The broken promises of the social investment market

The crisis of social reproduction

Throughout the three volumes of Capital, but particularly in Part 7 of Volume 1, on ‘the accumulation of capital’, and the reproduction schema of Volume 2, Marx discusses the way in which the capitalist mode of production is reproduced. In recent decades, however, Marxist feminists have repurposed Marx’s category of social reproduction in order to explore the way in which labour-power, Marx’s ‘special commodity’, is reproduced – an aspect of capitalism seriously neglected by Capital’s author. As Cindi Katz (2001: 711) explains,

Social reproduction encompasses daily and long term reproduction, both of the means of production and the labor power to make them work. At its most basic, it hinges upon the biological reproduction of the labor force, both generationally and on a daily basis, through the acquisition and distribution of the means of existence, including food, shelter, clothing, and health care. According to Marxist theory, social reproduction is much more than this; it also encompasses the reproduction of the labor force at a certain (and fluid) level of differentiation and expertise.

The retrenchment of welfare services in the 1980s – signalling the end of Fraser’s second regime – was accompanied by the growth of the ‘social sector’ to fill the gap. As civil society assumed more responsibility for addressing the breakdown of social reproduction we also witnessed an extension of market logics in both the public and social or ‘third’ sectors. Examples include: the emergence of social enterprises; the outsourcing and privatization of public services; the introduction of New Public Management, which introduced business practices into government administrations; and, more generally, a shift ‘from government to governance’ (Alcock and May, 2014: 291–293; Boyer, 1990). Nicholls and Tomkinson (2015: 340) accurately situate SIBs within this trajectory, noting their ‘strong focus on reforming state bureaucracies and dismantling centralized government systems and structures in favour of more “business-like” and enterprising models of welfare service delivery and internal operations’. This transition from the second to the third regime of social reproduction also corresponds to the shift from welfare state to ‘social investment state’: as we noted earlier, this was theorized by Anthony Giddens and is linked to the project of the ‘Third Way’. In fact, social investment’s enthusiasts have seen it as a response to the rising inequality associated with neoliberal, financialized capitalism and identified by Fraser. Under the governments of Clinton in the USA and Blair in the UK, this social investment or Third Way perspective underpinned a prioritization of ‘labour-market activation’, that is, policies targeting latent and future labour-power. Flagship policies included No Child Left Behind in the USA and Sure Start – along with Blair’s mantra of ‘education education education’ – in the UK.

In the wake of the financial crisis of 2017–2018, social problems have become more pronounced, a result of falling wages, job loss, increasingly precarious employment relations and rising cost of living, compounded by the further hollowing out of welfare services for those most in need (Farnsworth and Irving, 2015; O’Hara, 2015). Mere concern with rising inequality has given way to a more foreboding discourse, from the ‘quiet crisis’, identified by then-Labour leader Ed Miliband in 2011, ‘that is unfolding day by day in kitchens and living rooms in every town, village and city up and down this country’ (Miliband, 2011), and then-prime minister David Cameron’s diagnosis of ‘broken Britain’, to the 2016 discovery by Theresa May (Cameron’s replacement) of the ‘JAMs’ – ‘just about managing families’. But many families and individuals in the UK are not managing at all. In November 2018, the United Nations’ special rapporteur on extreme poverty and human rights published a damning report, concluding that ‘14 million people, a fifth of the population, live in poverty. … 1.5 million are destitute, unable to afford basic essentials. … For almost one in every two children to be poor in twenty-first century Britain is not just a disgrace, but a social calamity and an economic disaster, all rolled into one’ (Alston, 2018: 1). This is what Nancy Fraser (2016) and Brown et al. (2013) – along with others – have described as a ‘crisis of social reproduction’ and a ‘crisis of care’.

The growth of the social investment market over the last decade may be seen in the context of this social crisis. One policy response was the ‘Big Society’ (Dowling and Harvie, 2014: 7), launched by Cameron in 2010 and designed to decentralize responsibility away from a supposed ‘big government’ model and towards ‘voluntary action and social enterprise’ as the way to ‘promot[e] improved social inclusion and “fixing Britain’s broken society”’ (Alcock, 2012). It quickly became clear, however, that the lack of resources for localities, communities and families hampered their capacity to adequately respond. The New Economics Foundation (2013: 57) reported that the ‘Big Society [was] thwarted by the combined effects of recession, public spending cuts, and welfare reform’. Big Society Capital, the government-founded ‘social investment bank’, and SIBs, are meant to fill this funding gap, supposedly bringing with them the command over social wealth that money represents and which was lacking in the Big Society model.

