It's Back!

Well, after almost exactly two years I've decided to restart this blog.  A lot has happened in those two years, I've now begun making inroads into the professional world (in a financial company... that is 100% owned by a charity), and learnt a lot about the world and people's economic views.  The economic system of the developed world still appears to be collapsing around our feet, with the greed of bankers and the capitalist system blamed for many of our woes.  Some things haven't changed, I still truly believe that capitalism can be used for good to help solve some of the world's problems.  It still isn't a perfect system and never will be but it does have the right tools for the job, if used by a skilled craftsman.

So what made me start the blog again?  A simple 20 minute video from TED.  I encourage you to watch it but I think the premise misses and important point.  Profit has become a dirty word.  The point of the video is that charities should be allowed to make profits for doing good.  However at the moment we attack businesses that make a profit too, so purely moving charities into the same category may not have the right effect.  What we need to do is rebalance the scales of effort and goodness with the profit they should create. 

I will always remember the comments of one of my left-leaning tutors at university who poured scorn on a recent charity ball, of which there were many at St. Andrews.  Her thinking was, why should a bunch of rich kids feel smug about raising money for charity when they had only done it to have a drunken night in posh attire.  Perhaps that is the thinking that harms charities so much.  We cannot continue to see charity as something we sacrifice for, that we give to as a way of feeling better about ourselves.  Instead why not see it as a way to profit, for ourselves and for the wider community?

There needs to be some convergence of business practice and charities as both have a lot to learn from each other.  There is no reason why a business cannot be working for the good of the communities it works in.  There is no reason why a charity shouldn't be able to run services that generate profit that allow it to expand its operations.  It seems many charities are set up with a good intention but a poor business plan and while nothing is wrong with good intentions they are not always enough to make what could be a good charity successful in the long term.

People naturally buy in to success, they want to be a part of it.  If a charity can be brave enough to show it can be successful then more people will buy into it.  KONY 2012 was an interesting example of a social action charity that went viral.  It had a defined aim and it knew how to exploit social media to get to that aim.  It quickly became unstuck as questions were raised over the spending of the charity behind the project and the very public breakdown of one of its key players.  However it did raise the profile of the organisation and the problems faced in Africa in a unique way that ultimately led to action being taken that would not have happened otherwise.  Whether the cause was justified or not, it achieved its aims in a way that most charities would be afraid to even contemplate.  Perhaps though, other charities and social organisations can learn a thing or two about breaking out from the traditional charitable mould.

Not all charities will be profitable or provide investment grade business propositions.  However there is a growth in social enterprises, for-profit organisations that give back to the community and financial bonds that invest in charities.  It is these areas that should be encouraged and developed, with their benefits given to the world as an example of how we can gather the best minds and the right resources to tackle issues that many would see as 'charity cases'.

And what should we do with the charities that will never be profitable?  Let's still 'donate' to charity.

Green Budget

Glad to see the budget has included some continuation in pursuing the green goals of the government.  Most notably the increased budget for the green investment bank.  Lets hope they continue to keep their promises and further investment is made in making the UK a green economy.

Perhaps David Cameron's call for people to start their own businesses will see the next generation of ecopreneurs come through!

Big Society Bank Busting

I hate to have another anti-government post, but after seeing the news yesterday I felt compelled to have a say on the proposed 'Big Society Bank' (BSB) being created by the government.  At first, along with the green investment bank being created this sounded like a good idea.  However having looked at the detail of the proposals I have some major concerns over whether this is really the best way to promote social entrepreneurialism in the UK.

One immediate area of funding is the proposed raiding of dormant bank accounts with money that has most likely been forgotten about.  In theory this is a good idea, if you forget about an account then you obviously have too much money, or don't know how to look after it.  However there are also genuine reasons for dormant accounts- people moving abroad but planning to return in the future etc.  Is it fair for the government to just 'claim' this money? I'm not sure.  If Switzerland decided to do this they would raise a staggering amount overnight but also create an uproar with financial and political problems, I don't see why this would not be the case in the UK too.

