In our ‘Meet the Impact Manager’ guest blog series, we hear how some fund managers in our portfolio have been responding to COVID-19. This week, Danyal Sattar, Chief Executive Officer of Big Issue Invest, shares some educated guesses at the future when we come out of the pandemic and recession, and why the time for social investment is now.
I have been through a fair few recessions in my career. This one is off the scale, for pretty obvious reasons. If you shut down large parts of the economy, that has a direct effect. Despite strong efforts from the Government and others, like the Bank of England, to support us through the pandemic, unemployment is rising. For a generation of our workforce, this is new territory. Looking back at the last two decades, we have been spared a deep unemployment recession. Instead, we have had low real wage increases with low or static standards of living. The gig economy, immigration and flexible working practices have helped maintain high employment. This time, unemployment will be with us as part of the recession.
This is not a UK crisis. In our interconnected world, as with some of the big economic shocks of the past, the rest of the world is going through a similar situation to what we are.
I don’t have a crystal ball to say whether this is going to be a short recession or a long drawn-out slump. We are all looking at the same thing. Will there be a vaccine in the short term? Unknown. How rapidly will the economy adapt? Will the decades-long online trend, along with changing social habits, erode mass retail and service sector jobs; or will new ones be created in different locations. Unknown. We can make some educated guesses, and someone will guess lucky, and be lauded for their foresight. So here are some educated guesses at the future as we come out of the pandemic and recession.
My core proposition is, unless we think deeply and choose otherwise, everything will remain the same.
We tend to believe the world we see is a product of conscious choice. This is because we make decisions, rationally or irrationally, but usually consciously. Rationally, we might choose a bike because of the quality of its components and weight. Irrationally, because it just looks nice, or it is yellow. Either way, we have a decision we are comfortable with. I decided to buy that bike. I bought that bike. I now have that bike.
Our error is believing the world is like this. The interconnectedness of apparently unconnected decisions, results in an economy that when we observe it, we believe we chose to have it – like the yellow bike. But we didn’t. It happened through a set of decisions, the interrelated impact of which was never fully thought through at a national level.
So, the need we have now is to make conscious choices about the direction we need to take. If we don’t, inertia and a collection of apparently unconnected choices, will take us somewhere. That somewhere will not necessarily be a place we want to arrive in.
This is not an anti-economic logic, or abandonment of the free market in favour of state control. It is a recognition that instead of the invisible hand of the market (competition), taking us to a more efficient economy, we have a lot of random hand movements on the steering wheel of our economy, which steer us in a direction we are scarcely aware we are taking.
So, what in that light, should we do, in our charity, social enterprise and social investment world?
- Put prevention at our core
This is the brilliant thing about the work charities, community and social enterprises do. So much of our work is preventative. Yes, it often starts with an emergency response to someone in crisis- be it drugs, alcohol, mental health or dropping out of school. Yet organisation after organisation in our sector traces back to family wellbeing, support for parents and young people, early education, decent housing. All these things we work so hard for, help solve the problem long term. Solving them early saves money. We can position ourselves, not as a drain on the exchequer or always with a handout, but as a sector that solves the problems of society and lowers the overall costs we face in our economy. That’s a strong message to take into an economic downturn, to a government making hard choices on money. That is a long signal and trend, to build into the next 10 or 20 years. Follow that and we might end up somewhere better. - The time for social investment is now
Banks will be provisioning against loss. Loss means reserves and shareholder capital eroded. That means, mathematically, they can lend less (loans have to be in proportion to the capital base of the bank). I would hypothesise we are likely therefore, to see a contraction in bank lending through and out of the recession. That may be bad enough for regular, job creating businesses. There is a double negative to society for our sector. Not only do we have the negative economic and employment effect, but the positive services provided by our sector become more difficult to provide, if cash flow support is harder to get, if loans for investment have a higher bar. Social investors are likely to see higher demand for straightforward debt, and investment from our sector. Not because we are good, or better than the alternative but because the mainstream is likely to contract away from us. - We need to work together
We have worked well with others in doing what we do best – getting money out the door. We have worked with Social Investment Business and a range of other social investors on the Resilience and Recovery Loan Fund, investing funds provided in the main, by Big Society Capital with commitments from Trusts and Foundations if further capital is required. We are delivering the Social Enterprise Support Fund that will provide more than £18 million of grants to support social enterprises during COVID-19. It is delivered by five social enterprise support organisations including us at Big Issue Invest and made possible thanks to The National Lottery Community Fund. We need to continue this cooperation because only through working together, do we get to any kind of scale necessary to solve the size of the problem we face. Across the Big Issue Group, we are working with others on the Ride Out Recession Alliance (RORA).
We know recession is coming. We have to get on the front foot and face it. Working together, we can line up all the things we know will positively work to help people through the difficult times ahead.
I sometimes say that as social investors, we are the plumbers of the social economy. We put in the pipework from places that have money to places that need it, so money can flow. Plumbing may seem an unglamorous activity but try living a day without it. Clean water and decent sewage systems are a foundation of public health. To be a social investor is nowhere near as important as being a plumber, but right now, we need to move money to where it is needed. That is our job today, tomorrow and over the coming years if we are to ride out this recession. So do two things. Redouble your efforts to raise money and apply it to serve the social economy as a social investor. Join the Ride Out Recession Alliance. Now is the time. This is the place. Let’s work together.