For its proponents, however, the social investment market model promises more than financial resources. It promises to solve ‘society’s most intractable social problems’ (Travis, 2010) – among them poor mental health, homelessness, unmet childcare and education needs and, as we see in the case of Peterborough SIB, high levels of incarceration – and, in this sense, social investment can be understood as a strategy of managing the crisis of social reproduction. According to Alec Fraser et al.’s (2018: 10) review of the literature, such an argument ‘is frequently articulated in UK government publications, which particularly stress the potential virtues of SIBs by emphasizing how they may foster innovation, and prevent or ameliorate complex social problems’. Key here is ‘social innovation’, which is enabled as a result of shifts from a ‘bureaucratic’ to a business model of service delivery and, importantly, in values and practices such that service providers are judged not on the ‘level’ or ‘quality’ of their service, but on quantifiable ‘outcomes’ or ‘impact’. In addition to their narrow focus on measurable outcomes – a reduction in truancy or ‘reconviction events’, say – proponents of the social investment model frequently presume that the charities and social enterprises who deliver the services under a PbR contract or SIB are capable of significantly improving social ‘outcomes’ through facilitating personal behavioural changes in their users or ‘clients’; obscured is the impact of radical market-based policies, often decided at geographical scales far removed from the problems, which have exacerbated inequality and poverty.

Turning now to the Peterborough SIB, that project sought to reduce high levels of reincarceration, advancing the Ministry of Justice aim of ‘breaking the cycle’. According to the Ministry of Justice (2014), ‘around 60% of adults who enter jail on short-term sentences (less than 12 months) will go on to re-offend within a year of release’. One cause of this cycle is socio-economic. Social Finance (2011: 6) has acknowledged this, noting for instance that short-term offenders ‘leave prison with typically £46 in their pocket, often with nowhere to live, no job to go to and no family waiting for them’. Yet, rather than targeting these socio-economic causes, SIBs often bracket them out, naturalizing them as mostly immutable elements of the political-economic context; ‘interventions’ are instead limited to filling service gaps in the expectation of improving the efficacy of ex-offenders’ personal coping strategies.

This shift in focus from social causes to individual failures is by no means peculiar to the Peterborough case. It reflects a broader shift since the 1990s towards New Public Management, with its emphasis on technocratic and managerial styles, and behaviourist methods in social work to address personal rather than systemic failures. As a World Economic Forum (2013: 19) report suggests, SIBs seek to solve social problems by individual solutions: the SIB funds ‘an intervention to address a social challenge, typically related to behavioural change’. Hence, we see in the Peterborough case the ‘subdivision’ of ‘[t]he overall social context … into specialized policies to dis-identify societal interrelations and changes, and to individualize the problems of social groups’ (Candeias, 2011: 2; quoted in Brand, 2013: 436).

Having bracketed out possible socio-economic factors, the Peterborough project sought to reduce recidivism by providing a bespoke ‘through the gates’ service to ex-prisoners. ‘Community resettlement’ would be sought by relying on family support, ‘benefits and financial advice’ and work training (Social Finance, 2011: 9), but also busying activities (e.g. ‘litter picking’, fishing and baking) to ‘reduce idleness’ (Ogman, 2018). One case worker succinctly described their job as ‘put[ting] in a strong coping strategy for the client’ (Disley et al., 2015: 31). They sought to ‘re-able’ individuals to cope with, rather than ameliorate, strenuous circumstances. This reflects an increasingly popular conception and practice of ‘resilience’ in the UK which is ‘highly agent-centric’ in its ‘appli[cation] to how individuals and households respond to hardship’ (Dagdeviren et al., 2016: 1). It has a longer history in the ‘social capital’ tradition of managing (structural) social problems (Burmester and Wohlfahrt, 2015).

