Article for the ResPublica Fringe Magazine 2011 “Essays and Articles from selected political party conference partners” (download magazine here, article on pg 17).

2011, Jointly written for ResPublica by: Filippo Adarrii (Euclid Network) & Karl H Richter (JenLi Foundation) & Karol Sachs (European Federation of Ethical and Alternative Banks, Crédit Coopératif)

2008 in Paris at the height of the credit crunch, 75 years after George Orwell published ‘Down and out in London and Paris’ during the great depression, a congenial dinner time discussion about the fusion of market-based systems and solidarity principles set the scene for creating an integrated capital market for social investment across Europe.

Prior to receiving his knighthood, Sir Stephen Bubb, Chairman of The Social Investment Business in the UK, and Hugues Sibille, Vice President of the French social bank Credit Cooperatif and former French Secretary of State for Sustainable Development, debated how a vibrant European-wide capital market for social finance could underpin socio-economic recovery and be an integral part of the solution to the financial crisis. Analysis of the crisis across the board has seen a resurgence of age-old ideological arguments to explain why it occurred and what could have averted it; ranging from assertions that if the markets had been much free they would have been better able to regulate themselves, to notions that the State should have been much more involved to correct market failures. Neither of these polarising views holds the answer, which is unfortunate because they are simple to understand whether you agree with them or not. The real solution however lies in the moderate space in the middle, where the two ideologies overlap and where more sophisticated economic models are required; blended models which acknowledge that market-based systems can be extremely effective at sharing prosperity and that the State has a guiding role to play in shaping the rules of capitalism to makes sure it balances the needs of those at the top and the bottom.

In the wake of the financial crisis, Western Governments and the European Union needed to poor billions into mainstream financial institutions to recapitalise them as part of the sticking-plaster solution to stop the systemic crisis. In all of this, not one social or ethical or alternative bank in Europe required a bailout (certainly none that are members of the European Federation for Ethical and Alternative Banks – FEBEA). Unfortunately in the mayhem, those institutions calling the loudest for bailouts captured the most attention, whereas social banks and similar organisations have quietly continued doing what they do best, providing financial services which focus on both social and financial outcomes. Their raison d’être is to focus on promoting social entrepreneurship and social businesses – in other words, to promote a market-based social economy in which finance is used to create and share prosperity and reduce economic inequality. Without going into the detail of why their models stood up better to this crisis, the relevant point is that their business models are less correlated with mainstream markets. The time has come to provide these organisations with the spotlight they deserve, and the capital they need to play a stronger role in the socio-economic recovery – and perhaps even in recalibrating capitalism itself.

Three years after the initial dinner discussion, Sir Stephen and Mr Hughes continued to share their ideas with partners and policy makers. The Holy Father Benedict XVI, in the encyclical Caritas in Veritate 2009, was the first world leader to support the notion that the solution to the crisis would include an economic system which sought to do good for society as much as it aspired to creating wealth. President Obama in the same year launched a social investment fund and set up a related office (Office of Social Innovation and Civic Participation) at the White House.

In March 2011, European Commissioner Barnier responsible for the internal market and services, launched the idea of a European Social Bank. This was part of his work on the creation of a Single Market Act for Europe that would provide a package of legislation to finally realise one of the guiding principles for establishing the European Union in the first place – namely the creation of a liberalised single market for trade, enterprise and commerce. Barnier, seduced by the Nobel Prize laureate Mohammed Yunus via Hugues Sibille, formed the view that the single European market could also be a primary component of social cohesion, and that it is possible to combine business with community values – Barnier called this “social business”.

The formal launch of the Big Society Bank (now Big Society Capital) in July 2011 proved that social banking has gone beyond being a “nice idea” to capture the interest of the political classes, and also their conviction that attracting private capital to achieving social outcomes must be part of any solution to the global financial crisis. This is particularly true in the context of developed economies with high public indebtedness as a result of a combination of pre-crisis policy and actions after the crisis to stabilise the financial system.

It is now the right time for a European Social Investment Facility (ESIF) to catalyse an integrated capital market for social investment across Europe. On 8 September 2011 in Krakow, a task force of social bankers and ethical financiers from across Europe gathered to respond to Barnier’s public consultation on how private capital should be used to stimulate social business. These institutions and people collaborated in developing recommendations to Barnier about how social businesses can best be encouraged by judiciously using a European level finance line to attract new non-public capital without crowding out existing sources, and how it can be flexible enough to accommodate the diverse requirements within European Member States. The task force included institutions from the length and breadth of Europe, with institutions such as Banca Etica (Italy) Bank Fur Sozialwirstschaft (Germany), Big Society Capital (UK), Charity Aid Foundation (UK), Crédit Coopératif (France), Den Sozial Kapitalfond (Denmark), ERSTE (Austria), TISE (Poland) and The Social Investment Business (UK). The gathering in Krakow was organised by Euclid Network with the support of the European Federation of Ethical and Alternative Banks (FEBEA) and its largest member Crédit Coopératif.

The outcome of this work will be presented at the European Conference on social enterprise that Commissioner Barnier is convening on 18 November 2011.