There’s an old saying that if the only tool you have is a hammer, then every problem looks like a nail.
The welfare sector’s traditional approach to large scale social problems has often seemed like that – we forget other people have different, often more useful tools.
But if we want large scale social change we need to leverage the expertise of business and government just as much as the third sector.
The recent creation of the GoodStart consortium to purchase ABC Learning is an unprecedented example – certainly in the Australian landscape – of how this can work.
And the lesson for business is to be open to the idea of social investments, based not on ‘bleeding heart’ philanthropy but on sound business principles.
The first thing to note about GoodStart is that it operates on a large scale – the consortium is the preferred purchaser of 678 childcare centres across the country. It represents a once in a generation opportunity to have a large impact on the quality of early childhood education.
The second point is that the purchase was only made possible through innovative financing arrangements and the expertise of our business partners, including former Macquarie Group executives.
Loans are being provided by both the federal government and the NAB and contributions have been made by significant philanthropists; not through a cash donation but a sub-debt instrument.
GoodStart would be unthinkable with the traditional grant or foundation funding that many charities are familiar with.
And while the business people are doing business, the not-for-profit sector brings knowledge and experience – more than 420 years of in the case of GoodStart’s partners – in working with families and children, as well as a wealth of research on the value of investing in quality early childhood education.
Equal partners, unique skills.
In addition to the financial returns, the social returns – from which business and the community benefit long-term – are significant.
Research on human capital policy by Pedro Carneiro and James Heckman indicates that the social return on investment from pre-school programs can be as high as $8 for every dollar invested.
It’s quite obvious where the returns come – through savings on fixing social problems later in life, including juvenile justice, health and welfare costs.
There’s also more tax revenue from increased employment.
As interesting as the GoodStart example is, it’s slightly embarrassing that it’s an Australian first, because as I’ve said before in these pages it shows we’ve been laggards in comparison to other parts of the world in terms of social enterprise and innovation.
Consider the GAVI alliance, an international public-private-partnership which funds vaccines for poor nations and does it on a truly massive scale.
GAVI has reportedly raised $1 billion in short term financing by issuing bonds backed by sovereign pledges of aid money in future years. The substantial funds will provide economies of scale which will allow for mass vaccinations in a short period of time. By their own figures, the alliance believes they have already prevented 4 million deaths since 2001.
At the other end of the finance spectrum is the well known micro-credit programs run by the Grameen Bank and its founder, Nobel Laureate Muhammed Yousef. The loans have helped drive self-employment and generate sustainable incomes for thousands of the poorest Bangladeshis.
The common theme here is that business has an integral part to play, not by adopting a new set of tools, but by doing what it does best.
And with the Australia economy outperforming virtually any other developed nation and government winding back its spending, the private sector is spoiled for choice in terms of investment opportunities with not-for-profit partners – particularly in the area of developing affordable housing.
If we’re successful, we can not only catch up on the UK and US in our social investment, we can also make real inroads into issues like homelessness that were neglected in the last boom.
Toby Hall is the Chief Executive Officer of Mission Australia
This piece was published in the Australian Financial Review on Wednesday 24th February
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