We see this scalar mismatch in many SIBs: socio-economic or structural causes are identified as being behind a given social crisis, yet the proposed interventions focus on personal behavioural changes. Another example is the first US SIB, a project inspired by the Peterborough SIB, aiming to reduce reincarceration among adolescents in New York City’s notorious Rikers Island jail. As Ogman (forthcoming) shows, the intervention relied solely upon group therapy methods, despite practitioners’ regular observations to the contrary that poverty and racial profiling are at the root of the city’s high incarceration levels. The effort ‘to restructure distorted thinking and perceptions’ and thereby ‘change a person’s behavior for the better’ (Rudd et al., 2013: 29) had no ‘impact’ upon recidivism, and the project was subsequently terminated prematurely in 2015 (Parsons et al., 2016).

In Peterborough, however, Social Finance (2017) could announce in July 2017 a 9% reduction in reoffending and the ‘success of the first ever Social Impact Bond’. Reductions were 8.4% for the first cohort and 9.7% for the second, both below the 10% target for a single cohort, but above the 7.5% target for the project as a whole. As we noted above, the project was cancelled before the third and final cohort received its ‘intervention’; in the final evaluation the impact for this third cohort was imputed. The success of the SIB ensured investors received returns of ‘just over 3% per annum for the period of investment’ (Anders and Dorsett, 2017; Social Finance, 2017). Yet this outcome was hardly a surprise. Despite claims of social ‘innovation’, the One Service had merely modified an existing St. Giles project of individualized services and through-the-gate support, and applied it to a new population group, short-term offenders, which had previously lacked any support whatsoever (Disley et al., 2011: 3). The approach adopted also aligned with theory and evidence from desistance studies (Disley et al., 2015: 54). Moreover, the particular set of interventions could easily have been financed via conventional models, a point acknowledged by an Ministry of Justice-commissioned report (Disley et al., 2015: 53).

Turning to other examples, in their study of the London Homelessness SIB, for instance, Cooper et al. (2016) report that although there was some ‘innovation in practice’ – the adaptation of the so-called Navigator Model – this turned out to be ‘impossible to operationalize, for financial and practical reasons’. They also offer a vignette that is possibly worrying for what it reveals about the way ‘social innovation’ might occur: a service provider interlocutor tells them that ‘the initial business case contained the “kind of ideas that a non-expert on homelessness would come up with” and that the outcomes became more realistic after negotiations had taken place’ (pp. 70, 71). In another study, Harvie et al. (forthcoming) interviewed an investor in several UK SIBs, discovering that this investor was reluctant to back truly innovative interventions, preferring to stick with tried-and-tested methods; a service provider interviewed as part of the same study concurred with this view. Drawing on evidence from the UK and the USA, Berndt and Wirth (2018: 33) suggest there is a ‘tension between creative experimental play and standardization’, noting both that ‘[a]t the end of the day, the issuing government agency has a strong influence on the project design’ and that ‘a large number of SIBs do not really test innovative anti-poverty approaches but apply intervention formats that already have a positive track record’.

This reliance on ‘tested and tried’ solutions is little surprising given that it is risky from the investor’s point of view to invest in organizations that apply untested interventions (Callanan et al., 2012: 7). This inherent bias towards established solutions puts limits to the seemingly experimental character of SIBs, having a standardizing effect and stifling the very ‘innovative’ character of the instrument that protagonists are celebrating in their representations. (Berndt and Wirth, 2018: 33)

But the marginal effect of SIBs, and their limitation to certain localities within narrow time frames, has not prevented SIBs from becoming used on a higher scale for political ends. Just days after the release of second-cohort figures for the Peterborough project, Gordon Brown (2017) heaped praise on the project for the general lessons that political leaders should take from it, writing that it ‘thoroughly transforms our view of what is possible’ and has ‘become the guiding light for hundreds of millions of dollars in investment in social reform’. Anticipating an argument we develop in our final substantive section, we claim therefore that the SIB is used to address legitimacy problems, and not just social problems of local significance. It was scaled up symbolically and practically to the levels of the national state, and even internationally, as Wiggan (2018: 721) writes, for the ‘financialised reconfiguration of the welfare state as the route to a better society’.

