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Accelerating the Impact Economy: How Government Can Get Us Into Gear

Have you ever wondered whether government has a role to play in the impact economy? Deloitte has, and they believe that everyone from impact investors to social entrepreneurs should understand what government can do to grow the space. For this special bi-weekly series, the Skoll World Forum and Forbes have partnered with Deloitte to discuss policies, politics, and possibilities for government to accelerate the impact economy.

 
 

An Important New Task for the U.S. Government

Sonal Shah

Senior Fellow, Case Foundation

Jitinder Kohli

Director, Public Sector Practice, Monitor Deloitte

 

Setting the Table: Who’s Who in the Impact Economy

Shrupti Shah

Director, GovLab, Deloitte Consulting

Ross D. Rocketto

GovLab Innovation Fellow, Deloitte Consulting

Rob Terrin

GovLab Innovation Fellow, Deloitte Consulting, LLP

The Impact Economy Abroad: What the US Can Learn From the UK, India and Australia

Ross D. Rocketto

GovLab Innovation Fellow, Deloitte Consulting

Rob Terrin

GovLab Innovation Fellow, Deloitte Consulting, LLP

Shrupti Shah

Director, GovLab, Deloitte Consulting

 

What is the Impact Economy Anyway?

What is the Impact Economy Anyway?

Shrupti Shah

Director, GovLab, Deloitte Consulting

Ross D. Rocketto

GovLab Innovation Fellow, Deloitte Consulting

Rob Terrin

GovLab Innovation Fellow, Deloitte Consulting, LLP

August 6, 2013

 

All levels of government are facing a new wave of challenges ranging from underperforming schools and food deserts; to college affordability and fostering economic growth. What makes things harder is that government must achieve its goals in an environment of diminishing resources, rising citizen expectations, and decreasing public confidence.

Despite the wide ranging nature of these challenges, governments traditionally respond, in large part, by pulling a few levers. They regulate and enforce; tax or subsidize; and provide services directly or pay for others to do so.

Unfortunately, many of these tools are rooted in the idea that government can and must be the central actor in providing for societal needs.

This does not have to be true.

For years nonprofits have used individual and corporate resources to tackle social problems, plugging holes in government services. At the same time, countless private actors have built for profit companies that have brought healthcare, education, and other benefits to communities.

However, there is an exciting development in this system – the rise of social enterprises and those that invest in them.

The social enterprise alliance defines a Social Enterprise as a business that is committed to delivering social value through market-based practices. According to recent estimates, it’s possible that the sector employs approximately 10 million people with estimated revenues of about $500 billion, or 3.5 percent of total US GDP.

Social enterprise investors range from venture capitalists to philanthropic organizations. While it is difficult to measure the current market for impact investing – according to a study conducted in 2010 – the total invested capital could be between $400 billion and $1 trillion by 2020 both domestically and internationally.

To better understand how this emerging investor class can help governments we have outlined potential partners government can target. To achieve alignment between government and investors is easier said than done. In order to mobilize private capital to provide public value government will need to work closely with these actors and secure their buy-in. Below are potential sources of capital.

  • Individual Investors – An investor that buys and sell securities for their personal account, and not for a company or organization
  • Foundations – A nonprofit that is created to distribute resources to charitable organizations.
  • Commercial Banks – a financial institution that provides services such as accepting deposits, giving business and auto loans, mortgage lending, and products like savings accounts.
  • Angel Investors – An affluent individual who provides capital to a startup in exchange for convertible debt or ownership equity
  • Venture Capital – An organization that pools investor resources to invest in startup and small businesses with high risk and above-average returns
  • Private Equity – Investors or funds that make investments directly into private companies or conduct buyouts of publicly traded companies that result in delisting.
  • Investment Banks – A financial institution that helps companies and governments raise money by issuing and selling securities as well as by raising both equity and debt in the capital markets. Specifically, investment banks help companies raise money by:
    • Lending expertise around best strategies and places to raise debt or equity capital
    • Preparing documentation that protects the entity from a bad investment
    • Making sure all government regulations are followed
  • Institutional investors – organizations with large sums of money to invest in securities, property, or other assets. Institutional investors include organizations like banks, mutual funds, insurance companies, labor union funds, and pension funds. It is estimated that institutional investors own more than 70% of the largest 1,000 companies in the Unites States.

In addition to investors and entrepreneurs there are many support organizations that measure financial and social value, offer unbiased and independent opinions, and offer business services that facilitate the creation of financial and social value. The market for third party evaluators has grown recently as Social Impact Bonds (SIBs) have begun to gain traction at the state and federal levels. In this case, third party evaluators are responsible for looking at the social outcomes of a SIB in order to determine whether government needs to pay back the investor.

Together social enterprises, their investors, and those that support them form the Impact Economy. This series will describe the impact economy in more detail, show its value to government, and finally, lay out steps that the US government can take to increase the flow of capital toward social enterprises.

To whet your appetite, check out our video:

 
 
 

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