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Public Money for Social Enterprises
Hosted by Rod Schwartz (July 2010)
Should Tax Incentives for Social Enterprise Stop?
I recently attended the launch of a report by the Centre for the Study of Financial Innovation entitled “Investing in Social Enterprise; The Role of Tax Incentives”. What followed was one of the most vigorous and lively debates in which I have ever participated in this sector.
The report catalogued the considerable number of tax incentives available for investors in social enterprise in the UK—many of which have been available for some time. Government officials in many countries are studying case studies like the UK and toying with alternatives. At the CSFI debate, numerous practitioners argued for a series of sensible refinements. Others noted that the field of play should at least be level with the private sector. There is, however, a compelling case for an end to all incentives.
First, there is little evidence they succeed. In the UK it seems the progress of the sector has happened despite, and not because, of the incentives. Areas of particular benefit seem to have enjoyed less, rather than more, growth.
Second, the vast array of incentives is highly complex, difficult and expensive to negotiate. Small wonder the cover of the report was an image of a maze.
Third, they are highly distortive. There is considerable evidence they also displace important private sector efforts in the social enterprise area. When these incentives are augmented by the creation of Government funded or backed vehicles, as in the UK or Ontario, Canada, for example (thus far the US has been relatively light on such distortions), this can seriously impede private sector involvement.
Fourth, Government incentives can be highly volatile and vulnerable to a shift in the political winds. Thus, well-intended initiatives can be undone at the stroke of a pen, which is disruptive and damaging to the operations impacted.
Fifth and most importantly, at such times, it is difficult to argue that our sector is as deserving as so many whose lives have been destroyed by such man-made calamities as the credit crisis and the resultant fiscal retrenchment, or the recent oil spill in the Gulf of Mexico. Our genuine concern for the social impact of our sector needs to take into account the human suffering around us.
Moreover, with private capital making its way into the social or impact investment space, are we really in a position to justify our pleas?
Nevertheless, questions remain:
· Are there specific areas where there is simply no choice but to require governmental capital or fiscal incentives to correct a genuine market failure (rather than frustration over speed)?
· Which sorts of governmental activity can have the biggest impact? In which circumstances?
· Are any particular countries especially effective in social enterprise development as a result of governmental action? Many of my examples reflect my own Anglo-Saxon orientation. Are there other models that are working? Do recent fiscal programmes in France offer a new path to follow?
Join Rod Schwartz, CEO of ClearlySo, in the conversation.
Adding to rather than subtracting from
http://www.p-ced.com/1/about/
OTOH the approach we've been taking is one of leveraging public money for social investment, albeit not in our own business but full cost recovery social investment like CDFIs.
I have argued that there's a case for tax incentives which encourage private investment in social innovation and you've surprised me in revealing there are such things in the UK.
Very recently I'd discovered that there is local funding available through EC initiatives which offer match funding for community led initiatives which invest in "Intelligent Economic Growth". Yet at the same time there's a public outcry over council officials taking council tax funds by stealth for a healthcare SET which had been refused by the SEIF and never traded.
Now about that SEIF. A fund allocated to nonprofit social enterprise in primary care, therefore not applicable to supply chain SEs like ourselves or CICs.
We now learn that our Doh wants to make social enterprises of our hospitals, but what kind of social enterprise? My case against it being that outsourcing the health service is an inversion of social purpose.
http://www.socialenterprise[…]enterprise-sector-the-world
We might learn a good lesson from BP whose outsourcing and cost cutting ideology was reflected in 760 safety violations before the Gulf disaster.
This conversation also brings me to think about social impact bonds. If the case being made is that reducing the cost associated with a social problem like criminal re-offending, then where does the return to investors come from other than the public purse? It does however have the potential to mobilise social investment which government would otherwise need to be persuaded to make.
Talking of justifying funding pleas, one was being made yesterday to the commons by a delegation of charities. They say child rights - psrticularly the need for family, is key to achieving the MDGs by 2015. The case for social investment in this area was made to both the US and Ukrainian governments. Investment on our part was to develop the strategy plan and on theirs, increasing the adoption allowances and implementing a trial 'family homes for all' initiative. Domestic adoption has since increased by 40% albeit still on a very small number of those in need.