There is a large discrepancy between minor improvements and the grand narrative of ‘social change’ under whose banner the social investment market is being rolled out. While we believe it possible for such narrowly designed ‘preventative services’ to achieve similar successes in other localities, we also see little reason to expect such projects to achieve more than marginal success in those places. Similar to work-activation or ‘workfare’ programmes, the Peterborough and other SIBs appear to have only minimal powers to relieve social crises. As Peck (2001: 347) explains, ‘success’ is often limited to people ‘already nearest the front of the employment queue’ and those who are ‘the most job-ready’. In the area of criminal justice, we agree with Mills and Roberts (2012) that ‘breaking the cycle of incarceration’ requires ‘looking beyond criminal justice’. Such a shift would move from poverty management towards poverty alleviation, but such approaches, while popular in society, have not resonated politically during the first decade since the financial crisis.

The fiscal crisis of the state

The crash of 2007–2008 has had many repercussions. Of interest to us here is the way in which a collapse in state revenues along with enormous public bailouts of ‘too-big-to-fail’ financial institutions transformed a private debt crisis into a (threatened) sovereign debt crisis. The need to avoid such a sovereign debt crisis – ‘going the way of Greece’ – was in turn used to justify austerity. According to Konzelmann’s (2014: 724–725) account, while initially

[P]rominent economists and policy makers rekindled Keynesian ideas about the stabilising role of fiscal deficits … by early 2009 the consensus among economists began to crumble. … [I]n 2010, with the imminent depression apparently averted but with unemployment still high, policy was sharply reversed as concern about high levels of public debt led to calls for fiscal austerity, first in the eurozone (due to the perceived risk of sovereign debt default by weaker members) and then worldwide.

Our reading of the social investment literature suggests that most of its advocates, outside of government at least, take a neutral position vis-à-vis austerity. While we have found no examples of proponents actively endorsing fiscal austerity, nor do we find any instances of contestation. Rather, most of those promoting the social investment market seem to have succumbed to what Davies and Blanco (2017) describe as ‘austerian realism’. For some charities and other third-sector organizations, however, ‘SIBs may offer them strategic opportunities to innovate, collaborate, and capitalize upon the changed economic and policy context following the banking crisis of 2008 and subsequent public spending cuts’ (A. Fraser et al., 2018: 10)

SIBs’ promise to alleviate the state’s fiscal crisis is threefold. First, up-front expenditure is made by private investors, as opposed to the state. (The so-called private finance initiative – PFI – a controversial form of public–private partnership whose use became widespread under New Labour, achieved the same result, moving costs ‘off balance sheet’.) Second, SIBs are structured such that investors only receive payments if projects are successful, that is, the state only pays for effective interventions. Third, SIBs are supposed to foster innovation in the delivery of public services, thus making service delivery more cost-effective.

These logics underpinned the Peterborough SIB: private investors’ up-front investments in probation services would not only make up a public sector budget shortfall in the present, but also reduce future expenditure. As a Rand report for the Ministry of Justice explained, ‘the SIB model is based on the premise that the interventions funded will deliver cashable savings to government within the period of the bond’, with ‘a proportion of these savings [being] paid back to the investors’ as return on capital (Disley et al., 2011: 8, 1). The Ministry of Justice calculated overall savings of ‘approximately £44m’, possibly rising to £90m ‘should the scheme produce a higher than anticipated reduction of re-offending’ – up to 18 times the initial £5 million investment (Ministry of Justice, 2014)! As we have explained, SIBs require measurable outcomes. In the case of the Peterborough SIB this led to the equation of reduced recidivism with a fall in ‘reconviction events’, specifically ‘the number of times an offender is reconvicted in the 12 months following release from prison [… a measure that is] more closely linked to the costs [and therefore to potential savings] to the criminal justice system than the number of offences committed’ (Cave et al., 2012: i–ii).

The Peterborough SIB did attract new resources to fund the probation project – the £5 million advanced by the 17 social investors. But the One Service’s success in reducing recidivism did not result in the anticipated savings to the Exchequer. As early as 2011, the Rand report warned, ‘[t]he SIB at HMP Peterborough is not likely to result in substantial cashable savings [monetized benefits] to the Ministry of Justice or other government departments’ (Disley et al. 2011: 8; emphasis in the original); this negative projection was not revised in any later documents. The report’s authors suggested that the project was ‘too small’ to effect overall government expenditure, but suggested that scaled-up projects might succeed in this regard. We see here a central contradiction in the SIB’s rationale, for the project’s failure to convert anticipated (or ‘theoretical’) savings into actual (‘cashable’) savings did not absolve the government of its contractual obligation to repay investors (capital plus ‘dividend’) in the case of the project achieving its recidivism-reduction outcomes. In other words, following Ogman (2016), if the Peterborough SIB in fact achieves social impact, it will not reduce government expenditure as promised, but in fact expand it, channelling public money through the social sector into the hands of private investors.

