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Oooh, Lots of Lovely Government Money!!

February 3, 2009 |

In the Guardian recently was an article about how the UK automobile sector flew into a rage at receiving “only” £2.5 billion in state aid. Think of the hundreds of billions showered on the banking sector–”this is an insult” many said. I understand and share their anger–at least somewhat. Despite the arguments about contagion it does feel like this least deserving (banking) sector has been a recipient of exceptional and unrestricted taxpayer-funded largesse. Although the auto sector may feel aggrieved by comparison, £2.5 billion still seems (or at least it used to!), an awful lot of money. What about all the other economic sectors, suffering equivalently but without the same emotional ‘hook’ (cars are special–though I guess not as special as banks!) ..and what about people up and down the country who have been laid off and are now struggling to keep their homes and look after their families?

I too worked myself up into a righteous lather before remembering that our sector (social business, enterprise and investment) has been a very steady recipient of Government funding, which continues still. Fund after fund, initiative after initiative–they tumble forth to our utter delight. The UK proudly maintaining its “global leadership” role it has acquired in the social enterprise arena. Then I thought, if I am going to throw stones at the automobile companies and suggest their whingeing is a bit hypocritical, should I not first check our own “glass house”?

Since Labour came to power hundreds of millions has poured into the sector. Many firms have benefitted and several of these (Unltd, Bridges, and others) may never have come into existence without these funds. Some would argue this role as “catalyst” was essential, others are less sure, but in any event we must now ask ourselves if, in the current economic environment, however much we love our sector, this is justified. I think not.

Many social enterprises are heading out to Birmingham next week for Voice ‘09 (a large social enterprise conference), to hear opposition leader David Cameron and two Government ministers speak. It is worrying to me how much of the headline speakers will be political figures. Is this really what we want long term for the sector? Moreover, will there not be a hope, amongst much of the audience, that the two largest parties will engage in a bidding war for our support? Do we really want this? Do we not imagine that there will one day be a price to pay? Does not our reliance on Government funding undermine our own argument for genuine sustainability? Can such assistance truly be considered appropriate in the current economic circumstances?

I met a colleague recently (who will certainly remain nameless unless he wishes to identify himself). He has benefitted from some of this funding, at least indirectly, but even he felt state funds were starting to seriously distort the social investment space. I concurred. Rarely does a week pass when I am not asked if I submitted bid for some new intitiative, or block of funding. Frankly this is something we do not do at Catalyst or Socialinvestments.com, but I cannot deny I am tempted. Yet I also do worry about the time and effort my colleagues and friends put into these endeavours–and their potential loss of independence. Another said that on reflection they would “never bid again”–so wasteful and distracting did they find the process.

And how is this money allotted? We are led to believe that this is all open and transparent, and I am sure many involved feel it is–and indeed contribute to making it so. But does this not become very complex when winners or “players” enjoy close contact with, and may even actively support the Government. Even if the process has been scrupulously fair, is there not some risk of contrary perceptions. And if the competitive process has been somewhat “weighted” would this be unprecedented with this Government, or its Conservative predecessor? Do we imagine that its successor would not at least feel tempted to reward its friends?

Now I can imagine what some of you must be wondering. Maybe I am just jealous? Maybe all this Goverment funding is making it too hard for me and other independent operators to find a niche in which to prosper, so we are grumbling (but this would be problematic too, no?) Or perhaps as a Lib Dem I know that there are very unlikely to be chances for me to wedge my snout into the trough, so I can afford to take the moral high ground of the perenial outsider. Or maybe I am just curmudgeonly?

Or perhaps we should just accept that in these times our demands for more are just a bit obscene?

Rodney Schwartz

Comments

11 Comments so far

Samantha Morshed on February 3, 2009 1:10 pm
I would draw your attention to an article I wrote in the Daily Star, Bangladesh, yesterday http://www.thedailystar.net/newDesign/news-details.php?nid=73934.

Whilst large companies, in particular the automotive industry the world over, are currently in receipt of vast amounts of government money, it is seen as ‘immoral’ by many in the international donor agencies to use tax payers money to enable SMEs in the developing countries to grow and with growth create much needed employment.

In Bangladesh, the creation of rural employment is the most urgent challenge we face and will in turn alleviate poverty. Social business here is about incorporating rural employment creation into core business and then maximising profit within the social boundaries we set ourselves.

Government / taxpayers money via donor agencies in Bangladesh suffers from schitzophrenia. Funds will only be given to NGOs / NFPs who do not make a profit ie. are commercially unviable, at the same time, they say they wish to create sustainable employment. But sustainable employment can only be created by commercially viable business. As such, social business, however worthy and successful cannot benefit from donor funding even though in comparison to all other programmes, employment creation is the most effective means of poverty alleviation.

We are in a never-ending circle and the Government needs urgent education on the principles of social business because when I talk about donor agencies, the primary offender here is DFID.

