Charity redefined as an investment vehicle: how the corporate world, rich people and hedge funds decided they wanted a piece of the pie

 

In the age of austerity and savage cuts in public sector funding, charities provide a back-stop for all the people who previously received help from the state but currently receive help from nobody. Restrictions on access to public services, some motivated seemingly not just by lack of funds but ideological decision about entitlement and blame, mean that charity is increasingly the only way some people in desperate need get any help.

In turn, charity income is being squeezed by the same cuts: local authority funding has been slashed, which means that charities increasingly have to rely on public donations, their own fundraising, trusts and large funders like the Big Lottery.

Competition for these funds has become desperate, and inevitably, trusts in particular cannot cope with the volume of demand charities are now making on them. Charities, starved of funds, are increasingly looking further afield for vital funds to keep going or to grow.

Increasingly, charities and NGOs are now being encouraged, often by those same trusts and foundations, to look to see how they can diversify their income, by exploring generation of their own income, via commercial activities such as social enterprises.

The relationship between the two sectors is complex. Social enterprises, that product of the Blair/Brown years, cover a gigantic spectrum between huge companies with thousands of employees, down to micro-businesses with none. Some of these are linked to charities – where a social enterprise offers a trading arm or skills development project for their service users; but many more are explicitly businesses, where it’s hard to see how extensive and deep the commitment to social change is. Some are arguably little more than slave ships where cheap labour offsets costs through badging as social enterprise, with serious questions as to how valuable the social aspect is.

Charities entering into this territory often lack the knowledge of start-up funding such a world engages with. It comes with all kinds of issues and risks. Yet increasingly it’s this world to which they are being directed.

Beset by thousands of clamouring charities, picking up the baton of responsibility for desperate people as the state collapses, various large trusts are often redirecting the funds they would have given for actual projects, to a new process: encouraging charities to diversify their funding, look to develop social enterprises, sell things, and crucially, take out loans. Instead of giving money out, without strings, with which to do good, trusts are instead giving money to charities to enable them to develop business plans, engage consultants, get business advice, diversify funding, explore loans.

For example the current ‘My Locality Bright Ideas Fund’ says it will fund:

  • “Online induction and ongoing support, either online, by phone or where possible through visits
  • Community Business development plans, to help successful groups shape and develop strategies and plans for their community business
  • Mentoring and visits, to inspire applicants and give them the opportunity to learn from peers
  • Regional networking and events, to learn from social finance experts, successful community business leaders, funders and technical specialists

http://mycommunity.org.uk/funding-options/bright-ideas-fund/

This is just one example; but if you run a charity, increasingly this is what new ‘grant’ schemes are now offering: it’s one of dozens; not actually giving money, but instead helping you to develop a business.

It’s reasonable to ask what’s wrong with this; social enterprise offers potential to generate real income for charities, and if the project is right, offer realistic opportunities to develop service users so they escape poverty and dependency. What could go wrong?

Types of social enterprise

Given there is no money in the form of grants, developing a social enterprise is attractive to charities – or may be simply unavoidable – there are few alternatives. But what should it look like?

Simplifying the story, some charity led social enterprises have their primary purpose as making money. In the most explicit example, a developing world charity may run charity shops located in affluent areas where they sell nicely ethnic products and carefully selected books and clothes for richer people to buy at expensive prices. The shops raise money, and this is the primary purpose. In this case, people who manufacture the product are given employment and arguably the products are nice enough. But in others, the product being sold, even if it is being made by someone who has been given a job to make it, may add little value to society, especially if its aimed not at people on low incomes, for example, but for richer people.

Another might run a very nice upmarket café in a nice location, where possibly none of the staff have ever had any significant issues in their lives, and certainly do not come from the beneficiary group the charity aims at, and service a suitably well-off crowd.

At the other end of the spectrum, some charities develop social enterprises where the explicit aim is to engage service users in running that project – selling food or coffee or old furniture, or tools or whatever it is. The social enterprise may make money, but its major purpose may be training and rehabilitation, skills and filling the void of unemployment. All thoroughly good purposes.

The trouble is, most of the social enterprises at this latter end of the spectrum don’t make any or much money. They may be admirable in giving skills and opportunities, but challenging to keep afloat and to start. They still often need other funding, such as grants, in order to survive. However we circle back to where we started, which is that grants are increasingly hard to get, compared to advice, and consultancy and loans. You can get a ‘grant’ to pay for a consultant how you should design your project, but increasingly not the hard cash to fund it – without strings.

