A Clearly Social Economy

As ever, when I come to Whitehall, I arrived armed with a lengthy list of criticisms, cautions and more generalised caustic comments.  I left deflated, my blogging career put seriously in jeopardy by a minister who seems to say sensible, practical and thoughtful things.  I may live to regret these words, but I am seriously encouraged that the BS Bank (sorry, I could not resist) will be facilitative, non-disruptive and a decent use of the money coming from unclaimed assets.

Shockingly Hurd speculated it may not even be a bank (‘it’s just a name’), and could even be designed to come to an end once its purpose (helping to accelerate the development of the social investment marketplace) had been served.  A strange new language from a minister!  What is important here and why am I optimistic?

The most critical thing is that the funds coming into the BS Bank should be used to accelerate the sector’s growth.  If a powerful new force were to be created, supported by £60-100 million of funding each year for the foreseeable future, it would slow rather than accelerate the sector by undermining the efforts of the many nascent intermediaries trying to eke out a living in this area as we assist social businesses and enterprises and work to facilitate social investment.

We would spend our time trying to curry favour with the BSB in light of its resources and importance.  A large monolith would also discourage the entry of new players.  Hurd repeated, precisely the correct number of times (too many times and you can be sure ministers will do the opposite of what they say), that the BSB will be working with and supporting intermediaries already in the sector.  Unsurprising stuff, one imagines, in a room full of intermediaries, but it did sound credible to me.

My fear that the BSB would be driven by government chums (a concern which seemed very realistic under the previous government’s ‘Social Investment Wholesale Bank’ proposals) was allayed.  “It will not work if it is seen as a government bank”, Hurd said.  Only time will tell – the independence of the board and governance model will be critical here.

Wei made it clear that empowering communities would be a key feature of the activities of the BSB and, though disappointing to some, this seemed a perfectly appropriate intervention.  These guys were elected and it is for them to choose how and where to encourage social investment.  £60 million may be a considerable sum of money by this sector’s standards, but to be effective it should be focused.  In a democracy it is fine for the elected officials to assert, and then be judged upon, these priorities.  I have no doubt that social enterprise and investment can be one important tool in how these priorities can be made manifest.

What must the BSB not do?

Attract private capital to enlarge upon its £60-100 million.  This would make no sense.  It is perfectly fine to bring in private capital on a deal-by-deal basis, with the BSB as a cornerstone investor.  But such ‘top-up’ capital would come from somewhere and it would come from potential investors in the very intermediaries Hurd pledged to work with.  That’s our money, mate!  You take what only you are allowed to take from the banks (unclaimed assets) and leave us with the only capital we can try to attract.

Depart from a strictly defined mandate. I have yet to come across a created body which does not ‘drift’. The government must try to avoid this as much as possible.  It will be a challenge.

Engage in two activities which cause obvious conflicts of interest. Combining research and investment or corporate finance and investment are two obvious areas.  The BSB should instead be encouraged to be active in areas where there is unlikely to be commercial interest because, although necessary, it may not be profitable for years – like market-making.  Once profitable, perhaps these activities could be shed?

Be encouraged to become an advocate.  Advocates have points of view, and as the likely largest funder in the sector for years to come, its views will be regularly praised by those seeking funding.  An advocacy role for the BSB would distort the marketplace of ideas.  “Any idiot with a large cheque book is a genius”.

I may be proved wrong.  Hopefully I am not stupid, although possibly I am naïve; most of us involved in this sector are unduly optimistic by nature.  However I was genuinely encouraged and am prepared to give Hurd and Wei the benefit of the doubt.  We live in hope!

It is also true that the merger creates an entity with a useful degree of scale. Although Investing for Good (I4G) had been progressing nobly in the sector, providing useful information and metrics on social and ethical investments to the sophisticated market, primarily via private banks, IFAs and other advisors, I feared for their ability to sustain their activities until the market saw their notable value. Being part of a much bigger entity gives their efforts needed stability and the two I4G principals a platform and stable earnings–the latter a rarity in the world of social entrepreneurship!

For Charity Bank, the merger with I4G adds some interesting products and capabilities, but also answers vital questions about succession. For years the bank had been synonymous with Malcolm Hayday, who built the institution into a serious player. Many do not realise the extent of their commendable portfolio of loans. With Geoff and Caroline both joining the senior ranks, the combined organisation is more likely than ever to thrive and play a substantial role in third sector finance.

Yet as I said above, the key was the ability of both parties to “keep their eyes on the prize” and accept that they could do more together than separately. This is so rare in the social business, enterprise and investment world that merely the reality of the combination is news in itself. Frequently insurmountable egos block sensible actions. It reminds me also of proposed mergers in the charity sector of which I am aware but were not consummated for the wrong reasons. Perhaps the absence of a sufficient profit imperative undermines the incentive for effective business combinations? We at ClearlySo have been exploring cooperation efforts on our own, thus far with mixed success. If we all follow the lead of I4G, Charity Bank and their leaders, I think we will all be better off!

Rodney Schwartz

Whether or not one shares the assessment of our predicament (and for the record, I do) we cannot ignore it. To pretend that the crisis does not exist is irresponsible. During the election, sensible commentators rightly criticised the reluctance of the major parties to explain their plans to rectify the situation. However it is possible to argue that the social sector has at times been guilty of the same oversight.

When I review the recent comments of social investment practitioners their main pre-occupation appears to be how we can secure benefits for ourselves and the sector.

I attended a meeting last week hosted by the Centre for the Study of Financial Innovation (CSFI) to launch a report co-sponsored by NeSTA. The study was an excellent catalogue of fiscal incentives available to the sector as well as some thoughts regarding future policy. Much of the conversation at the roundtable, and in the sector generally recently, has been about the size of subsidy needed (larger) and the various shapes it should take. I am not convinced by the argument in favour of shouting for our share of dwindling government resources. To me, this approach is seriously flawed for several reasons.

First there is little firm evidence that any of the many incentives previously allocated to this sector have done much good. The recent report by the Social Investment Task Force (SITF) laid out progress since it was set up in the early years of the Labour government. Causality is always difficult to determine, but the report’s claims in this regard are appropriately modest. Although much has happened since then, we are left with the unavoidable observation that this was merely contemporaneous with government tax incentives, rather than as a result.

In those areas in which the government has demonstrated particular generosity – Community Investment Tax Relief for example – its take-up has been noticeably disappointing. This is partly due to the unnecessary complexity and restrictions of the scheme, but there are other factors also. In fact, most of the exciting activity in social investment has happened in the unsubsidised market.

I find this all not dissimilar to the venture capital arena where tax credits have failed miserably to create an ‘enterprise culture’ in the UK. In fact, generous treatment for VCTs has only served to depress already pathetic UK venture capital returns. Instead of resulting in progress, these subsidies have probably hampered the sector’s growth by artificially increasing the supply of funding for deals.