How is it that taxpayers money can go to regular commercial business in the UK to sustain employment but cannot be used in Bangladesh to grow commercially viable social business with a direct impact on rural employment creation and poverty alleviation?
John Bradford on February 3, 2009 1:39 pm
Is this a similar ‘problem’ to a lot of the structural finance that goes to the ‘developing’ world? If you just ‘give’ money away it loses all value.

It distorts real growth, holds back real innovation and opens the perception that something is ‘owed’ to the benefactor (regardless of the original altruistic motives)?
John Bradford on February 3, 2009 1:44 pm
If you just ‘give’ money away it loses all value.

It distorts real growth, holds back real innovation and opens the perception that something is ‘owed’ to the benefactor (regardless of the original altruistic motives)?
Samantha Morshed on February 3, 2009 2:51 pm
Absolutely it is. Donor funding is spent without any requirement for demonstration of success. In Bangladesh 40% of the population live on less than $1 a day and progress is being made at 1% per year - most of this progress coming from remittances (economic migrants), and yet the donors spend billions here.

As I said before, they consider it ‘moral’ to give to commercially unviable projects because to be commercially viable would be profit making, and regardless of how this is invested, would be, in their eyes ‘immoral’ use of taxpayers money.

There is a need for donor funds here - I don’t argue against that. I argue against the apparent waste and clear lack of progress towards predefined goals.

The rural population need jobs - they need sustainable employment and sustainable employment is the only long term way to alleviate poverty. However, as a population they are largely illiterate or semi-literate, have seasonal employment in agriculture which is important in a small country trying to feed 140 million mouths, and have no experience of the specific disciplines of paid employment. There is therefore an initial need to train and educate to some degree, largely with vocational training, in a skill which is required by an SME with the opportunity of providing long term employment through the production of labour intensive products of some sort. There is huge opportunity, without a doubt, with a huge workforce eager for work, but there is a responsibility of the state (or donors where the state is unable) to provide this type of vocational training.

If you start a business, social or regular, in any developed country you would simply advertise for staff and with simple cross-training in most cases you would have a workforce, but this is not the case with the potential workforce in Bangladesh. There is a need for assistance to get the ball rolling, either state or donors or banking facilities / financial instruments - but none is available.

Poverty eradication is possible in Bangladesh, if the money spent were spent more wisely and not spent on programmes conceived by illectual phds who arrive in the country one day and the next day come up with their new programmes with no understanding whatsoever of the industries, country, culture and possibilities.

There is a brick wall to funding facing SMEs, NGOs and NPOs who are successful and create sustainable employment purely because they are commercially viable. In stark contrast to the UK where Government is happy to spend millions propping up an industry that should have made better provision for itself during the good times.
Rod Schwartz on February 5, 2009 8:32 am
Samantha and John
Thanks for your excellent contributions!
I invite others to join you in this critical debate
Rodney Schwartz
Liam Black on February 5, 2009 2:00 pm
The cosy consensus around social enterprise in the UK needs to be broken and some real debate had. So stop filling your rants with caveats Schwartz you’re on the right track! I am one of the co-founders of the Social Enterprise Coalition but despair at the direction it has taken. I have been saying for years that the relationship with the government is dangerously close. SEC is too keen to please politicians, obssesed with public sector procurement, does not provide meaningful support to its membership base, is hostile to real debate, has no real connectivity with the private sector and without doubt has been castrated by accepting too much government cash. This view is widely shared in the movement but there are too many conflicts of interest - often enmeshed in tax payers money! - to enable a proper conversation to happen about strategy and direction. And god help us David Cameron as headline speaker in Birmingham! The Voice gathering should be a chance for some real debate and some difficult issues to be aired amongst comrades. But I suspect it will be too triumphalist and a kiss up to the Tories in case they are the paymasters after the next election. Groan.
Rod Schwartz on February 5, 2009 2:13 pm
Liam
Wow!
Thanks for your feedback–really do appreciate your support and courage in speaking out on this issue
We need seriously to take stock of this if our sector is to advance
In particular, if we wish to create sustainable enterprises, relying on the TReasury is not the best path
Hope to see you soon
rod
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Asif Tariq on October 7, 2009 9:44 am
I respectfully disagree to the following statements made by Ms. Morshed–

“Donor funding is spent without any requirement for demonstration of success.”

“As I said before, they consider it ‘moral’ to give to commercially unviable projects because to be commercially viable would be profit making,……”

Although there’s no denying that fact that it still is the most practiced method of poverty reduction, but the development community is slowly moving away toward a more ‘market development’ oriented approach, which REQUIRES the enterprises to make profit so that the venture is sustainable. There are jargons like M4P (making markets work for the poor) that are buzzwords in the development arena today. I’d request all to check out this website- http://www.katalyst.com.bd

Regards
Asif

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