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The Economic Case for Reducing Indigenous Disadvantage in Australia

In Australia, the Australian Football League celebrated the contribution of Indigenous Australians to the game. This year’s ‘Indigenous round’ will be remembered for Adam Goodes’ war dance after kicking a goal. It was also reconciliation week, that is the week where Indigenous people were counted in the census and the historic Mabo decision that recognised Native Title. Yet, despite the mainstream acceptance that the past treatment of Indigenous Australians was shameful, there was little discussion that Indigenous Australians are still living with the effects of European colonisation. Indigenous Australians have a 10 years shorter life expectancy than non-Indigenous Australians; they make up 26% of the prison population in 2008 whilst making up 2.5% of total Australian population in 2006; 17% were unemployed in 2011 compared to 3.6% of non-Indigenous population; and Indigenous people account for 9% of homelessness. These social, health and economic indicators have budgetary consequences for both Federal and State governments. While there exists a strong moral case to reduce Indigenous disadvantage, there is also a very strong economic case for Australian governments: reducing Indigenous disadvantage could save both Federal and State governments $450,000per person over their lifetime.

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Red Tape and Social Impact

 

Summary

Red tape (i.e. regulatory burden) reduction has been a focus for governments in recent years. However, the focus has been on the private commercial sector and has largely ignored other sectors. In this post I will discuss the red tape imposed on social service organisations. The red tape has implications beyond increasing costs for social service organisations. At worst, it could provide perverse incentives for social service organisations to focus on process and outputs rather than producing and measuring genuine social impact.

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Tying the Hands of the King: Impact Investment as a Commitment Device for Governments

Yesterday, I made a pitch to a foundation to fund the development of an adaptation of the Social Impact Bond idea. During the discussion, one of the selection committee asked me, “this bond will lock government in to producing these outcomes for ten years. Do you think that is a good idea?”

I wasn’t expecting such a question, but the role of commitment on the outcomes of government policy has been a concern of mine (see this report for more details). So while I was unprepared, I had definite views on commitment and government policy. So, I replied, “as someone who has worked in government for a while, one of the main problems is that government lacks credible commitment. So, yes, I think it is a good idea for government to be locked in to produce social and environmental outcomes. Otherwise, their priorities will change every three years with a change in government. I think impact investment is a great commitment device. It ties the hands of the King.”

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Kindergartens as Engines of Economic Growth

I was flicking through the OECD’s Education at a Glance 2014 to get a quick understanding of how Australia’s education system compares to the rest of the industrialised world. Australia mostly did well in the indicators compared to the OECD average, especially for university education. Although, it was a bit worrying to see that Australian school students’ educational scores stagnate. But there was one indicator that caught my eye, and that was the very low enrolment rates of Australian children in pre-school education (less than 20%) compared to around 75% for the OECD average. This places Australia the 5th lowest for pre-school enrolments in the OECD, with only Indonesia, Turkey, Switzerland and Greece being ranked lower. This caught me by surprise because there is pretty strong education and economic research that demonstrates the long-term benefits of early childhood education.

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Indigenous Disadvantage and Impact Investment

I must commend the Australian governments, at both the Federal and State/Territory level for committing to reduce Indigenous disadvantage. As part of the governments’ efforts to reduce Indigenous disadvantage, they charged the Productivity Commission to produce a biennial progress report series – the Overcoming Indigenous Disadvantage (OID) series. The 2014 edition was released in November. I was interested to read this edition to see how efforts to reduce Indigenous disadvantage was faring, and if there was potential to for impact investment to make a difference.

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Risk, Market Failure and Government: Case for a Social Impact Bank?

Last week, I attended the All-Energy Australia Conference because of my interest in renewable technologies and energy efficiency. A couple of speakers from the Clean Energy Finance Corporation (CEFC) were highlights for me. The CEFC is an Australian Government-owned financial corporation that was established to address financial impediments to private financing of renewable energy, energy efficiency and low emissions projects and emissions – i.e. it addresses a market failure in clean energy financing. It does this by developing innovative financial products and working with private financiers, principally aimed at reducing risk which in turns reduces the risk premium charged to clean energy projects and companies. Furthermore, it does so by actually generating a profit for the Australian Government; it provides loans and equity on a commercial basis and doesn’t provide grants. It seemed to me that basic model of the CEFC would be useful in catalysing private capital in other policy areas, such as reducing social disadvantage. This blog post will go through my thinking on how a ‘Social Impact Bank’ could work along CEFC lines.

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Social Return on Investment and Benefit-Cost Analysis: What is the Difference?

“It is better to be vaguely right than precisely wrong”, so said the famous economist, John Maynard Keynes. Is this the right attitude to take when measuring the non-marketed social benefits from social services programs? Or should all possible effort be expended to precisely quantify the benefits and costs of a social services program? I would argue that it isn’t possible to precisely quantify social benefits because of the difficulty of collecting data. However, that doesn’t mean that we should accept that a social benefit is material without some transparency. And this is where the Social Returns on Investment (SROI) methodology can help improve the rigour of investment decision-making in social programs. (more…)

Social Impact Bonds: Aligning Incentives and Social Impact

You have probably been approached on the street to donate to a social or environmental cause by an enthusiastic spruiker. If you are like me, you are torn between two impulses: one to protect yourself from being ripped off, but the other to help. Because I can’t verify if my donation will actually make a difference, I usually don’t donate. This is an example of what economists call ‘asymmetric information’; the potential donor has little or no information on how their donation may help, whereas the charity organisation holds this information. Because of asymmetric information, people who may want to help do not help because they cannot verify (without incurring high costs) whether or not their donation had an impact. Social Impact Bonds (SIBs) are a way of overcoming this asymmetric information problem. (more…)

Introduction to Barefoot Economist Services

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Barefoot Economic Services is a new type of consulting firm that seeks to develop a long-term relationship with small companies and not-for profits to improve their effectiveness. It seeks to fill a gap in the market that economic consulting firms have ignored. Barefoot Economic Services is of the belief that growth and innovation is greatest amongst smaller firms. We also believe, that collectively, the greatest potential for change and impact will come from small firms.

Barefoot Economic Services’ mission is to help small Australian companies and non-profits to improve their impact. (more…)