Second, I find the structure of the incentives to be far too complex. The excellent report mentioned earlier, which was co-authored by Vince Heaney and Katie Hill, made this very clear. Indeed the cover of the report, somewhat appropriately, is a maze. When structures are this Byzantine they are hard to effectively exploit. They must also be costly to administer, so we need to add this cost to the actual government subsidy or grant.

The third and final reason to be opposed is the current environment. We exist as a sector on the premise that social objectives matter, and are at least as important as financial or corporate goals. Our mantra is that of the ‘triple bottom line’, or ‘people, planet and profit’ – society should be of at least equal importance to our personal and corporate interests. At a time when across the country people are under serious funding pressure, it is callous, if not unseemly, to be lobbying for more.

Our sector has received extraordinary governmental largesse over the past decade. Even a curmudgeonly commentator like me can grant that it may have done some good – certainly it has helped to galvanise the UK’s leading position in this area. However, private sector money has begun to come in increasing amounts — with interest accelerating.

At ClearlySo we have been regularly approached by investors looking for access to our social business and enterprise members. Nevertheless, hundreds of millions more are promised via the Big Society Bank or the Green Investment Bank by this Tory/Lib-Dem coalition. In such an environment it strikes me that the socially positive and responsible action could be to explicitly make it clear we want no more cash; freeing resources up to be spent on those in desperate need. Perhaps we should even consider asking the government to use the money from unclaimed assets to pay down the national debt as a gesture, instead of creating these new entities?

Until we demonstrate that we are truly different from the rest, we can hardly claim to be.

Rodney Schwartz

From the perspective of social enterprise our sector has been looking for a few things: firstly, more details on the government’s commitment to a green economy and secondly, details about the Big Society Bank and the role of social businesses.

In both respects the news has left some people feeling underwhelmed. The Guardian reported on green groups’ complaints that green issues had been sidelined, while the Ecologist pointed out that no firm decision had been made on aviation tax. Social Enterprise Magazine, meanwhile, commented that despite a rash of publicity in recent weeks, the Big Society Investment Bank was not mentioned once.

You can understand their disappointment. The coalition has been highly vocal about its intention to become the ‘greenest government ever’. They can be forgiven for feeling a little underwhelmed.

Of those commitments that were made, the most ambitious were the Green Investment Bank and an intention to raise the standard rate of landfill tax over the next few years.

The bank has generated some favourable press, but there have to be concerns about the potentially distortive impact capital from a green investment bank might have upon the sector. As we have already blogged, any cash has to be backed up by genuinely attractive investment opportunities. If not it will sit unused or worse be funnelled into poor assets. There is already plenty of activity taking place in the private sector and a government led bank has the potential to displace activity that is already being under taken.

Much more encouraging are the details on raising the standard rate of landfill tax. This will rise by £8 per tonne until 2014. By then it will have reached £80 per tonne. The government promises it will not fall below that rate.

This harkens back to the idea of what we at ClearlySo term as fiscal tilting. It’s a popular theory that the heaviest polluters should pay the price of their waste. By increasing tax on those companies that inflict the greatest damage on the environment the government can help promote a much more sustainable ethos across the business landscape.

Other measures such as the aviation tax remain a possibility. They may come into force in due course, but for now the government is keeping its powder dry.

In general the rhetoric of this government has been promising. Although the omission of the Big Society Bank raises a number of questions, the government has been extremely active in this sector since taking office. It was quick to consult leaders in the social enterprise community and was equally swift to establish a target date for the Big Society Bank to open its doors.

Nevertheless it is a little puzzling that the two greenest aspects of this budget are measures previously set out by Labour in March. Their track record on the environment was hardly spectacular and some will argue this government risks travelling down the same path.

However, we must remember the nature of this emergency budget. The government is keen to be seen to be acting swiftly to take action on the deficit and that is indeed what it has done. All the headlines today have focused on one thing – the rise in VAT. The Metro displayed the message ‘Mr 20%’ above a picture of Osborne looking suitably austere. If things work out badly that could be a nickname he comes to rue.

In such a climate the environment was always likely to take a back seat. Given that it is encouraging to see the government still at least talking a good game on the environment. It has given the go ahead to the green investment bank. It has signalled an intention to put the green economy at the forefront of its thinking.

More detailed proposals will follow later in the year – probably after the autumn spending review. Until then green campaigners may have to be patient. One thing is undeniable. Having been so vocal on this sector during the campaign, the government will be judged by the highest standards possible.

Tom Cropper for Rodney Schwartz

Until recently, BP had been listed on the Dow Jones Sustainability Index, and for many that appears to have been enough. By this definition a company does not have to operate in a particularly ethical or social manner, but just do so to a greater extent than others in the same sector.

However, by that extension, many other companies with little apparent ethical value would also qualify for inclusion. Take, for example, BMW which habitually boasts about its green credentials.

The company argues that its EfficientDynamics technology, that claims to radically improve engine efficiency without harming performance, means it is more than doing its bit. However, can any eco conscious investor place money with one of the largest automotive giants in the world? It depends on how you view it.

Do you take the ‘dark green’ approach that says, as a manufacturer of polluting gas guzzlers, it should automatically be disqualified, or do you take a ‘lighter green’ view point? BMW manufactures cars, yes, but at least displays more commitment to the environment than its direct competitors.

The oil spill of course saw BP summarily removed from the Dow Jones sustainability index, but you have to ask: did it deserve to be there in the first place? This is not the first time the oil giant has run into trouble. Back in 2007, problems at its Texas oil refinery and an oil spill in Alaska saw it fined $62million.

Clearly, many people in the market have an extremely loose idea of what ethical means. However, just as there is flexibility at the bottom end of the scale, so there is considerable room for growth near the top.

The troubles of BP seem to have sparked further growth in ethical investments over the past month. Perhaps it’s just coincidence, or perhaps the spectacle of another multinational fulfilling the role of the big bad corporate monster has pushed more people in the direction of sustainable and ethical investments.

The more participants come into the sector the more it evolves. Ethical can mean so much more than just negative screening. It is not just enough to avoid certain activities, now it needs to provide a genuine positive impact. As such we’re seeing an increase in socially responsible funds which support good causes.

At both ends of the spectrum, therefore, the scope of what we mean by ethical investment is growing.

That has considerable implications for anyone interested in ethical financial instruments. It is not enough just to blindly choose a product labeled ethical. The term is so wide that it can mean just about anything.

Equally, with interest so high there is a danger of a gold rush into the social arena, distorting the entire nature of the sector.  As its popularity continues to grow, it will become increasingly difficult to pin down exactly what it is we mean by ethical.

