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On Horsemeat, Broadband, the NHS and Economic Models

Rod Schwartz
Rod Schwartz, posted on 14.02.13

Blog comments3 comments

Each day I am bombarded by news stories ranging from the strange to the utterly bizarre. Often I try to search for some connection--a theme which might help me make sense of the torrent. Today I found myself connecting three seemingly random stories: the ongoing scandal of horsemeat being sold as beef, a community in Lancashire which is building high-speed broadband for itself and a gagging and whistle-blowing scandal in the NHS. What connects them is the inadequacy of our existing economic models in dealing with certain problems and the inevitable adverse consequences in being solely reliant on these outdated models. You will not be surprised if you hear me say that social businesses and enterprises offer solutions in some of these areas. Let's explore.

We know all about horsemeat in burgers, lasagne, etc.--impacting even the brands considered to be more ethical, such as Waitrose and the Coop. In today's FT it was reported that companies which are vertically integrated, and make their own processed foods, are likely to enjoy some gain in market share. I imagine local farms, butchers and the like will also see a disproportionate gain in volume due to the crisis. In the same way that the financial crisis drove business to banks we were more likely to trust, this key ingredient will become especially important in the processed food industry.

People will now be paying higher prices to secure food sources with which they feel more comfortable--this will be especially the case for observant Muslims and Jews, for whom this ingredient of trust in meat consumption is especially valued (as they may not eat pork products in any amount). I am not surprised at this trend and think that the economic model which pushes profit above all else will inevitably cut corners. Consumers will have to keep learning this lesson in sector after sector. For social businesses which manufacture ethical and locally produced foodstuffs, this will have been a good news week (of a terrible sort).

Radio Four's Today programme spoke of a community in Lancashire which, frustrated by not being able to enjoy high-speed broadband (HSB), decided to raise the money and do the work themselves. The result is the start of a network which brings in an incredible speed of 900 MB per second, as reported--extraordinarily superfast HSB. According to the programme, the locals felt BT would never judge their rural community to be economically viable for HSB--but through crowdfunding, hard work and collective endeavour, they have begun to put the HSB network in place. And because it a community endeavour, people have volunteered to do the digging and farmers have been much more tolerant in allowing their farms to be temporarily dug up--I guess they also imagine that the diggers will be far more respectful of the farmer's interests than BT might be. This anecdote is striking in how something impossible in a traditional business model becomes feasible in a social model.

I was intimately familiar with this in my time on the Board of the Ethical Property Company. Although the firm lets space to social tenants at below market rents, they make this lost rental income partly by having far lower voids--also the tenants behave better when vacating the premises than is normal in the purely commecial world.

The NHS story was also broken on Radio Four this morning. It concerns a health services manager (he was chief executive of the United Lincolnshire Hospitals Trust) called Gary Walker, who apparently became the first ever to break the so called "gagging clause" in his contract, which he signed when he reached a termination agreement with the NHS. He alleges worrying behaviour on the part of his superiors who, he claims, put hitting numerical targets above the needs of patients. There will be much debate and scrutiny about these gagging clauses and (should they in fact exist in the numbers suggested) their obvious damaging of the public's interest. Nevertheless, I would also say that we should not be surprised when bosses were putting something else (possibly their own careers and interests) ahead of patient (clients') interests. As with the meat processors, they live in a world where targets are what matter and are answerable to mandarins and ministers should they fall short--and with budgets being slashed, these pressures and the horrible outcomes they produce are also inevitable.

We can shoot anybody we wish to up and down the chain if we want to make examples--but we are just creating convenient scapegoats. I have no doubt politicians will do this around the meat scandal (and yes, some criminal rogues will also be visiting prison cells in the process) and axes will fall on unlucky as well as deserving heads in the health sector; but I contend the problem is the model. When targets become the sole focus (or profits, as in the horsemeat affair)--do not be surprised if bad things result.

Only an economic model which has a dual (or triple) purpose or bottom line is designed to deal effectively with such conundrums. This is what social business, enterprise and investment is all about. Get used to the social economy--we will be seeing much more of it--this is inevitable.


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3 comments so far.

Blog comments Tom Taylor (VPF), 22.02.13, 15:30

Hello Rod - what about targets for reducing recidivism in people leaving Peterborough Prison, interested to hear if you think they are bad too?

Blog comments Rod Schwartz, 22.02.13, 22:01

Tom, I have no idea what you are referring to, and i am missing the connection between your comment and this post--would be grateful if you were willing to clarify. Is it possibly a comment you intended to make on another blog post? Let us know and we can edit as appropriate. But for the record, I do not think targets to reduce recidivism are bad. Best, rod

Blog comments Tom Taylor (VPF), 25.02.13, 11:30

Sorry for not making that clearer - I was talking about targets in the context of Social Finance's social impact bond (SIB) for Peterborough Prison, under which the Government essentially pays out to private investors if targets for reducing re-offending rates are met by the organisation receiving investment and (hopefully) delivering the results. This is basically setting financial rewards for hitting social targets. Given on one side the amount of criticism I've heard of the 'payment by results' principle (essentially that people tend to 'game' any target-driven system), and on the other side growing interest in/support for SIBs (e.g. last week's Economist), your sentence "when targets become the sole focus... do not be surprised in bad things result" jumped out at me. Do you think the importance of targets to the social impact bond idea has the potential to lead to "bad things"? Thanks, and sorry again for confusion Tom Economist article: http://www.economist.com/news/finance-and-economics/21572231-new-way-financing-public-services-gains-momentum-commerce-and-conscience SIB summary: http://www.socialfinance.org.uk/sites/default/files/SF_Peterborough_SIB.pdf