Who’s in debt to whom?
In 1885, you could only buy something from Harrods if you had the cash to pay for it. By 1926, 80% of its business was on credit (that’s debt if you’re looking at it from the customer’s point of view).
In 1919, 5% of households bought a new car on credit. 100 years later, about 90% of new cars are on finance (that’s debt too).
Are we heading in the same direction with charity money?
At the moment, UK charities have about £150bn in assets and hold £10bn in debt: about 6%
In the vehicle sector, it’s more like 12% (double)
And in housing, about 20% (more like triple)
Could it be that the system thinks 6% debt is not enough, and that doubling it, or tripling it would be better (for some people, at least)?
It might add another £20bn-£30bn of debt into the social economy.
Is that a good idea?
It’s certainly true that most of the new money in the social economy looks like debt.[1]
Is that the best we can come up with? Is our imagination as impoverished as that?
This is only a question because of the consequences of debt-shaped money in the social economy.
Debt is really just the sale of a promise. It’s why every bank note says: “I promise to pay the bearer on demand the sum of…”
For a charity or a social enterprise, it’s a promise to pay back what they borrowed after investing it in creating something valuable for society. A promise for the future.
So far, so good.
But then come the questions from the people selling the debt…what happens if something goes wrong, or doesn’t go as well as you say; how then, dear social enterprise, will you keep your promise to pay back what you borrowed?
That’s where debt reveals itself to be a lot more fragile than the sellers would have you believe. Poor old debt, needs plenty of protection. It needs shielding with security over your assets dear charity, or shielding with some subsidy called blending, or some other device which means someone else takes the hit if things don’t work out.
The deals that make it in this debt-centric system are the ones that look like they’re going to do well financially (returning the debt quickly and with interest) and have plenty of defences.
This is a problem for the social economy.
Hands up anyone who thinks the social enterprises that are likely to do well financially, and have plenty of protection from assets, are the same ones working with the most under-served people, issues, or places?
Keep your hands up if you think these are the kinds of people and places the social economy promised to help.
Exactly.
What else?
As a tool, debt creates an asymmetry of power from the start. Organisations start changing their behaviour in favour of the debt providers.
Indeed, that’s part of the argument in favour of more debt in the private sector (the natural habitat for debt). The idea is that high levels of debt force companies to get more efficient because they have less money to spend on operations, since more of it is being diverted to pay for debt.
Does that kind of debt argument even make sense in the social economy? Diverting money away from operations. In a charity. Really?
If the social economy had similar proportions of debt as new car sales, or housing, adding maybe £20bn-£30bn of debt to charities and social enterprises, the interest payments might be £1bn-£2bn a year. That’s an awful lot of money diverted from operations.
Don’t charities and social enterprises have a different argument for efficiency… the one that says they’re focused on impact for every single person they support, which means they run super-lean models that grow their impact not grow their profits?
Not everything imported from the commercial world makes sense in the social economy.
But if the only tool you have is a hammer… everything starts to look like a nail.
Maybe we need a new imagination.
Maybe we need to change the tools. Isn’t debt just the wrong-shaped money for the social economy? The clues are there: debt is a for-profit instrument in a not-for-profit world: it’s the answer to a different question.
Maybe different-shaped and different-sourced money would be better? Patient, tolerant, risk-sharing, supportive money that embeds and empowers, not extracts: synonyms that are aligned better with equity, grants, quasi-equity, guarantees, and some of the other instruments of finance. They are there in social investment but at near-homeopathic levels compared to debt. That they exist at all, offers us hope.
Maybe it’s not just the money though. Maybe it’s the people too? What if we changed who made the decisions about money in the social economy? If the decision-makers were the people who social investment promised to support? There are examples of this too, and even some where the people making the decisions, are the people who are providing the money, are the people who social investment promised to support(!) They offer us courage.
Hope, and courage, and keeping promises. Isn’t that what the social economy is?
If we thought about it this way, maybe society shouldn’t be increasingly in debt to investors? Maybe investors should be in debt to society?
Maybe the question we should always ask is: “who’s in debt to whom?”