Tom Cropper, for Rodney Schwartz

There are six development awards worth £15,000 and 13 catalyst awards worth as much as £2,200. It’s an impressive scheme without doubt and shows the commitment of the drinks company to be seen as contributing to the social good.

They are not alone – in fact you don’t have to look far for similar examples. Vodafone is launching its ‘donate yourself’ campaign encouraging people to work for a charity for two months and be paid in return. Waitrose, meanwhile are heavily promoting their Waitrose foundation which helps food producers who grow the supermarket’s produce in South Africa, Ghana and Kenya.

Major corporations are eager to be seen as actively working on schemes for the general social good. This may all be simply a trend in marketing – gone as soon as it arrived – but it may also be part of wider change in the way we do business. In short it prompts the question: are we on the verge of establishing an ethical society?

Of course ethical consumerism is nothing new. Companies have often worked hard to promote the ethical or sustainable benefits of their products. However, this is something new. It is more involved, more engaged, promoting an environment in which business actively combines its search for profits with social benefit.
In the wake of the financial crisis there is a sense that we have to change the way we do business. In all walks of life there seems to be a desire to reshape business in a way that is not only more ethical, but more sustainable. Never before has the country as a whole been more receptive to the ethos of social enterprise.

Consumers are becoming more socially and ethically aware. In survey after survey respondents say they are looking to buy in a more ethical manner. Despite the recession they say they are willing to pay more for products that have good ethical credentials.

Of course surveys are all well and good – they make great ready-made news for journalists, but they must also be treated with a degree of caution. It is a problem of intent versus action. Do consumers back up their bold intentions when they start shopping?

The signs are good. Ethical consumerism has survived the economic downturn. The people have spoken. They want products that are ethical and environmentally friendly, and the major manufacturers have responded.

As welcome as this change might be will it really impact the way major corporations do business? Despite all the laudable talk there is a real danger of slipping back into old habits. In other words society may be changing, but has big business kept up?

It reminds me in a sense of the classic Monty Python ‘Merchant Banker’ sketch. In this Terry Jones is trying to convince John Cleese (I forget my name but I am a merchant banker’) of the benefits of giving to charity. He fails and in true Python tradition is sent hurtling through a trap door.

The thing is – despite all the upheaval of the past two years there is a genuine sense that many in the business community expect to return to business as normal, but is that viable? Are they not increasingly out of step with a world which is disillusioned with the old way of doing business?

Previously in this blog we have written about the increasing activity of major corporations in the social sector. Back in March Rodney Schwartz remarked on the number of major businesses sponsoring the Doing Good Doing Well conference in Barcelona.

Such developments offer real hope. The largest corporations have opened up to the idea of social enterprise. With social business showing particular traction amongst the young there is every reason to hope that the next generation of business people will have a very social mentality.

However, it comes back to the old problem of intent versus action. It is all very well for the largest corporations to talk about social enterprise, another thing entirely for it to incorporate its principals into day to day operations. High profile campaigns and programs are great, but in the final analysis, actions will speak louder than words.

In the Financial Times of 14 May it was reported that Lloyd Blankfein, the Chief Executive of Goldman Sachs, is “playing a personal role” in helping to arrange a $125 million rescue operation for Chicago, Illinois-based ShoreBank. Shorebank, an active lender to low-income communities, was reportedly told by US Federal Deposit Insurance Corporation in March that it had only 60 days to raise more capital or face closure. Sounds to me like another “forced marriage” of opposites. My initial disgust in seeing such a PR ploy by Goldman’s beleaguered CEO (due to recent widely-publicised investigations) to raise his profile in doing good work, quickly turned to the more practical issue for the CEOs of social businesses and enterprises. The question is simple, “what guidelines should social entrepreneurs deploy when considering taking cash or investment from organisations whose reputations are tarnished?”

Some practitioners may take the view that for SBEs to have any long term credibility they can never take funding from controversial sources. The question of legality is obvious–but where does one draw the line thereafter? Should SBEs rule out the entire financial industry–quite a rich source of capital? Or what about BP in the aftermath of this spill? The entire energy sector? Are manufacturers of armaments forever off-limits? And what about foundations with links to these sectors? Also, how long does it take to lose a “taint”? Are the Rockefeller, Ford, Nobel and Carnegie Foundations forever to be blemished by the industrial or competitive activities and practices of their benefactors during their lives? If so, our sector needs to do some hard thinking. Some believe that the activities of ShoreBank and organisations like it are so important to the communities they serve that money from pretty much any source must be taken. Can this be right?

Let me suggest a few guidelines, beyond legal restrictions: 1) Mission. 2) Reputation. 3) Amount. 4) Need. Some of these may appear controversial and, as ever, I welcome debate.

It all starts with mission, or the fundamental underlying principles of the SBE. It would seem outrageous to many that a charity or SBE dealing with lung cancer, for example, would receive funding from a tobacco company. It would also seem bizarre if any religiously affiliated organisation to were to secure investment from organisations profiting from activities banned by the religion. Where the core mission of the organisation and the key motivations of essential stakeholder groups are so opposed to the activities of a certain business interest it must be very ill-advised to pursue such funding sources whatever the case.

The second principle is a more commercial one and is based on an an organisation’s judgement about the impact a particular funding source would have from a practical standpoint. What we are describing is a decision based on pragmatic concerns, not issues of principle. Some may take the view that affiliation with certain firms from the food sector could never be acceptable, based on a commercial understanding of the impact it would have on their clients or other stakeholder groups. Such a view would be hard-nosed and similar to the sorts of decisions commercial firms take all the time. Many of our clients at ClearlySo face such challenging questions every day. It also would mean that circumstances could change. Today some may take the practical view that funding from Goldman Sachs is best avoided, but that rule would not have applied yesterday, and may not again after a few tomorrows.

While we are already onto the practical, lets speak of amount. It is absurd to pretend that it is irrelevant. For a few thousand pounds a principle seems vital, but what about several million? Is it really appropriate to pretend that such considerations do not exist. Whatever you, or your stakeholders, might personally think of the competitive behaviour of the Microsoft Corporation, is that really going to be decisive in considering a multi-million dollar funding initiative from the Gates Foundation, which might help millions of poor people in Africa avoid a deadly disease? Should Innocent Drinks have turned down the reported £30million investment from Coca Cola, given what it hopes the investment will achieve? There is a question of balance, and though it may from time to time be a difficult one, successful social entrepreneurs cannot avoid it, and need to work on getting the balance right.

