Sir Ronnie Cohen, founding chair of Big Society Capital, said last week that charities needed to grow much bigger to deliver the services their beneficiaries needed. David Ainsworth asks whether the sector believes in his vision.
At some point in the early 1990s, I watched a silly sci-fi film called Split Second, which is fairly forgettable save for a single scene in which a mild-mannered detective, who has just come face to face with an alien serial killer, loses his mojo in a big way.
“We need bigger guns!” he shouts at anyone who’ll listen. “We need big, big, big ****ing guns!”
He bursts into the police armoury, stares around him at some serious ordnance, and shakes his head dismissively. “It’s too ****ing small,” he shouts.
Eventually he emerges with something called an assault shotgun, which fires 650 shotgun shells a minute. Or something like that.
(You can view it here, if you like, around 11 mins in, although maybe put the headphones in. It’s a bit NSFW otherwise.)
Strangely, it was this scene I thought of as Sir Ronnie Cohen, the soft-spoken father of social finance, gave the City’s Giving lecture last week.
If Cohen’s speech had one coherent message, it was this: charities must get bigger. Much, much, much bigger. Charities need to be winning prime contracts, and they are too small to do it right now.
It appears to be an article of faith for Cohen that charities are going to be better than either private or public sectors at delivering services to vulnerable people, and that therefore they should be delivering as many government contracts as possible – something over £100bn a year, he suggested.
To do this, he believes, they must turn into massive, multi-million pound behemoths. To do that, they must take on loads of “risk capital” - finance where the lender shares the risk of failure with the borrower. Companies, he says, can grow incredibly rapidly by obtaining risk capital - by issuing squillions of shares, basically. Charities cannot, and are therefore at a disadvantage when they compete for the same contracts.
It’s an interesting set of assumptions, but I’m not sure it’s shared by the majority of the sector.
Many people, I suspect, will dislike Cohen's entire message. They feel charities should be local and close to their beneficiaries, and are wary of anything, including all this risk-capital stuff, which forces them to behave more like businesses.
Meanwhile, a lot of others say that social finance is a good idea, but it just doesn’t work in practice, partly because no one wants to borrow, and partly because no one wants to lend.
These people point out that social finance is only worth around £200m a year, and that most of it is in the form of loans secured against property, rather than the magical risk capital the market needs.
It’s very hard to know which camp is right. Is there really the money for a massive injection of social finance, and will this injection really turn charities into giant bidding machines? If it does, will that be a good thing?
It depends, to a certain extent, on whether a way can be found to crack the risk-capital problem, and find ways for charities to get the cash to grow really fast. Cohen thinks the social impact bond may be the answer, but even he doesn't sound totally sure.
If Cohen is right, and the finance does become available, though, then all the other issues will probably sort themselves out in a simple way. Those people who want to stay local will stay local, and those who want to get big will get big. Many people in the sector won't like it much, mind.
Probably this is a good thing. After all, the government is not going to stop letting out massive contracts. So it’s probably better that charities win them than all the prime providers who turned the Work Programme into a cross between a dog’s dinner and a pig’s ear. And to do that, they’re going to have to get bigger.
