Few issues in the election cycle are as divisive and controversial as the idea of privatization in the healthcare and educational sectors. After a raft of scandals, for example shocking treatment at elderly care centers and private consortiums closing down schools mid term, many are asking; can private capital be utilized at all in these sectors? Is the overriding profit maximization inconsistent with providing high quality service to citizens from all walks of life? On the flipside, the perception of a faceless, bloated and inefficient governmental bureaucracy, no less scandal prone.
The arguments for and against privatization are well known and often dovetail right-left rhetoric or free market vs. big government ideologies. This is unfortunate as it hinders long-term workable solutions that draw on the strength of both private and public sector. This is where impact investing enters the scene as it can successfully address key arguments on either side.
Eliminate profiteering but not profit: Choose the right type of capital – the impact investor that never compromises on quality of service to secure short-term profits. Impact investors operate under a self-imposed mission fundamentally different to purely profit driven and cost cutting investors. Providing underserved groups with high quality healthcare is one example of the advantageous link between positive social impact and monetary returns.
Increase choice, accessibility and user satisfaction: One size does not fit all. A system allowing for multiple alternatives spur social innovations, expand reach and put users first. Impact investors share the zeal for improving social services with social entrepreneurs, providing them with needed growth capital.
Transparency and quality control: A key tenant of impact investing is the focus on non-economic metrics. Claims of positive impact must be matched by credible measurements. As a new investment philosophy, transparency and third party verification are embraced, providing a stark contrast to sometimes opaque, profit only balance sheets. Furthermore, the public sector’s oversight function is today lacking, with no clear mutual understanding of how to balance profit and non-economic metrics.
Public/private cross sector collaboration needed: A welfare state already reeling under economic strain must seek partners to guarantee long-term survival with consistent quality. Impact investing is built around the notion that success lies in different sectors collaborating on mutually agreed goals. Apart from public sector supervision of welfare sectors there are also opportunities for co-investments. Governmental entities can act as cornerstone investors in cumbersome market segments to catalyze activity and attract private impact driven capital.
Adopting impact investing would be a pragmatic recognition that the path forward is more complex than simplified statements from either side of the political spectrum make it out to be. Politicians should take a close look at this burgeoning movement and enact enlightened policies. Impact investing can be the right formula for both private and public sector involvement that ensures a welfare system serving current and future voters.
Richard Lindberg, social entrepreneur based in London, working to advance the impact investing sector.