Finally, the question of need. Whatever those who govern Shorebank think of Goldman Sachs, Citibank (also reported to be interested in the rescue package) and the entire US banking industry can it possibly be sensible to let an essential intermediary fail due to these views? What would we think of the Board which put such principles above the needs of its low-income customers who rely on Shorebank, or its staff? According to the information provided, without quick assistance, Shorebank will quite possibly fail, according to the reports. Imminent failure for any SBE clarifies thinking and sharpens minds–and well it should!

This is a tricky business. But the fact that these matters raise uncomfortable questions is no excuse for avoiding them. What do you think?

It is now almost a month since I attended the SHINE10 Unconference. Amid its now famously chaotic setting were a goodly number of inspiring social entrepreneurs. Some spoke at ClearlySo’s Social Sector Speed Dating event which lead into the three-way live pitch which closed the day. However, the most bizarre moment was “Fink” Club, hosted by Liam Black of Wavelength,  where three ‘pugilists’ and I squared off in a sort of social enterprise ‘debate’, structured as a four-way boxing match – all a bit weird and impossible to explain, but perhaps good entertainment.

After enough time the strangeness wore off and I actually began to enjoy myself. Here I was surrounded by the vibrant energy of many good friends and energetic and well-intentioned social entrepreneurs. You would have to have a heart of stone not to get caught up in the enthusiasm. The problem is, this happens every time I go to one of these conferences – even our own! We make each other feel good, create a sense of excitement, imagine a world about to change utterly, and we congratulate ourselves on our cleverness.

The reality is that we are still a microscopic movement, and many of us spend the bulk of our time speaking with each other. No wonder we feel positively! But the 99.99999% of the world outside the conference room has little idea what we are about, what social enterprise and business can do, or what a social investment actually is. They must be the target audience. And while such ‘conferences of the converted’ are a delectable indulgence, they do not get us far. We have to reach out and explain what we do to those who have no idea. Within that number are many who could be interested, or who could get involved, if only they were aware. It is our job to spread that awareness – and we might as well start this weekend.

Talk to just one person this weekend who knows nothing about this whole social business, enterprise and investment thing and try to tell them about it in an interesting way. If it goes badly, you can drop the idea and blame me, but if it goes well try it again the following week, and then the week after until it goes poorly – I suspect it won’t. Anybody who gets a reaction they would like to share, I promise to publish it on this blog site. If we do this we can start to make a real difference.

In the Financial Times of 14 May it was reported that Lloyd Blankfein, the Chief Executive of Goldman Sachs, is “playing a personal role” in helping to arrange a $125 million rescue operation for Chicago, Illinois-based ShoreBank. Shorebank, an active lender to low-income communities, was reportedly told by US Federal Deposit Insurance Corporation in March that it had only 60 days to raise more capital or face closure. Sounds to me like another “forced marriage” of opposites. My initial disgust in seeing such a PR ploy by Goldman’s beleaguered CEO (due to recent widely-publicised investigations) to raise his profile in doing good work, quickly turned to the more practical issue for the CEOs of social businesses and enterprises. The question is simple, “what guidelines should social entrepreneurs deploy when considering taking cash or investment from organisations whose reputations are tarnished?”

Some practitioners may take the view that for SBEs to have any long term credibility they can never take funding from controversial sources. The question of legality is obvious–but where does one draw the line thereafter? Should SBEs rule out the entire financial industry–quite a rich source of capital? Or what about BP in the aftermath of this spill? The entire energy sector? Are manufacturers of armaments forever off-limits? And what about foundations with links to these sectors? Also, how long does it take to lose a “taint”? Are the Rockefeller, Ford, Nobel and Carnegie Foundations forever to be blemished by the industrial or competitive activities and practices of their benefactors during their lives? If so, our sector needs to do some hard thinking. Some believe that the activities of ShoreBank and organisations like it are so important to the communities they serve that money from pretty much any source must be taken. Can this be right?

Let me suggest a few guidelines, beyond legal restrictions: 1) Mission. 2) Reputation. 3) Amount. 4) Need. Some of these may appear controversial and, as ever, I welcome debate.

It all starts with mission, or the fundamental underlying principles of the SBE. It would seem outrageous to many that a charity or SBE dealing with lung cancer, for example, would receive funding from a tobacco company. It would also seem bizarre if any religiously affiliated organisation to were to secure investment from organisations profiting from activities banned by the religion. Where the core mission of the organisation and the key motivations of essential stakeholder groups are so opposed to the activities of a certain business interest it must be very ill-advised to pursue such funding sources whatever the case.

The second principle is a more commercial one and is based on an an organisation’s judgement about the impact a particular funding source would have from a practical standpoint. What we are describing is a decision based on pragmatic concerns, not issues of principle. Some may take the view that affiliation with certain firms from the food sector could never be acceptable, based on a commercial understanding of the impact it would have on their clients or other stakeholder groups. Such a view would be hard-nosed and similar to the sorts of decisions commercial firms take all the time. Many of our clients at ClearlySo face such challenging questions every day. It also would mean that circumstances could change. Today some may take the practical view that funding from Goldman Sachs is best avoided, but that rule would not have applied yesterday, and may not again after a few tomorrows.

While we are already onto the practical, lets speak of amount. It is absurd to pretend that it is irrelevant. For a few thousand pounds a principle seems vital, but what about several million? Is it really appropriate to pretend that such considerations do not exist. Whatever you, or your stakeholders, might personally think of the competitive behaviour of the Microsoft Corporation, is that really going to be decisive in considering a multi-million dollar funding initiative from the Gates Foundation, which might help millions of poor people in Africa avoid a deadly disease? Should Innocent Drinks have turned down the reported £30million investment from Coca Cola, given what it hopes the investment will achieve? There is a question of balance, and though it may from time to time be a difficult one, successful social entrepreneurs cannot avoid it, and need to work on getting the balance right.

Finally, the question of need. Whatever those who govern Shorebank think of Goldman Sachs, Citibank (also reported to be interested in the rescue package) and the entire US banking industry can it possibly be sensible to let an essential intermediary fail due to these views? What would we think of the Board which put such principles above the needs of its low-income customers who rely on Shorebank, or its staff? According to the information provided, without quick assistance, Shorebank will quite possibly fail, according to the reports. Imminent failure for any SBE clarifies thinking and sharpens minds–and well it should!

This is a tricky business. But the fact that these matters raise uncomfortable questions is no excuse for avoiding them. What do you think?

To any long-suffering fan (as I was) this was an umimagineable victory–the Mets just did not know the meaning of the word “winning”. Classic bottom-feeders, like the catfish, they languished in the National League in the perennial shadow of the magnificent NY Yankees, who seemed to own baseball itself. Though I thought that life could never get better, an even greater miracle seemed to take place just a few months later when the NY Knicks, led by the severly injured Willis Reed, somehow triumphed over the seemingly unstoppable LA Lakers and won the basketball championships. For the 12 year old boy from New York, this was like having your country win the world cup, and then the Olympics.