In fact, this unhappy possibility is what came to pass. The Peterborough project achieved its target outcome and thus produced ‘social impact’, but it produced no corresponding cashable savings from which investors could be repaid. In the event the Ministry of Justice paid £3 million of the total £8 million outcomes payments (returned capital plus dividend) received by investors, while the Big Lottery Fund (BIG) contributed the remaining £5 million. While the city of Peterborough benefited from the initial financial infusion, overall the net public-fiscal effect of the SIB was negative, since the source of BIG’s income is lottery-ticket sales, purchased by the public. In other words, the promise of this particular SIB was inverted. Instead of private actors filling a public funding gap, the government – and lottery-ticket-buying citizens – was now ‘fill[ing] the funding gap for UK social impact bonds’, as one newspaper reported (Pybus, 2012).

Pilot projects often encounter problems and require rethinking, but there appears to have been little reflection about this problem. As we describe below, we expect such ‘mistakes’ to reoccur. We have already quoted A. Fraser et al. (2018: 10) explaining that a central claim of the SIB is its ability to ‘transfer risk from the public sector to the private sector … [to] privatize the risks and share the gains’. The Peterborough experience confirms the doubts of sceptics such as McKay (2013, 2014), who suggests that SIBs require risk-mitigation mechanisms that enable private risks to be placed back on public and third-party actors, or at least shared with them, hence lowering investor risk by raising public liabilities. This more complicated picture could be seen in the New York City (Rikers Island) SIB, mentioned above. This relied on a substantial loan guarantee by a third party, Bloomberg Philanthropies, to absorb three-quarters of Goldman Sachs’ capital investment (Warner, 2013). Well-established forms of ‘entrepreneurial governance’ have long sought to incentivize private investment through tax benefits and other mechanisms as a means of economic growth. According to the Treasury, social investment tax relief, instituted in 2014, was part of such a ‘fiscally neutral’ growth initiative (HM Treasury, 2013: 48). We contend that SIBs remain largely within the tradition of ‘financializing urban governance’ (Lake, 2015), by attracting private investment through financial incentives, rather than generating public revenue through taxation.

The SIB has been promoted (in part) as a response to a fiscal problem. But there is a fiscal problem at the heart of the SIB itself, which has now forced a further institutional response by the UK government. In 2013, the Cabinet Office committed £20 million to a Social Outcomes Fund and the BIG formed the £40 million Commissioning Better Outcomes fund in order to ‘top up’ investors’ outcome payments (Centre for Social Impact Bonds, 2013). Since 2002, more than £1 billion in subsidies has been committed to supporting the UK’s social investment market, with the majority of these funds concentrated in the period since the financial crash (Floyd, 2017). These developments appear to confirm the fear of one commentator, that investors only temporarily bring in new resources to the social sector; in the long term they will mostly absorb public money in a zero-sum game. The commentator warns:

[U]nless investors ultimately assume significant outcome performance risk, [pay-for-success] financing may simply cannibalize philanthropic and public funding and fail to increase the capital available to fund the needed interventions. (Godeke, 2013: 73)

The crisis of capital accumulation

Since 2008 we have been experiencing what McNally (2009) has called a ‘global slump’, as the financial crisis has spread into the so-called real economy. As Harvey (2010: 45) explains, the root of this crisis is the over-accumulation of capital, which does not have enough opportunities for its profitable investment and expansion. Just as the discourse around the social investment market – and the rationale for its accelerated development post-2008 – has shifted to accommodate not only social issues, but also fiscal ones, so it now too addresses concerns around economic growth – or capital accumulation. We see social investment as part of a strategy that responds to this over-accumulation crisis. Social investment promises to ameliorate the crisis by opening new investment opportunities for surplus capital.

