MAKING IMPACT REAL Encouraging Investment Into Social Infrastructure and Public Good to Stimulate the European Economy
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MAKING IMPACT REAL Encouraging investment into social infrastructure and public good to stimulate the European economy Fiorenza Lipparini, Seva Phillips, Filippo Addarii, Indy Johar / April 2015 oih 1 Contents Executive summary ................................................................................................................................. 4 Chapter 1 – Setting the scene: inclusive economic growth ................................................................... 5 1.1 Growing inequality and its economic impact ................................................................................ 5 1.2 The European context and the new European Commission Investment Plan ................................ 7 1.2.1 The European context .............................................................................................................. 7 1.2.2 The opportunity of the European Fund for Strategic Investments .......................................... 8 Chapter 2 – Private capital for social investment and investment in the public good: why (and how) it works..................................................................................................................................................... 11 2.1 Social investment ........................................................................................................................ 11 2.1.1 The consequences of inadequate social investment ........................................................... 11 2.1.2 Specific social investment policies and their macroeconomic implications ..................... 12 2.1.3 Private capital in social investment ..................................................................................... 14 2.2 Investment in public good ........................................................................................................... 15 2.2.1 The case for public good investment .................................................................................... 15 2.2.2 Public good investment in practice ...................................................................................... 15 Chapter 3 – Investment in systemic social innovation ........................................................................ 19 3.1 The partnership of public, private and third sector ..................................................................... 19 3.2 A typology of social innovation................................................................................................... 21 3.3 Systemic social innovation in practice ...................................................................................... 22 Conclusions .......................................................................................................................................... 25 Recommendations ............................................................................................................................ 26 Appendix 1 - EU countries’ social expenditure and share of social investment ................................... 28 Appendix 2 - The EU impact-finance market: Germany, Italy, France and Poland ................................. 31 Appendix 3 - The role of government in catalysing impact investing: the UK case .............................. 33 References ............................................................................................................................................ 46 2 Acknowledgements and Methodological note The present study, sponsored by Unisalute – Unipol Group, was based on a wide bibliographic review and on data and insight collected through semi-structured interviews with members of the Advisory Board and expert practitioners. Our gratitude goes to all the interviewees and experts, listed here below: Members of the Advisory Board: Gwendolyn Carpenter (Danish Institute of Technology); Fiammetta Fabris (UniSalute – Unipol Group); Chris Handy (Accord Group); Giovanna Melandri (Human Foundation); Heather Roy (Social Platform); Simon Rowell (Big Society Capital); Karol Sachs (Credit Cooperatif); Michel Stavaux (former director of division, European Commission); Marco Tognetti (Lama Coop); Simon Willis (The Young Foundation) Experts: Jake Benford (Bertelsmann Stiftung); Emma Disley, Stijn Hoorens and Christian van Stolk (Rand Corporation); Margaret Gralińska (Fundacja Onkologia 2025); Paolo Nardi and Enrico Novara (CDO Opere Sociali); Raffaella Pannuti (ANT); Maria Luisa Parmigiani (Unipol Financial Group); Izabela Przybysz (Institute of Public Affairs, Poland); Filipe Santos (INSEAD/Social Innovation Portugal) Simone Santi, Duncan Pelham and Iain Smith (Lend Lease); Sam Tarff (KeyFund); Christian Voigt (ZSI - Zentrum für Soziale Innovation) The text has been reviewed and enriched by: Rosemary Addis (Australian Advisory Board on Impact Investing); Margherita Bacigalupo (European Commission); Paola Broyd (The Young Foundation); Jeremy Crump (The Young Foundation); Filipe Santos (INSEAD); Lieve Fransen (European Commission); Harry Hummels (Global Impact Investing Network); Ranko Milic (CEDRA); Gianluca Misuraca (European Commission); Iphigenia Pottaky (European Commission); Leonardo Quattrucci (European Commission); Karl Richter (EngagedX); Jan David Schneider (EPC); Nuno Vitorino (Ilha - Ideias, Projectos e Serviços); David Wood (Harvard University); Fabian Zuleeg (EPC). 3 Executive summary “Just as it took the New Deal and the European social welfare state to make the Industrial Revolution work for the many and not the few during the 20th century, we need new social and political institutions to make 21st century capitalism work for the many and not the few.” Center for American Progress, Report of the Commission on Inclusive Prosperity, 2015 This paper makes the case for using the new €315bn European Fund for Structural Investment to foster investment into: (i) preventative and capacity building programmes (“social investment”); (ii) projects achieving at the same time financial and social returns (“public good”) and (iii) multi-stakeholders partnerships systematically addressing entrenched social issues (“systemic social innovation”); as a means of renewing economic growth across the European Union. We have made this case because it is clear that austerity alone cannot put Europe back on the path to growth. Through a comprehensive literature review and discussion of case studies we illustrate the power of collaborative approaches between the public, private and third sectors. We argue that a multi-stakeholder approach is essential in order to properly account for the complexity of social needs. We show that public funds have the potential to leverage private capital, thereby providing the resources we need to create social change. 4 Chapter 1 Setting the scene: inclusive economic growth Seven years after the beginning of the global financial crisis, it is clear that it will take more than austerity measures alone to put Europe back on the path to growth. In this paper, we argue that if we want to leave the crisis behind and meet the challenges Europe is currently facing (from ageing population to globalisation, from immigration to climate change), it is necessary to stop thinking of economic and social policies as two separate entities. We need not only to invest more and better in social protection and public goods and services, but also to involve the private sector and civil society (that is businesses, civil society organizations and citizens), in this effort. In this chapter, we outline how pervasive inequality is a barrier to economic growth, set out existing EU social policy initiatives that have an impact on inequality and reflect on the opportunity presented within the European Commission’s Investment Package. 1.1 Growing inequality and its economic impact Diamond-Liddle (2012), argue that “it is not just one crisis that the EU faces, but five interlocking social crises: rising unemployment and the social consequences of the global financial crash; growing divergence throughout the EU, as countries seek alternative paths to entrenching macroeconomic stability and coping with new structural pressure; the long-term crisis of winners and losers that originates in economic globalization; the structural trends of demography and rising life expectancy that bear down on the welfare state; and the impact of migration, integration and identity on social citizenship and cohesion”. As if this was not enough, while levels of both public and private investment in the EU economy remain low1, the unintended consequences of the on-going technological revolution are putting further pressure on European labour markets. The rise of the internet and information technology has led to incredible advances, allowing businesses to move goods and ideas faster, more efficiently and more cheaply. But the same technologies are destroying thousands of unskilled and, increasingly, intermediate-skill jobs. While Frey-Osborne (2013) identifies that 47% of current jobs – including accountancy, legal work and technical writing - risk being completely automated in twenty years, it is already apparent that the “sharing economy” and the “on-demand economy” are facilitating non-standard employment and subcontracting, reducing substantially workers’ protection and, therefore, prospective retirement incomes.2 The heavy social consequences of the financial crisis in terms of rising inequality and unemployment put the spotlight on the limits of 20th century capitalism, highlighting how most of the free-market democracies