For the next 40 years life has had its ups and downs for me, until yesterday, when I saw the Liberal Democrats enter Government. Having supported the Party for 20 years this was certainly something I hoped for, but would never have predicted. Once again, my faith in “hopeless causes” was restored.

We are facing dark times around the world; with naturally occurring disasters, like volcanoes, and man-made ones, like oil spills, recessions, currency crises and civil unrest. For those of you who imagine things can only get worse and that our faith in the advent of a more social economy will never prove justified all I can say is “have patience, our day is coming”.

A debate ensued regarding whether or not social enterprise would be an electoral issue next year (a UK general election will be held in 2010) and what the policies of the two major political parties would be. Some argued that we were going to see a major change, others thought there was little difference in the likely platforms of the two major parties. I suddenly felt myself feeling a sense of despair. Here we were, as ever, looking to government to see what it would do in order to solve social problems or accelerate the growth of our sector.

In many ways this seems normal. Our leaders are responsible for us, in the same way that parents have a moral duty to look after our interests, so looking to our chosen leaders is as predictable, in a time of crisis, as looking to our parents. Yet I believe it to be very unlikely that our political leaders will lead us out of this crisis; which they contributed heavily to causing. I see them rather as the bad parents in a seriously dysfunctional family. The textbooks say they should love us unreservedly and look after our interests (parents, anyway) but many children are unfortunate enough to be born to couples who are incapable of acting responsibly. They may be self-absorbed to the point of neglect, or in extreme cases abusive, but absolutely cannot be relied upon to make things OK for us. To me this feels an apt description of our political leadership.

On their watch the world is overheating and the financial system has collapsed and yet they seem not only unable to act, but profoundly disinterested. In many ways this is unsurprising. They are entrusted to serve but seem to focus primarily on getting re-elected; and they use our own cash to do so–absolutely outrageous, but a situation we have come largely to accept as “the norm”.

Children of dysfunctional families have the odds stacked against them, but those that do emerge from a bleak and painful childhood, do so by learning how to cope on their own, without a nurturing supportive parent to assist them. This path to self-reliance is not easy, and academic studies regularly reveal the advantages for those children with attentive, nurturing parents. Nevertheless, at some age these children, if they are to succeed, understand that they need to find the strength within themselves; there is no caretaker on whom they can rely.

Our social enterprise sector needs to learn such self-reliance. This is partly because even the “good parents” will find they are less able to help. Mother Hubbard found her “cupboard was bare” and as a result, she could not “get her poor doggie a bone”. Despite her good intentions, that hound would starve unless it fended for itself–hopefully it did so. Not all our leaders share Mother Hubbard’s benevolence, and in such circumstances, self-reliance is essential, despite even the most bountifully supplied cupboard.

Our sector has become heavily reliant on Government, in terms of grants, contracts and general support. This strikes me as dangerous and ill-judged, given both the trends in state finances and my own ideas regarding the nobility of our leaders’ interests and orientations. The sector may be “flavour of the month” nowadays but a shift in a Minister’s mood and we will be headed for rapid decline. Much of the good work will evaporate faster than bank capital over the past 24 months.

We need to diversify revenue streams, broaden our access to different forms of and sources of capital, and generally strengthen ourselves from top to bottom. It may be that I am exaggerating the dysfunctional nature of our leaders, but there is no downside to the courses of action I suggest. Self-reliant children are in no way unable to maintain excellent relationships with supportive parents, but children who find themselves with bad parents will suffer greatly unless they strengthen themselves from within. It is time for our own sector to achieve a greater degree of self-reliance.

What do you think?

Rodney Schwartz

Now ClearlySo is truly the “first global marketplace for social business & enterprise, commerce and investment”, with a non-UK local presence.

Since launching ClearlySo in March, we have received numerous enquiries from parties all over the world expressing interest in working together. These have come to fruition this week, as Julie McDowell, CEO of ClearlySo Canada, will be making the formal announcement at the Third Canadian Conference on Social Enterprise sponsored by the Social Enterprise Council of Canada.

Two questions readers could ask. First, why go global–is the UK not a big enough challenge? Second, why Canada?

Is the UK not big enough?

ClearlySo decided to expand internationally for several reasons. First, one of our objectives is to help social businesses & enterprises (SBEs) to succeed. We make no national distinction, thus it seemed logical to extend our coverage outside the UK and help SBEs elsewhere. SBEs stand a better chance of learning when you increase the breadth and diversity of examples and models they have to learn from and emulate–an international presence broadens the range. We have argued on Social Edge that the Social Enterprise world seems too Anglo-Saxon. While Canada is a first step, and hardly addresses this issue directly, future expansion plans will do so. Thirdly, we grant member SBEs access to capital from investors. Increasing our geographical coverage will mean they will have access to investors from different markets, where regulation allows. Finally, we seek to spread our investment in technology and product and service development over a larger base. This is ultimately in the interest of all stakeholders.

Why Canada?

Canada is a country I have been fascinated with and enjoyed since I was a university student in Rochester, New York, when I visited regularly. The people are just really terrific and that has always made visiting a very pleasant experience. More recently (December 2007) I had the privilege of being a speaker at the first Conference on Social Enterprise and my own warm feelings for the country were rekindled. I have been back several times since and as a result of one of those visits, developed a professional relationship with Julie McDowell, an exceptional business person. the rest, as they say, is history. She approached us just after we launched ClearlySo and was impressed–the discussions advanced to the point we are at today. I expect Julie to play a large role in ClearlySo’s success going forward. One could develop other rationale for why you choose one location over another–but a partner you can work with has got to be number one on the list.

Canada is also more of a leader in this field than they realise. Vancity, based in Vancouver, BC, is a large factor in the field and has been making social loans and investments since 1946, when they ended the year with assets of $2,966 and enjoyed profits of $0.83! They have hundreds of bankers now engaged in social finance and their CEO, Tamara Vrooman was judged to be one of the 100 most powerful women in Canada. Renewal Partners, also based in Vancouver, has been investing in social businesses since the early 1990s and has just closed its first fund, Renewal2, at $18 million with 37 investors. Investeco is another Toronto-based institution with a solid track record investing in cleantech, while the Centre for Social Innovation incubates social enterprises. MaRS and its affiliate SIG(Social Innovation Generation)@MaRS, are a hub of innovation in this area. In Quebec there has been considerable activity in this sector (perhaps larger than anywhere else in the country) for many years, although it operates in a somewhat different way than in Anglophone Canada. I could go on, but I think you get the picture. This is a place where a “global marketplace for social business & enterprise, commerce and investment” needs to be. Watch this space!

And of course, if you have any ideas, please get in touch.

