How Private Profits Became Public Benefit – a Case Study of Impact Investing and the Financialization of Welfare in the U.K.

Impact investments (II) are for-profit private investments that seek a “measurable social return.” Hailed by supporters as support for boundary-spanning social entrepreneurs in creating “sustainable hybrid organizations” (Battilana & Lee, 2014), opponents interpret II from a perspective of financialization (Chiapello, 2015). Lacking, and provided here, is a qualitative empirical study that takes the political role of II seriously and asks: how is II financialization?

Methods

I studied British II proponent’s discourse in a representative sample of 1,136 pages of reports. II reports combine descriptions of reconfigurations in the governance and provision of social services with normative judgements (“best practices”) to a narrative. Applying the perspective of “noumenal power” (Forst, 2015), a Foucauldian-Habermasian expansion of orders of worth theory (Boltanski & Thévenot, 2006), narratives are central to power, as they allow justification of action. This allows to conceptualize financialization as a shift in power from state to finance that becomes visible in a) how finance affects orders of justification of the state, and b) changes in actors’ “noumenal capital,” that is, the capacity of finance to affect relations of justification withthe state. This paper addresses the former and briefly outlines the latter. 

Results

The II narrative presents the social sector’s goal as addressing “needs” of “beneficiaries,” that is, providing individuals excluded from labor markets (e.g. prisoners, handicapped) with human capital to facilitate their inclusion. Work, even if unpaid, is considered to create an upward spiral of self-realization reducing virtually all social problems. The cause for lacking satisfaction of “needs” is seen in public ownership – markets are depicted as devices to translate “needs” into measurable demand. As satisfaction of demand translates into organizational revenues, an effective social sector is to consist of large “social enterprises”. The creation of large corporations is seen as the prime competence of investors. Investors’ large quantities of capital would rapidly be deployed into the social sector, if profits and risks were comparable to financial markets (at 7-8% p.a.). This should be achieved through “leverage”: spending public capital to tweak private investments’ risk and return – instead of publicly paid provision.

Discussion

Many British policies since 2007 can be seen to follow the narrative of leverage: Social Impact Bonds allow private returns through public expense reduction, public grants for “investment readiness” of social enterprises have been set up, and II enjoys tax exemptions. This hints towards a new order of justification in welfare, redistributing roles between public and private capital.

To understand how financial narratives gained prominence in public policy, it may be fruitful to study the financial sector’s accumulation of noumenal capital longitudinally. Beginning with New Labour’s economization of welfare as a quest of production (of human capital) instead of redistribution (Powell, 2000), it might have been discursive devices such as “social investment” (Giddens, 1998) that allowed finance access to the construction of narratives regarding welfare. The study of financialization could benefit from such a research avenue as it collapses ontological barriers between its political economy (Krippner, 2005) and micro-sociological conceptions (Chiapello, 2015).