We need to harness rather than attack capitalism

A renewed enthusiasm for social investment would be a natural corollary to the Labour narrative on 'inclusive capitalism'.

A renewed enthusiasm for social investment would be a natural corollary to the Labour narrative on ‘inclusive capitalism’

The political discourse is dominated at the moment by the fiscal challenges of the years ahead and the need for Britain to pay its way in the world. This creates a problem for the left, more accustomed as it is to tax and spend to alleviate social problems.

The recent financial crisis and the subsequent pressures on government revenues highlighted the requirement for new approaches to social challenges. In an era of scarcer government funds and Labour’s tough approach to the public finances, investments within social enterprise and community organisation can help plug the gap between both public and private sector provision in order to address social challenges.

There is little doubt that society is changing rapidly as a result of mechanisation and globalisation and it would be disingenuous and wrong to suggest that social investment could be a silver bullet to entrenched problems of poverty and desperation.

However, social enterprise and support for impact investment can supplement the efforts of the public and charitable sectors. These projects develop innovative and financially viable solutions that use the power of business to deliver positive social change and foster sustainable patterns of production.

I argue that social finance – in the form of social enterprises, mission-driven businesses and non-profits that deliver financial value can also tackle pressing problems to society at large. This is a growing sector both in the UK and on a global level. In 2013, social investors report having committed £6.3bn, and intend to invest 10 per cent more (£7.5bn) in 2014.

The coalition government has announced measures for tax relief on qualifying social investments in order to continue to build on its impressive growth and attract further capital investment. In the most recent budget, the government announced a tax relief of 30 per cent that is likely to raise approximately £500m for charities and social enterprises.

Labour needs to propose additional measures that build on the good work of the government on this issue, and to embed social investment in the plans for the future provision of public services. This means additional legislative support for the financing of social investment projects, additional capital to be deployed to firms such as Big Society Capital and progressive reforms to the laws surrounding ‘fiduciary duty’ that constrain substantial institutional investment.

We must never forget that the creation of a wholesale social investment bank using dormant accounts was a Labour idea embedded in Dormant Accounts legislation before the 2010 election.

A renewed enthusiasm for social investment would be a natural corollary to the Labour narrative on ‘inclusive capitalism‘ and how we could foster a more sustainable relationship with enterprise and wider society. Social investment, designed to maintain the focus on economic value whilst allowing for additional social dividends, has the opportunity to change society for the better. Profits are principally reinvested into the business and the wider community.

Directly aligned with Chuka Umunna’s ambitious Agenda 2030 vision, social investments create disproportionate benefits to the disadvantaged and often by their intrinsic mission seek to employ ex-offenders, the long-term unemployed and disabled people. By promoting growth, partnership and greater collaboration within the burgeoning social investment market will be critical in creating the economic efficiency that we need and the stronger society that we want.

Following Lord Adonis’s plans for the regions, Labour must build on the Social Value Act to create robust metrics of social value into guidelines for the local commissioning.

In this vein, economic efficiency and social justice are not diametrically opposed but partners in progress. Rather than talking of outdated class struggles, and the false battle between the public and private sectors, we need to discuss how we can harness rather than attack capitalism.

We stand at a crossroads, and the next Labour government will need to decide how to guide the forces of capitalism to ensure a more equitable nation with more opportunities for the next generation. Increasing the focus on social investment would be a great start.

Oliver MacArthur works on the investment team at a charitable endowment, has worked with the Royal Bank of Canada and occasionally tweets. He is a member of Labour in the City

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