A second part of this crisis management strategy is ‘ethical’ – and this anticipates our exploration of capitalism’s legitimation crisis in the next section. The social investment market enthusiasts are interested not only in the quantitative expansion of the economy but also in a qualitative shift towards ‘inclusive growth’. Thus, A. Fraser et al. (2018: 10, 8) refer to SIBs’ ‘financial sector reform narrative’ as a way to offset ‘the anti-social, dangerous aspects of financial capitalism’. Announcing a ‘new paradigm’, the G8’s SIIT (2014: 1, 6) asserts that ‘there is no inevitable trade-off between financial and social return’: in a non-zero-sum game, ‘shared value’ can be created with ‘blended returns’ for financial investors and society alike; SIBs are expected to ‘deliver inclusive economic growth that benefits everyone’. The promise here then is double: SIBs can deliver quantitative growth, but also a qualitative shift in the nature of that growth that works against the uneven development of the capitalist economy, that helps us ‘move towards a different capitalism, an ethical one’ (OECD, 2010). We evaluate the two issues in turn.

McNally’s prediction a decade ago that ‘we are very far from the endpoint’ (2009: 40), has been borne out by successive ‘weak’ or ‘modest’ global growth figures and a series of gloomy forecasts by bodies such as the IMF. In its most recent (at time of writing) World Economic Outlook report, for instance, the IMF (2018: xiv) laments that ‘the outlook is one of less balanced and more tentative expansion that we hoped for. … At the global level, recent data show weakening in trade, manufacturing, and investment. Overall, world economic growth is still solid compared with earlier this decade, but it appears to have plateaued.’ Such fragility and turbulence has, of course, translated into lower returns and greater risks in bond and equity markets (see, e.g. IMF, 2017), with one recent report warning that ‘[a] new era of lower returns punctuated by frequent volatility threatens to become the “new normal”’ (Greenhalgh, 2016).

Enter SIBs. We have already noted that one of the architects of the Peterborough SIB predicted it would offer ‘excellent returns on investment’, while the authors of the G8’s report on impact investment suggested social investment instruments have the potential to provide ‘a new set of attractive investment opportunities’. Others have made similar promises and predictions. In 2010, for instance, a J.P. Morgan report defined impact investments as ‘an emerging asset class’. Suggesting that ‘the market opportunity is vast’, this report’s authors also noted that ‘some investors expect returns that compete with, and even outperform, traditional investment benchmarks’ (O’Donohoe et al., 2010: 11, 31; our emphasis). In its typology of potential social investors, Big Society Capital (n.d.: 19–20) makes clear that at least some categories of investor will seek both ‘security of capital [… and] competitive [rates of return]’. Big Society Capital itself ‘will make investments with risk and return characteristics comparable to the broader financial market’ (Schwab Foundation for Social Entrepreneurship, 2013: 26).

We should not be surprised that social investors desire, and are being promised, a financial return – after all, an oft-repeated strapline of social finance is doing well by doing good. But what is interesting is the possibility, suggested by Dowling and Harvie (2014), that social investment might involve not only a harnessing of the financial in order to do good, that is, to tackle deep-seated social problems, but also a harnessing of the social to do well, that is, to help tackle the deep-seated problems of the global economy in the wake of the global financial crisis.

As we explained above, the project funded by the Peterborough SIB met the predetermined threshold reduction in reconviction events and thus a one-off payment to investors was made. This represented investors’ ‘initial capital plus an amount that will represent a return of just over 3% per annum for the period of investment’ (Social Finance, 2017). This figure is surprisingly low: returns for this bond were promised to be higher, with Social Finance estimating an internal rate of return of 7.5–13% (Tverin, 2014: 8). By way of comparison, analysts are warning that ‘low returns’ will be the ‘new norm’: Greenhalgh (2016) expects equity returns of 3–5%, for example; McKinsey predicts 4–6.5% for the USA over the next 20 years, and 5–6% in Europe (Authers, 2016). Against this, investors in the Peterborough SIB have not done so well.

The Peterborough bond was the world’s first SIB, but it was not the first SIB to make a payment to investors. This honour goes to the Teens & Toddlers and Adviza/Energize SIBs, set up in 2012 to fund programmes supporting young people at risk of becoming ‘NEETs’ (not in education, employment or training). Both projects ‘performed above expectations and delivered outcomes sufficient to return investor capital earlier than expected’ (Social Finance, 2015); according to the final report, ‘investors received their initial capital in full, plus a return’ – but we have not been able to discover exactly what this return was (Social Finance, 2016: 14). More information is available on the London Homelessness bond, thanks to the research of Cooper et al. (2016), but this information is not precise: according to two of their sources, ‘investors are paid 6.5% annual interest rate … with the principle sum repaid at the end of the contract once all potential sustained outcomes have been achieved’; other interviewees ‘disputed this interest rate … [claiming] the interest rate on the SIB would have to be “very high” … at least 12%’.

