Three forms of capital

20 November 2019

With the general election 2019 rapidly approaching, our focus is on the opportunities the new economy presents for social investment and the deployment of capital. Our Director of Learning and Influence Genevieve Maitland Hudson shares three segments where SIB believe we have value to add.

There is a renewed relish for talking – and doing – economics in the UK social sector, despite, or perhaps because of, the record lows in trust afforded to professional economists. CLES has pioneered much of this thinking through its work on local economies. Community wealth building is being picked up by Local Trust. The Open Society Foundations are funding wider learning from the Preston Model. Stir to Action runs a full programme of training and events to spread the word of the new economic thinkers.

There is a sufficient amount of activity for the New Economics Foundation to have decided to start mapping some of it, if as yet only partially.

Added to these models being developed within local government and civil society organisations of various kinds, are the new regeneration funds launched by central government. These include the Future High Streets Fund, the Towns Fund and their attendant task forces and campaigns. Even if the coming election ushers in a national executive of a different stripe, these sorts of approaches are likely to remain a feature of central government spending; they may even expand.

All of this activity has in common a rethinking of existing economic norms of the macro kind, and a focus instead on economies of place and community.

What does this mean in practice for an organisation like ours, that deploys capital to charities and social enterprises? To what extent does our work already contribute to the kinds of economics that the new thinking promotes? Equally, if we wanted to play a more intentional part in this attempt to shift the wider economy, how might we go about it?

To answer these questions we’ve found it useful to break down the wider discussion into three segments that play important roles in the new economics, and all of which have a direct connection to the use of capital, and where we believe we have value to add. These three segments are those of stewardship, ownership and land value capture.

Money is often compared to water. It flows, and most easily through established channels. It also has a tendency in our current economic model to flow out of places and into the bank accounts of an increasingly small number of people. All three of the segments we have identified are ways of interrupting that flow by freezing money and storing it at source.

  1. Stewardship

Stewardship is perhaps the most conventional of our three categories. Stewards manage assets on behalf of beneficiary groups, or for public benefit more generally. Two of our largest, most well-established and well-known British charities are stewards of historical assets on behalf of the general public: the National Trust and English Heritage. This kind of stewardship has traditionally been paternalistic in management style. Buildings and green spaces have been preserved, but that preservation has not typically been a means of anchoring local economic development. Much of this model’s revenue generation is dependent on footfall from beyond the local area, and whilst some local value is certainly created, this is a by-product rather than a purpose of the model.

Stewardship can, however, play a purposeful role in a local economy.

Building preservation trusts, community foundations and community trusts are deeply anchored in a local economy and can provide the stability that allows for enterprise and innovation through low rent space for new business, shared back office functions and business support, for example. This approach to stewardship is being actively tested by our partners at the Architectural Heritage Fund, and by the National Trust in its exploration of Heritage Development Trusts. These forms of stewardship provide shelter for early stage economic regeneration in areas that have too little opportunity. They can also be the means of kick-starting investment by providing security against debt, being a vehicle for large scale fundraising and as the stable centre of a wider network of local social organisations.   

SIB has extensive experience of financing these kinds of stewardship organisations through our previous funds Futurebuilders and Communitybuilders. Through Futurebuilders, we disbursed £125m in loan finance and £25m in grants (of which £20m was part of blended loan deals) over 6 years. Through Communitybuilders, we disbursed £25m in loan finance and £21m in grants (of which £9m was part of blended loan deals) over 2 years. In total, SIB has disbursed £180m to 460 charities and social enterprises to date, alongside £133m of grants (of which £45m was used in blended deals) and a further £115m in grant funding to 1,900 organisations.

In many cases, the community trusts amongst these organisations have drawn on that capital to expand their operations and develop networks of a kind that the new economy specifically recommends.

This suggests that a Futurebuilders 2.0 could play an important role in providing the kind of finance these organisations need to provide stability, shelter innovation and support social enterprise as they build and expand strong local economic networks. Designing that new fund to draw on the insights of the new economic thinking far more deliberately, and building a strong learning framework which draws on robust contextual data, would both aid and strengthen the crucial work of those local stewards.

Looking outward, robust, shared data and learning drawn from the fund can help to steer mainstream capital into places that cannot usually attract the investment that they need. A new Futurebuilders could serve a dual role by deploying capital and providing the third party certification that is necessary to guarantee more mainstream investment, perhaps in a similar way to the Finansol model in France.