Rodney Schwartz

Last week we held our Fourth Annual Social Business Conference at Mary Ward House in London. Attendance was 30% up on last year and more than three times the size of our first conference in 2006. More important than the numbers attending, however, was the growing realisation, on the part of all of us, of how diverse the sector was becoming. Some observers seem uncomfortable with this diversity and urge the disparate sector to “get its act together”, by which they seem normally to mean that the sector should get aligned around one view on what social enterprise/business is, and to push that view. Such commentators seems uneasy by the mix of agendas, structures, objectives and orientations of the variety of social entrepreneurs. At Clearlyso, by contrast, we celebrate such diversity and believe it is one of the hidden, yet vital, strengths of the sector.

Not only is the sector becoming more diverse, but it is also increasingly strong, with a growing number of role models of high calibre. This was abundantly apparent throughout the conference where the quality of the panels was matched throughout by the quality of the audience. Nearly anyone in the room could have played nearly any role and done it well. When footbal teams have such strength and depth, they win championships–this augurs well for our sector at this time–especially as other models of economic organisation falter.

No panel evidenced this better than the second panel which focused on the variety of organisational forms available to UK social businesses. CICs, Coops, IPSs, Limited Companies and employee-owned businesses all were argued for in turn and each seemed to have some intriguing benefits and attributes. Caroline Mason, Vivian Woodell, Malcolm Lynch, Andrew Tanswell and David Erdal each argued in turn in a session excellently chaired by Stephen Lloyd. One might have such such material fundamentally dry but the speakers brought the subject to life. One could observe strength and breadth again, both in the quality of speakers and in the vast array of legal and organisational forms available to social businesses and enterprises. Challenges from the audience were of an equally high calibre.

We feel very an extraordinary amount of pressure to continue to deliver useful content to social entrepreneurs in a way which leverages what has gone before, but takes it a bit further. This year we experimented with “social surgeries”, where three businesses which pitched during the day were analysed in detail by a panel of experts. Next year we aim to innovate again and do so on a European basis, partnering with Good Deals in doing so.

We would be ever so grateful for your feedback in helping ensure another successul event in November 2010, probably on the 9th and 10th. Many of you who have attended have given us detailed feedback which, again, we will incorporate into our thinking for next year. We welcome views from anyone with an interest–even if you have not attended.

As ever, the more the merrier.

Rodney Schwartz

Last week I had lunch with a friend who told me, essentially, that “no man lives by pontification alone”. Rather, according to him, the tangible things we were doing at ClearlySo would reinforce the issues-oriented posts commonly published in this blog. In this spirit, I would like to tell you about four important milestones we have surpassed; in web traffic, in social businesses & enterprises (SBEs) on the site, at our upcoming conference and by virtue of our upcoming announcement to expand ClearlySo into North America. For those of you not familiar with ClearlySo, it is the first marketplace for social business & enterprise, commerce and investment. ClearlySo seeks to help social entrepreneurs succeed by giving them publicity, access to capital, information, advice and access to discounted products and services.

Traffic on the site has surged, enabling us to become the leading website in the UK focused on social business and investment. Officially the number of social businesses and enterprises on the site surpassed 500 last week (over 10% from outside the UK). All of this after just seven and a half months of operation. The SBEs on our site tend to be the larger and more successful ones, who are able to make better use of the services ClearlySo offers and generate substantial social impact. On the other hand, ClearlySo is also very keen on the smallest and newest social enterprises, with big ambitions and, as of yet, more limited resources.

Our 4th annual Social Business Conference will be held on Thursday of this week. The attendance will be at record levels despite the economic downturn, and the array of topics and diversity of speakers promises an interesting and thought-provoking event. We have already announced our intention to run the conference jointly with Good Deals in 2010, and further “Europeanise” the event.

Finally, we will on the 18th of November, publicly announce our first non-UK market expansion into Canada. Driven by the experienced entrepreneur, Julie McDowell, this initiative will be a model for others we expect to announce in other markets in 2010. ClearlySo believes gaining international breadth is in the best interest of the SBEs and investors who use the site.

For those of you who prefer the issues-oriented pieces this blog is best known for, you can be assured that in subsequent posts we will return to historical practice. To the rest of our readers, we hope this better explains the fundamental work of ClearlySo, the site in which this blog is maintained.

Rodney Schwartz

Earlier tonight I attended the official reception at the House of Commons to celebrate National Ethical Investment Week (NEIW). Hosted by Hugh Bayley MP, organised by the UK Sustainable Investment and Finance Association (UKSIF) and sponsored by four financial institutions (Aviva, Coop, CCLA and Henderson), the evening called attention to this second, now annual, NEIW and the impact it has had begun to have on public consciousness. Listening to the speakers I began to consider how marvellously effective simple events such as these are–and how much better value-for-money they are compared with the other lavish Governmental programmes. But that is another story–for tonight I just wanted to applaud this creative initiative, dreamt up by UKSIF and, in particular, praise the Rt Hon Stephen Timms, currently Financial Secretary to the Treasury (explanation to follow).

NEIW in some sense is not anything really, its just a series of events hosted by many different players around this common theme of ethical investment. ClearlySo’s annual Social Business Conference is part of the week, as are many other events put on by a wide range of other organisations. Most of us paid nothing extra to be part of NEIW but, the collection of events galvanise interest in the social investment arena, in the broadest sense of the term, and this is hard for any of us to do on our own. By providing this focus journalists dedicate space at least once a year to an area they might otherwise ignore. Penny Shepherd, who runs UKSIF, had a piece published in the Times earlier this week. Perhaps less helpfully, but more amusingly, the Telegraph today wrote a piece entitled, “It’s Ethical Investment Week - Buy Tobacco, Guns and Oil“, but at least they have taken notice.

For a minimal sum of money the four sponsors and the entire industry have bought itself a great deal of attention and this will build over the years. I am a great fan of such incredibly cost-effective initiatives and commend all those involved. Such a refreshing departure from the more costly and grand but less effective gestures which are all too common.

A final cheer for Government doing something it can do best–what Americans call “jawboning”. This means, literally, exercising one’s jaw bone in “talking up” the sector. Politicians are well placed to convene and call attention to things and by virtue of their office, people come and listen. This is a great and astonishingly efficient way to effect change. It is made considerably easier by people like Stephen Tmms, who was the guest speaker tonight. I attend endless meetings where politicians drone on about something or other they might know very little about and have had hardly any role and (if they were honest) probably have little real interest in. What is so wonderful about Timms is that none of these things apply to him.