The question of SIBs’ financial returns – and therefore the extent to which social investment might fulfil its promise of helping address the crisis of capital accumulation – is a matter of both uncertainty and tension. It would seem that the London Homelessness bond has performed relatively well (whether the rate of return is 6.5% or 12%); the Peterborough SIB has underperformed relative to the promise. In the face of risk–return profiles that commercial investors deem ‘inappropriate’ – that is, too much risk, too little return – Berndt and Wirth (2018: 31, 32) suggest that ‘[t]here is tremendous pressure for higher potential returns to reflect the higher risks involved’, but also claim that

return rates are not nearly as low as we are made to believe. In the UK, institutions such as Big Society Capital expect return rates between 3% and 5% … in some UK SIBs, investor returns can be as high as 12% or 13%. … In sum, in a marked contrast to the widespread representation of SIBs as high-risk investments with only moderate returns, institutional investors are offered something very different: a relatively safe investment with yields that are not unsubstantial in the current moment of stubbornly low interest rates.

Rates of return are a matter of tension because determining a risk–return profile is not merely a technical exercise. It involves decisions concerning who will bear the material risk – besides service users, of course – of a social intervention failing to achieve its target. Financial investors, as SIBs’ designers seemed to intend? Philanthropic social investors, acting as a ‘protective shield’ in order to help make ‘income streams for investment banks as predictable as possible’? (Berndt and Wirth, 2018: 31) Service providers? Or the state? And, equivalently, it involves decisions concerning who will be rewarded for taking on risk.

In fact, we find that the profitable outcomes for the investors in the Peterborough case did not deliver the promised ‘shared value’ with society. Instead, they reflect an uneven development in which public wealth transferred into private hands in a zero-sum game, an example of what the Midnight Notes Collective (1990) called ‘new enclosures’ and Harvey (2003) ‘accumulation by dispossession’. This is because investor returns were not paid from new savings but from new public expenditure growth and from BIG revenues, as described in the previous section. In fact, an important part of the wealth used as subsidies to ‘top up’ investor returns originates from society’s lower economic strata in a process of upward redistribution. We argue that this can be traced by following the financial flows, reconstructed here. Whereas the Ministry of Justice’s budget is part of wider state spending, financed by government borrowing, taxation and so on, the National Lottery derives its income from sales of lottery tickets, which are disproportionately purchased by low-income individuals (Beckert and Lutter, 2013). Moreover, a source of much of the initial capital for Big Society Capital, the UK’s social investment wholesale bank, were unclaimed assets from ‘dormant’ bank and building society accounts (HM Treasury, 2014; King, 2010). According to the Financial Times, the average sum of an unclaimed personal deposit ‘is less than £100’ (Warwick-Ching, 2018).

The SIB promises to create ‘shared value’. But, accepting the assumption that it is lower-income individuals who are more likely to purchase lottery tickets and to leave deposits of less than £100, it might seem that it is these individuals who are doing more of the sharing, subsidizing social-investor profits. In the case of the Peterborough SIB, the investors and thus the recipients of these transfers were charitable trusts and foundations. We believe they will become even more questionable if and when mainstream financial institutions, seeking ‘competitive rates of return’, begin investing in SIBs. Certainly, the practice is unlikely to reduce the perception, shared by 64% of respondents in the UK in 2015, that ‘the rich get richer and the poor get poorer in capitalist economies’ (Montgomerie, 2015).

Capitalism’s legitimacy crisis

In 2017 the Financial Times editorialized:

Capitalism invites crisis and brings wrenching changes. The pre-crisis failures of leadership, prescience, and stewardship were real. All the same, open capitalism is the only way forward and it requires leadership that acknowledges hard choices, rather than selling easy outrage. The financial crisis is over. The crisis of legitimacy goes on. (FT View, 2017; our emphasis)

Against this background, it has become common in both popular and political-economy literature to ‘identify the zombie as a metaphor appropriate to the socioeconomic present’ (Dale, 2012: 19). For Peck et al. (2010: 112), for instance,

[Neoliberalism] may indeed be about to enter a post-programmatic or ‘living dead’ phase, in which residual neoliberal impulses are sustained not by intellectual and moral leadership, or even by hegemonic force, but by underlying macroeconomic and macroinstitutional conditions – including excess capacity and overaccumulation at the world scale, enforced public austerity and global indebtedness, and growth-chasing, beggar-thy-neighbor modes of governance.

