscot contacted RISE, the publicly funded organisation which created the social enterprise mark. RISE told us they were too busy to help.

More recently, with substantial EU support, Coops Europe and Fair Trade UK have teamed up to promote people-centred business:  

“Cooperatives and Fair Trade are established development actors with long-term oriented business models. By putting people’s needs first, we have proven to be able to respond to sustainable, economic and social needs.”

Sounds familiar, doesn't it?

This is a long-term permanently sustainable program, the basis for "people-centered" economic development. Core focus is always on people and their needs, with neediest people having first priority – as contrasted with the eternal chase for financial profit and numbers where people, social benefit, and human well-being are often and routinely overlooked or ignored altogether. This is in keeping with the fundamental objectives of Marshall Plan: policy aimed at hunger, poverty, desperation and chaos. This is a bottom-up approach, starting with Ukraine's poorest and most desperate citizens, rather than a "top-down" approach that might not ever benefit them. They cannot wait, particularly children. Impedance by anyone or any group of people constitutes precisely what the original Marshall Plan was dedicated to opposing. Those who suffer most, and those in greatest need, must be helped first -- not secondarily, along the way or by the way. "

It  might have something to do with introducing our people-centered business to the EU for their 2008 Citizens Consultation.