Enter loans

Ok, if you are doing a business start up, unless your rich parents stump up some capital, loans are what you do. You go to the bank and they give you a loan in return for equity or security against an asset. Business succeeds and you pay back the capital; business fails and you do something else – daddy finds you a job in the city.

Now, loans are being promoted to charities as much as grants, because of the belief that selling stuff is good and there is potential for a new source of income depending on what type of enterprise you are developing. The issues arise when a) the proposed business is mostly at the training and service user benefit end of the spectrum and b) the price that comes with the loan, in the form of interest, security or equity.

Looking at this externally it’s easy to understand why loans are so attractive to hard pressed charities. It’s pretty much the only new money currently available, and somehow fits the model of business-like activity a social enterprise carries out.

So where does all this take us?

In the old, old charity model, before the welfare state, richer people gave money to the poor without strings. Originally this gave the rich person a benefit in heaven, then, as tax developed, the more hard edged bonus to the donor came in the form of a few tax benefits. Then the state chipped in, and nobody benefitted from the money except the odd ennobled charity CEOs and their beneficiaries. Clearly this is not a model that is viable now, because nobody makes any money – now somebody always has to make money out of the transaction. Now, in line with the geographical spread of capitalism that David Harvey has so clearly articulated in his writings, capitalism has decided that charity is ripe for monetisation, as there is no sense in a model of providing care for people in need that doesn’t benefit rich people. Rich people have decided that giving money away is not an economic system that makes sense; they want to get it back, with interest instead, via a loan.

The privatisation agenda has of course seen care previously given through the state given instead to businesses – and charities too – with the potential for profit to be made and repaid to shareholders.  Not content with that, even charity is now being exploited for its potential to raise more money for rich people.

The first group of winners are of course are the investors, who make money on the loans. The number of new ‘social’ investment vehicles is now huge. They have been created to support this market and to make money for their investors, at the same time as giving some sort of spurious glow of ‘goodness’ by giving ‘to the poor’. They take a massive cut of the funds – often way above bank lending rates – because charities are risk averse, can’t often give security, the equity is worthless and straight repayment looks the only option. By lending and not giving to charities, even the charitable impulse has been refashioned primarily as a business venture where you can make money. Why buy heaven without strings, when you can effectively make money out of charity? You lose nothing but access to a few grand for a few years, with the promise of 10% plus repayment – and a potential honour too for your good deeds. It’s a win-win.

The second set of gainers are all the hangers on – the consultants, the business advisors, the technical experts, the business plan writers. They may reduce their rates by ½ a percent perhaps as a charitable (tax-efficient) gesture, but the benefits of new markets make this acceptable. Even if the business idea is still too weak (ie doesn’t just make money, but actually only helps people), they still benefit from their ‘advice’ and professional services in developing schemes which don’t get lent any money.

Charity? Its reversed:  ‘Steals from the poor, gives to the rich’ … not so silly bitch, as the old Monty Python song went, if your ‘charitable’ impulse makes 10% plus.

So what’s the alternative?

Charities have always been at the mercy of rentiers selling them dodgy ‘business’ advice. It’s nothing new, except that other charities such as Trusts, are now making them do it. In the older days a charity would find the money for professional advice for specific projects out of core funds when it felt rich enough; now you have to do so as increasingly, that’s only what grants schemes give, instead of grants to actually do something. It’s an industry of turning charities into businesses because a moneyless version of caring seemingly no longer makes any sense.

Loans are however, new, and few charities have taken them up so far. But it’s a culture coming so hard and fast that it’s hard to see how it can be avoided. Some sectors, with the least access to grants, like homelessness, are really being boxed into a corner (see http://www.homeless.org.uk/connect/news/2017/may/23/homeless-link-launches-social-investment-fund ). There are alternatives perhaps – like crowdfunding – but without grants, loans are the shiny future ahead for them.

It’s depressing to see national charities and major trusts so energetically promoting these funding vehicles. One can understand their own sense of wanting to help and at the same time, reducing pressure on themselves, but there is no apparent analysis of the risk and consequences and the fundamental moral wrongness of this land grab to make money out of personal pain. One suspects they just have lost that moral compass. Privatisation of formerly statutory caring services has seemingly killed any moral sense that caring for people should be free of personal profit. Naively perhaps, we guess we had the feeling that the charitable impulse should be somehow different, and protected from the market. Instead of challenging and fighting the marketization of charity, you might hope trusts and charities wouldn’t just roll over and take the dollars. We guess that the assumption that giving basic care to hungry people should not be turned into a money-making process for rich people, whereby you give them the money that you used to spend on your beneficiaries, was also naïve. We’ve been educated. We’ve got skills in charity we could sell to someone. We need to get our noses in that trough.

 


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