The more worrying source of funding is from so called Project Merlin.  In return for paying their bonuses this year the big banks have promised that they will also provide funds for the BSB.  Great! I hear you cry, except this isn't a donation, this is just another loan, at commercial rates and as far as I can tell their loans will be protected by the government too.  This is hardly a great corporate act of social responsibility, it is lending money at commercial rates a.k.a what banks do all the time (or should do anyway).  I'm not sure I am comfortable with this greenwashing.  Even if the cause is good, if the money is coming from money markets anyway, why can't the BSB bypass the banks and go straight to the markets?

There is also a problem with where the money is going.  The proposition is not for the BSB to provide funding for social enterprises and volunteers which will form the backbone of the Big Society.  Instead the BSB will give the funding to other investment funds which will then decide who to lend the money to.  Seems like an unnecessary extra layer of administration that will only add costs that will ultimately be passed on to the people taking the loans- the people who are supposed to be encouraged by these policies.  So to recap, social entrepreneurs who can't get funding from mainstream banks can get funding from investment trusts who have been funded by the BSB by, er, the mainstream banks that wouldn't lend to them in the first place... at the rates the banks charge plus fees from the BSB and the investment fund.  Not the best example of market efficiency really.

I am all for opening up sources of funding for social entrepreneurs, I am all for the concept of Big Society and removing social control from central government.  The BSB unfortunately does not seem like the best vehicle to promote this however.

Save our Woodland!

So, the government has announced its plans to sell off the nation's publicly owned woodland.  This is obviously a measure designed to raise money to help ease the deficit.  While I am all in favour of cutting the deficit as quickly as possible, I don't believe this is the way to do it. 

There has been a lot of campaigning against the proposed sale and already the government is showing signs of backing down from its decision.  I am not going to repeat arguments why we shouldn't sell the public forests, the arguments for this can be provided elsewhere.  However I would like to propose an argument for why we should keep the woodland.  The value of the woodland is immeasurable and the force of opinion this news is generating is a sign of that.  I also feel there is the potential to create real economic value from the woodland without the privatisation of historic areas.

There is a premise in the government's decision to sell the woodland: private companies would be able to profit from purchasing this woodland.  There are many commercial areas of woodland that are profitable (even discounting the tax relief available on woodland ownership).  The risk is that by letting the forests fall into private hands, the freedoms the public have will be lost.  I am no expert on the Forestry Commission, but from what I can tell it does an adequate job in preserving the woodland it controls for the enjoyment of as many as possible.

If the woodlands at risk of sale have the potential of profit for private companies why not change the remit of the Forestry Commission to begin exploring the revenue streams it could create through its own woodland?  I am not talking about the obvious timber values but other public values it could create.  Why not open centres and tea shops to encourage visitors?  Why not use its existing expertise to run training courses for people interested in forestry and engage with other woodland owners?  Some potential purchasers of the woodland up for grabs, such as The National Trust have mooted such ideas, I would argue that long term value can be created for the public by following these lines or with partnerships rather than a wholesale sell off that will mean the public losing control of this great asset.

Ecobonds

Ecotricity, an electricity company which sources all its electricity from wind turbines, recently raised a £10million bond release.  This is the largest private bond release in the UK and was even 50% over subscribed.  The company offered interest rates of 7% or 7.5% for its customers.  The company promotes itself as the largest investor (by customer spend) in renewable electricity in the UK and has several wind farms across the country plus more in the pipeline- which it will spend its bond capital on.

This scheme is interesting on many different levels, the scale of the bond issue, the high interest rates offered and its over-subscription.  What is even more interesting is that this comes at a time of economic downturn when we are told people have very little money to invest or spend.  Most financiers might have thought now was not the ideal time to launch such an ambitions bond release.  However this is not the case and the launch, not widely covered in the press, has been a huge success.  This is surely a sign that investors are happy to trust green companies with their money and many analysts are now predicting a surge in green investment.