Timms has been a trieless campaigner for ethical investment for years–his role in the Social Investment Task Force and the key 2004 Pensions Act were cited this evening as vital contributions to the development of the sector. He speaks intelligently and is undoubtedly well informed about the sector, its needs and the key issues it faces. He is the sort of unsung hero, the likes of which we see far too little of in Parliament and in politics–someone who obviously cares a great deal about an issue and is willing to do the hard and unglamorous work necessary to make things happen. Other SIFs may follow UKSIF and have their own NEIWs (Timms announced that in Belgium they were planning something similar and hinted that others might follow) but without a Timms, their chances of success will be far more limited. A key Minister who becomes a true supporter is a vital commodity, and Timms has been a consistent supporter.

(Just for the record, I have never properly met Timms, have had no one-on-one meetings with him, have never asked him for money and have no plans to do so. He is also not an employer or prospective employer of any family member. Just wanted to make all that clear in case some of you with suspicious and mischievous minds were wondering!) 

Rodney Schwartz

Earlier this week it was announced that RBS and Lloyds were due to receive another £30+ billion in support from the UK Government. We have become so inured to such injections, that many commentators hailed this as a positive restructuring and applauded the fact that RBS and Lloyds were being dealt with severely; bonuses to be restricted or deferred and certain businesses to be sold. The unexpectedly harsh treatment from Brussels prompted RBS’s CEO Stephen Hester to say he felt “bruised”, regarding the measures imposed. I may be alone, but this saga and the muted reaction to it makes me boil with rage. Readers who want to hear a bit of this rant should click onto the recent Guardian Business Podcast. The news from the City of London makes an interesting contrast with that of the Utrechtseweg in Zeist, The Netherlands, where Triodos raised EU 102 million in funds from a combination of retail and institutional investors. In both cases, we are talking about a capital infusion into the banks. Only in the case of Triodos, the retail investment was voluntary–the taxpayers who funded Lloyds and RBS were not given the choice!

This is called the Social Business Blog so tempted though I am to dedicate an entire blog to a tirade against the injections into Lloyds and RBS (for much of my early career I was a bank analyst, to reveal my secret past!), I will restrain myself. Let me just make a few points. First, whereas the initial injections were meant to prevent contagion and collapse in the banking system, this is no longer true today. Second, there is no guarantee this will be the last state injection–we should keep our powder dry. If Lloyds could not do its rights issue without Government support, that is its problem, not ours. The deferral of executive director bonuses until 2012 and the one-year suspension of bonuses for those earning over £39,000 is a small gesture in the context of the support already made available to save these banks–talk to some of the now unemployed staff at companies which have had to declare bankruptcy if you think otherwise. That some assets have to be sold is trivial. Shareholders in these banks should consider themselves lucky indeed they have any value at all remaining. That Stephen Hester should feel bruised at RBS’s treatment, and be unwise enough to say just that, shows how the bankers badly judge the public’s mood. One day there could be a more serious reckoning.

Back in Zeist there was no drama. Triodos’ share capital issue, orginally targetted at EU 90 million, was over-subcribed, with 40% coming from institutional investors and 60% from the public. These investors like the Triodos “sustainable banking” model and are keen for it to expand its balance sheet. Triodos has 225,000 customers and talks about doubling its balance sheet, predominantly through its lending activities. Another contrast with some of the UK’s troubled banks where despite massive state infusions, balance sheets are still in decline and borrowers are being pushed “to the wall”, or forced into bankruptcy. Triodos will be providing more loans to its clients, many of them social businesses, supporting their growth.

There is something poetic and important to the fact that these two bits of news happened within two days of each other. In one case, taxpayer money is being used to paper over the recklessness of yesterday, in another case, investors are backing a long-term oriented and sustainable approach to banking. We must begin to draw some lessons from this serendipitous juxtaposition.

Rodney Schwartz

1. Acceptance of the fact that an SIWB is certain to be launched and enjoys the support of all major political parties—thus, even if my intention was to try to stop the SIWB from coming into existence (which it is not), such an effort would be futile.
2. A strong personal belief that any alternative uses of the funds which lie in dormant bank accounts would likely be far less constructively employed—call me a cynic, if you wish.
3. Recognition that the UK has played a leadership role in the development of the social investment sector globally and that this leadership is in my personal interest and that of ClearlySo and the country’s interest, which would be furthered by experimentation through an SIWB.
4. Belief that as a result of the current financial crisis from which we have only just emerged, the discrediting of financial institutions is widespread. Thus it is important to try to develop and shape a more positive financial institution.
5. The social business and enterprise sector and the third sector are ready for some of what an SIWB might be able to do. Thus, although I am certain mistakes will be made, my own analysis of the pluses and minuses suggests that it’s worth the effort to try.

I have also stated in a previous post that I do not understand the reason for the unclaimed assets to be used to support only one SIWB. I firmly believe that best interests of the sector and society will be served if Government “spread it around”. Even in this case, I think one institution should probably receive a large percentage, because I think there is a particular job that needs doing at the wholesale level.

So what should the SIWB do? The OTS posits five roles, of which we think two are highly appropriate. The most valuable role the SIWB could play is that of a market-maker. There is nobody performing that role and no candidates in the offing. It would require a great deal of capital; this would thus be an extremely useful facilitative role. Also vital would be the SIWB’s role as an investor. Their very large capital base would render them uniquely well-positioned to do this role and be quite innovative. Another role suggested is that of “sector champion”. That seems a bit ridiculous. Why should the public fund another champion when there are so many already? By virtue of its size the SIWB would have an extremely influential role. It is pointless to mandate it with such a responsibility. The fourth and fifth are fund-raising and advisory services. These would create substantial conflicts with the first two, which to me seem vital. Thus I would be inclined against giving the SIWB these responsibilities as well.

I do not know who all the bidders are but suspect, in the end, the largest funding will go to those with strong “connections”. A bit sad from a societal context but “twas ever thus”. I only hope that wherever the funding does go, especially if it goes to an institution with contacts in the right places, at least the people involved should be competent and well-constituted, rather than just well-connected. That would be so important for the sector’s long term sustainability and legitimacy. We live in hope.

Rodney Schwartz

The CRIE campaign is not solely directed towards the SRI industry. Investment organisations whose beneficiaries can be deemed likely to have strong ethical orientations, by virtue of their background, should also be included. For example, entities such as university endowments, religious organisations, pension funds and others such as charitable foundations, whose key stakeholders possess some sort of shared set of ethical beliefs, should also become part of this campaign. Up until this point the presumption in the investment industry is that financial return maximisation should be the main focus, with compensation structures designed accordingly. We have had some painful lessons recently concerning the impact of such an orientation in financial markets!