  1. Ownership

Another key tenet of the new economy is that we need need forms of ownership that do not extract value for the benefit of distant shareholders. Models of ownership should instead prioritise workers and their families, both through the distribution of profits and the sharing of decision-making power.

Community wealth building emphasises worker cooperatives as the best means of rewarding workers and giving them more control over their lives.

More varied forms of shared ownership have a role to play too. This includes community benefit societies with multi-stakeholder models that draw on local capital markets, municipal energy companies, and public service mutuals.

Here again, SIB has valuable experience running the Social Enterprise Investment Fund (SEIF). SEIF distributed £98 million of funding into 650 social enterprises delivering health and social care services, many of them mutuals. Building on this experience we are carrying out research to better understand need and demand in social care delivery here and now, with a particular focus on domiciliary care work. The necessary shared ownership forms do not currently exist to properly support this new and growing workforce of largely freelance workers, many working under precarious contracts, with little mutual professional support.

Whilst both Labour and Conservative manifestos are promising national solutions to some of this market demand, these are unlikely to cover the breadth of the need currently served by small private agencies and the many thousands of low paid carers, largely women, who provide the most flexible home-based care. Fair development of this market requires investment in appropriate forms: new mutuals perhaps, as pioneered by the Equal Care Co-op.

Beyond the specific care market, there is potential for more direct support of social buy-outs. Hackney Community Transport is a trailblazer in this area, and has shown what is possible. On a smaller scale many organisations in receipt of SIB funding have expanded their work to include failing local services, ‘socialising’ what were initially small private businesses. In the spirit of social solutions to ownership, we are also beginning to work through models of data governance that better represent data subjects through our work on the Social Economy Data Lab. New forms will require new investment. This is where SIB has a role to play in both design and delivery, building on our experience, drawing on new research and leveraging our networks to ensure that organisations we fund and the people they support benefit most from market demand.

  1. Land Value Capture

Land value capture is perhaps less explicit in social investment than stewardship or mutual ownership, except through the widely acknowledged joint concerns surrounding housing and property development. Increasing numbers of people are living in the private rented sector in substandard properties that they are terrified of losing, numbers of people in homelessness continue to rise, and the British dream of home ownership recedes out of the reach of younger people up and down the country.

Mainstream investment has tended only to exacerbate these problems, by favouring ‘land banking’, high end developments in city centres, and commercial property. Local authorities have been complicit in much of this, favouring private returns and banking on income from business rates rather than developing socially engaged investment plans.

As a result, the opportunity is all the greater.

In order to do this well, however, local investors need to concede the usual capital gain in land and property value, and instead understand that the benefit of capital injections in the new economics lies in the underlying profitability of the local economy, its businesses and its workers, and not in the potential market value of its assets.

Here social investors, SIB amongst them, have plenty of practical experience. Loans secured against properties have sometimes proved difficult to realise or refinance, either because of the lack of a viable secondary market or because seizing charitable property was politically and ethically unpalatable.  The intention might not have been there in the first instance, but time and experience have shown that the strength of social investment lies in supporting social business resilience, not anchoring loans in property price inflation.

We have an important role to play in making this concession of land value palatable to more mainstream investors, and in producing the evidence to show that letting it go supports the development of a greener, more socially responsible, and better governed social enterprise sector, particularly in areas of significant deprivation.

In conclusion, the new economics presents an opportunity for social investors – like us – to frame and direct our work more broadly, and to seek to understand the deployment of capital as a contribution to this shift from the capitalism of growth and profit extraction, to the capitalism of stewardship and fair distribution. We could seek to fund organisations that not only deliver direct impact through work with particular beneficiary groups as we have done to date, but also contribute to wider economic outcomes that significantly improve the quality of life and economic strength of our most deprived local areas and increase the wages and power of their workers.

Looked at in this way, we could achieve more, at greater scale, by embedding this new view of capital in our work: attracting mainstream capital alongside us, shifting its expectation of return, and using it effectively to build stronger places and a stronger country.


Photo by Josh Appel on Unsplash

Genevieve Maitland Hudson

Deputy Chief Executive Officer

Gen has spent the last ten years working with social programmes that are committed to the informed use of information and data to improve their work. She began her career in academia with a doctorate in politics and philosophy. She has lectured at Oxford University, Roehampton University, the Ecole Normale Supérieure in Paris, Birkbeck College London and Cambridge University.

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