The social investment market is thus coming of age, and being aggressively promoted, in a transformed socio-cultural environment in which neoliberal hegemony is unstable. In fact, SIBS can be understood as a response to hegemonic fragility, though as we argue, we believe the intervention is primarily symbolic, aimed at restoring consent to a modified form of market rule, rather than enabling a substantive shift towards a ‘new paradigm’. As Ogman (forthcoming) elaborates, this involves the recuperation of political alternatives, the selective integration of some of their ideas, as a means of preventing a progressive post-neoliberal alternative from arising, and hence an effort to produce popular consent for a deeply uneven form of market rule; in fact, innovations like the SIB might be harnessed as the source of neoliberalism’s renewal, in a form of ‘roiling’ neoliberalism (Peck, 2012: 24–25).

A key protagonist here is the Economist, which, along with other newspapers such as the Financial Times and Washington Post, insists that politicians ‘make the case for capitalism’ and itself promotes discussion on ‘fixing the flaws in today’s capitalism’ (Economist, 2018). Two of its editors, Andrew Palmer and Matthew Bishop, along with Michael Green, a former Economist journalist, provide some of the strongest evidence for our argument.

For Palmer (2015), the drop in public support for market-centred policies is of clear concern. Acknowledging the ‘profound shift in public attitudes toward Wall Street that followed the 2008 financial crisis’, he nevertheless criticizes even moderate efforts to reform the financial sector, suggesting that the ‘pendulum [has] swung too far in the opposite direction’. Instead of re-embedding the economy (Polanyi), he favours ‘financial innovation’, arguing such ‘creativity’ could be used to make finance ‘help everyone – not just the rich’. For Palmer, ‘[i]nnovative financiers’ are not only enriching themselves, but ‘are currently helping solve an array of socioeconomic problems’. SIBs, for their part, are an ‘extremely promising avenue to explore’, and the Peterborough project is at the forefront of these developments.

Bishop and Green similarly accentuate the political-strategic dimension of social investment, which operates at a higher scale than the spatial specificity of local projects. They imply that while such projects necessarily have material consequences that are strictly limited in geographical space, they can nevertheless have a much broader impact in shaping public attitudes, in effect limiting the critics and opponents of ‘business as usual’. Warning of ‘a politically driven squeeze on wealth’, Bishop and Green (2015: 128) frame ‘philanthrocapitalism’ as a means of ‘reduc[ing] that risk for the rich’. The threat Bishop and Green detect is that the legitimacy crisis of ‘trickle-down’ economics might develop into a concerted effort to address inequalities through the redistribution of social wealth – the restoration of ‘punitive rates of taxation on the very wealthy’ (Bishop and Green, 2015: 128), for instance. The waves of counter-neoliberal social movements since the end of 2010 makes this threat more concrete. In the context of a turbulent political environment, Bishop (2012) situates social investment strategies as part of a revised ‘contract for the one percent’, designed to protect the latter. He notes that ‘high hopes’ have been expressed about impact investing and predicts that ‘[t]he investment product that may produce a breakthrough is the social-impact bond’. ‘Some quick wins for the new philanthropists would’, he contends, ‘also take some of the heat out of the growing anti-rich sentiment around the world’.

From this perspective, social investment appears less as a form of modernization, and more as a rear-guard defence of enormous wealth inequalities, in which ‘large differences in personal wealth [might be] tolerated if the rich make a serious effort to give generously and effectively’ (Bishop, 2012). Moreover, as we have seen in the Peterborough case, claims of ‘effectiveness’ elide the deeply uneven material outcomes of policy practices. We cannot empirically test social investment’s promise of responding to capitalism’s legitimacy crisis – certainly not the impact of a single project such as the Peterborough SIB on broader public attitudes. But, to draw on a point we made at the end of the last section, the ‘topping up’ of investor dividends by lottery-ticket buyers and the untraceable owners of bank accounts containing balances of ‘less than £100’ would not count as evidence of a ‘serious effort [by the rich] to give generously and effectively’.