It would be unfair to blame this state of affairs solely on fund managers or Trustees. Guidance from regulators and case law motivate behaviour in this direction. It is definitely the safe thing to do–but is it the right thing to do? I understand the strong force of inertia, but should not ethical investors take the lead in challenging this return-maximisation approach? Perhaps this is something they already wish to do—and all that is required is some external impetus? Anyway, if not them, then who? If not now, then when? Managers of funds with an ethical bias have, I believe, a responsibility to lead the way in ensuring that extra-financial factors are incorporated. This principle underlies the very existence of many SRI investors. SRI practitioners have often been at the forefront in demanding that the companies in which they invest engage with their stakeholders and act accordingly–should they not lead with regard to their own stakeholders?

Most of the ethical fund managers I know are uniquely well-suited to undertake this role. On frequent occasions I have been told that this is what they seek to do. They tell me they did not come into the ethical investment world “to trade Vodafone shares”. Not that there is anything wrong with Vodafone, but this will hardly set responsible investor pulses racing. They should be funding the sorts of social businesses which have the potential to change the world—and I believe this is what some of their clients truly desire.

My suggestion that they consult with their investor clients may add costs—but this is not very different from the costs added to listed businesses compelled to pursue stakeholder engagement. We must agree these are both similarly worthwhile. Those investment organisations which do this (probe stakeholder views) well, and act accordingly, will win the favour of their socially-oriented investment clients and probably see their market share increase. Those who did this badly will perhaps suffer.

Thus far I have not suggested such engagement be obligatory–my views on this are not yet formed. I would, of course, prefer this were done voluntarily. However, there is some precedent for mandatory action in this regard. US brokerage firms are obliged to determine their client’s risk tolerances. Clients did not ask to be so surveyed, but the firms are required to do so and clients wishing to transact have no choice but to answer these questions. Does this not argue in favour of some assessment of investor’s ethical desires for those who have actually voluntarily chosen the ethical/responsible route? Should this not be part of the “know your customer” rules which operate in the industry?

I look forward to the debate later today. I also am keen to engage with the industry about how this can be best pursued. I do so not in order to compel them to invest in Catalyst Fund 1 (a fund which seeks high financial returns by investing only in social businesses), as some suggest (I am Founding Partner of Catalyst). To the extent I do have an ulterior motive, however, it stems from my involvement as CEO in ClearlySo. The 400+ companies on the site need capital and I think the socially-oriented investment community is exceptionally well-placed to provide it. For being assertive in advocating their interests I make no apologies.

To find out about this campaign and what you can do as part of it, please email me at rod@clearlyso.com

Rodney Schwartz

It has to do with the latest proposal of Social Finance, likely bidders to become the Government's appointed Social Investment Wholesale Bank, the Social Impact Bond (SIB).  The architect of the SIB is Toby Eccles and I have to say it seems a rather good idea to me.

The details are sketchy but it works something like this.  A bond is by investors (probably Charitable Foundations) with an interest in achieving positive social outcomes and the payment they receive will vary in accordance with the outcomes secured.  The funds will be given to "service providers" to "invest" in public services.  Their role will be to meet some target (such as reduced reoffending rates for short sentence offenders) in doing so.  If targets are achieved the Foundation will receive a portion of the Government's savings--paid by HM Treasury--if not, well it is money the Foundation would have spent anyway, to try to achieve it social objectives.

By zeroing in on actual Government savings the SIB addresses a key problem in state expenditure--investments which can have impact are rarely undertaken, because the benefit is spread across departments.  By working directly with the Treasury, Toby and his colleagues are onto a potential winner and deserve our praise (congratulations to be withheld until the first bond is launched and track records established).

One oddity however needs resolution.  The idea that Foundations benefit from the savings seem fine, but a bit strange.  The benefit should accrue to those with the greatest incentive to achieve it--the Government.  I believe these SIBs should be Government issued debt, on normal commercial terms, to traditional institutional investors.  If social targets are achieved then HM Treasury can pay something extra to investors which represents a portion of the savings (resulting anyway in lower Government funding costs).  Eventually, if the service providers are able to prove they save the Government cash, then the coupon on these instruments will also be issued at below market rates.  HM Treasury cannot lose, as it will only pay out extra a portion of real cash savings.  A win-win, which we clearly need more of in these fiscally constrained times!  If Foundations wish to use their monies to catalyse such activity in the sector they can make payments to investors conditional on results, cutting funding costs even farther and hopefully thereby increasing public sector investment.

I may have my sums wrong, but this feels potentially very interesting--with lots still to chew over.  Well done Toby and good luck!

Rodney Schwartz

Charles Mackay in Extraordinary Popular Delusions and the Madness of Crowds wrote in the nineteenth century of the irrationality of crowd mania. The Wisdom of Crowds, published this century by James Surowiecki, states that the collective intelligence of groups of people is greater than the individual. ‘Collective stupidity’, conversely, is the tendency for mass collaboration to dilute bright ideas to the lowest common denominator. Crowdfunding, whether it’s the latter or former or both, has the proven ability to capture the imagination and pockets of a disparate bunch of individuals worldwide.

My colleague at ClearlySo, Rod Schwartz touched on ‘crowd-based initiatives’ in his blog back in May. Expanding on this theme one comes across a spread of sites dedicated to the struggling entrepreneur. Kickstarter is ‘a funding platform for artists, designers, filmmakers, musicians, journalists, inventors, explorers…’. ChipIn embeds a widget on your homepage or favourite websites to promote your cause and collect cash as widely as possible. With Sellaband you can help your favourite cash-strapped amateur musician record an album. I’m keen on BeerBankroll - a $50 buy-in means you will be ‘living the ultimate dream’ of helping establish a community managed brewery.

On a more intellectual tangent, Cquestrate is attempting to find an answer to the challenge of reducing carbon in the atmosphere through a simple and ingenious idea; they have made the project open source, which is smart and common sense. This system of connecting lots of clever brains on a single goal is the central theme of the book Wikinomics. It cites examples of large corporate's reaching out with a problem to the web and successfully recruiting the solution from a mass effort.

This ‘hive-mind’ approach to puzzles of enterprise and intellect has a promising track-record. It brings together collectives with a common passion from music, to charity, to film to science. Financially, the funders sink or swim with the failure or success of their investment and this shared purpose engenders a virtual camaraderie.

If you are a social entrepreneur, you should be excited because it provides a technological lifeline to the ideas which can’t access traditional funding. The power of social networking has enabled this financial democracy to flourish. The Age of Stupid for example has already raised £850k and maintained its independence on distribution rights.

If I were to take a punt over where this is headed I would say it’s certainly likely to become more popular and professional with the evolution of the web. It will also likely cover an ever wider range of sectors and interests. And, given the money being pumped by Western governments worldwide towards creating a Social Economy, social enterprise will surely benefit.

If you have a eureka moment but nae cash then why not try yoking your friends and colleagues together and making them stump up. At least this way you’ll avoid the bank.

Alex  Scott-Tonge