Updated: Jan 17
New model for social investment blog series - part 2 of 3
Let's do a thought experiment. Imagine you are a world leader. What are your big challenges and opportunities in the next few years?
Depending where you live, and where you feel obliged to intervene, you will seek to alleviate climate change impacts such as flood protection and food availability. Similarly, you will aim for regeneration in areas affected by disruption such as conflict or flooding. Resourcing for these initiatives will help with your third challenge - creating sustainable employment that provides wages sufficient to reduce dependency on social services.
To achieve all this, you need to invest. And luckily for you, economists are starting to understand that we are living through a persistently low level of short- and long-term nominal rates that is historically unprecedented and in which monetary policy transmission is weaker. This gobbledygook means that, very probably, you can invest in social change without risking high inflation or an unsustainable level of debt.
What's more, new technologies based on AI are emerging that make infrastructure exciting again. Not since the 19th century has society at large felt such excitement about large scale engineering. And not since the 19th century have there been industrial barons eager to pour money into national infrastructure at vast scale. It won't be hard to find transformative project proposals or funding for them.
A third enabler is the vast scope and scale of human migration in present times. Workers of all kinds will be queuing up to work on your vast new infrastructure projects.
Great! Lots of opportunity. The only fly in the ointment is that, unless society as a whole changes the way investment into infrastructure is managed, your historic legacy won't be what you hope. Instead of delivering a step change in quality of life and economic sustainability, you will be remembered as a pariah who wasted government funds and increased inequality yet further.
History shows us that, every time that government splashes big money, it goes to the same people, those skilled at getting public funds, and too often their main interest is self-interest. How can you avoid supporting a new generation of carpetbaggers and corrupt oligarchs? To see a way forward, let's look at how investment into social benefit is currently measured.
One approach is to measure delivery organisations. This is the principle underpinning Environmental, Social, and Governance (ESG) investment - to capture KPIs on organisational performance as a whole, often aligned to international standards such as the UN Sustainable Development Goals (SDGs). However, it is a truism in the financial world that ESG investment is mostly greenwashing, with little sign of the long-term approach required to deliver real value.
An alternative is to narrow the focus and measure specific outputs, for example using custom financial vehicles such as Social or Development Impact Bonds (SIBs or DIBs). Unfortunately, Impact Bonds are resource-intensive (for all parties), with transaction overheads that are disproportionate to the benefits being generated. A recent global evaluation of Impact Bonds concluded that although Impact Bonds are often touted as a “win-win-win” structure (for governments, investors, and service providers), in reality, each of these three “wins” can be losses.
The flaws of ESG investment and Impact Bonds are magnified in current approaches to climate accounting. Applying similarly transactional arguments to the existential challenge of our age, climate change, is allowing companies to claim (for example) that logging old growth forests, replacing them with fast-growing monocultures disastrous for biodiversity, and burning the logged timber is a Green measure, based on an unwarranted assumption that increasing our carbon burden now will be fully sorted out by future tech that does not yet exist and which would require more energy than the total resources of the planet. A dispassionate analysis can only conclude that we need to move away from transactional measurement techniques. An alternative way of funding infrastructure investment could, for example, be based on monitoring adherence to an operating model that ensures funds are used for social benefit. In a previous blog, I outlined such a methodology, "organisation-as-a-platform", which implements the Supercommunities model for antifragile communities. Think of it as like adopting the route to success used by tech platform providers but geared towards stakeholder value rather than shareholder value.
Early adoption of the organisation-as-a-platform methodology is already showing that a "Superorganisation" not only enables the win-win-win promised (and not delivered) by Impact Bonds, but is also productive at a new order of magnitude. This hyper-productivity originates from the 5 Cs model of collaboration at the heart of the Supercommunities model, via which interaction across organisational boundaries is structured to allow all parties strip away the clutter (administration that is not only costly and time-consuming but also ineffective) and deliver optimal outputs in Agile fashion.
Let's return to the thought experiment and imagine you are a world leader. You want to invest in a brighter future. This means you first need to support the development of alternative mechanisms for infrastructure investment. You should be asking how to help develop an investment market based on adherence to organisation-as-a-platform approaches to infrastructure.
Previous instalment of blog series