With the government promising a green investment bank, which should open its doors in 2012, things are looking promising for Britain's green credentials.  Often environmental projects face early fund raising issues owing to high start-up costs but if money is invested wisely we could see great returns, both financially and for the environment.  The caveat here is that we need to ensure we do not create an 'eco boom' that leads to a bust and that money is spent wisely and carefully to offer the best sustainable solutions but not throwing money at any project that labels itself green.  What is needed now are strong financial analysis tools that will allow us to find the best places to invest in not just investing in anything green because it is the fashionable thing to do.

Environmentalists and investment bankers are not normally bed-fellows but there is a possibility that working together could become a win-win situation.

International Development

There is a growing realisation that if the developed world is to move towards a sustainable economy then a helping hand needs to be given to the developing world.  While the UN predicts an increase in world population to reach 9 billion by 2050 the majority of this growth is in the developing world.  As the developing world becomes developed people expect further consumption of goods such as cars and larger houses that put further pressure on the planet's resources.  If 6 billion people are already causing so much damage to the planet, with a third of the population being responsible for the majority, what hope do we have with 9 billion people expecting the same level of lifestyle?  The problem is that even if the developed world becomes completely sustainable, those developing cause just as much damage.

There are two apparent solutions: stop the developing world becoming developed or somehow force them to reduce their population growth rates.  Neither of these are morally or politically acceptable, but there may be a solution that will solve all these problems in one.  It may in fact be the case that doing the reverse is the best option.  As populations become developed, their population growth rate tends to decrease.

This, at first, appears counter-intuitive.  Surely as health care improves, more people will survive and therefore the population will grow?  Evidence suggests otherwise however and some slightly more complex logic needs to be applied.  In a developing nation it pays to have more children.  Where infant mortality is high, parents have more children, assuming some may become ill they need more to compensate for this.  They also need more children that are able to work so that they can provide for the parents when they become too old to work.  The cycle then becomes a generational increase in population growth.  When a country becomes more developed the population growth decreases for a variety of reasons.  Improvements in healthcare mean child mortality improves, meaning parents no longer have extra children in case some die.  Educational improvements mean people are able to make more informed decisions over parenting, most significantly, women are liberated and have a greater choice over whether to have children or not.  Commercial improvements mean people are able to secure more stable incomes and do not need children that will support them in their later life.

I accept this is a very simplistic view and do not want to appear patronising.  I don't think the conclusion of this is to simply impose 'Western' style developments on developing countries and expect them to become developed nations that are simply copies of existing  countries.  Yet there is a compelling case that by giving aid in the right areas developed nations can improve the lives of those living in developing nations as well as improving the global prosperity.  Such giving, done in the correct way, can significantly help countries and in the longer term ensure global cooperation on many different levels that would not exist without such a view on the world stage.

Finally a little thought for you.  The US spent a lot of money fighting the war in Vietnam to prevent it becoming Communist.  What they achieved was alienating the people they sought to help and ultimately not doing much to stop the Communists.  If the money they spent on bombs had been spent on rice and development aid they would have probably achieved a lot more with much less destruction.  Will we ever learn lessons like this for international development?

The Wealth of Nations

There is a small point that I would like to make clear.  The terms rich and wealthy have become synonyms, but there is a subtle difference in the way I use them and their consequences.  Rich, by my definition, means having a lot of money.  Wealthy means to be able to support a lifestyle.  To illustrate the difference, consider two people who have just won £1million on the lottery.

The first goes out and buys a huge mansion using a mortgage to cover most of the purchase, then a sports car, luxury holiday and clothes.  This person now would be described as rich, with the possessions expected of that amount of money.

The second person buys several properties outright, lives in one and rents the others out. With the rental income they are able to support a modest but debt free lifestyle.  This I would describe as wealthy.

This is a basic example but I want to highlight the difference I see in the two.  I would also like you to consider which lifestyle you would pick from these two.