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Somewhere in the crazy wastelands of Twitter in the last week I stumbled across this: If capitalism is such a great system, why does it have to come to socialism every ten years begging for a bail out.”

Of course it is not ‘socialism’ that is bailing out capitalism – so let’s rephrase the question: If big government is bad and the 'markets' (read large corporations) should be left alone to make profits and pay almost no tax in good times, why is it in bad times that governments should suddenly find hundreds of billions if not trillions of dollars to bail out those same big corporations?

 This question was most starkly posed in 2008/9 when big financial institutions demanded to be rescued from a crisis created by their own craven greed and irresponsibility. They were bailed out, and nothing in the international economic order changed as a result.  As usual it was the poor who suffered lasting damage, losing their homes (in the US) and jobs and savings around the world. The financialized, profit maximizing bottom feeding form of capitalism that generated the great recession marched gloriously through the next ten years, accumulating ever more wealth, leaving the rest of the world behind. In most of Europe, the USA and the UK governments and International Financial Institutions retreated into the “let’s leave everything to the markets” position that had dominated economic thinking in the west since the 1980s. Austerity funded the corporate bailouts and led to the cutback in social spending so cruelly exposed in the current failure of public health systems and the immediate crashing into poverty and unsupported unemployment by workers (especially in the gig economies of the developed nations and the informal sector in the global south.)

The opportunity was missed to assert that economies should serve the whole of society, that there are areas of society that should not be subjected to the market, and that it is the role of the state to guide and regulate economies, to limit the power of finance and to ensure the attainment of agreed social goals.

The current global economic crisis is of course much deeper than that of 2008, and it is less of a self- inflicted wound, with a virus as its immediate cause.  But because it is both deeper and more extensive than the Great Recession, this rupture is exposing even more brutally the shortcomings of the dogma that has ruled economic policy and practice for at least four decades The shutting down of so much of the production and service sectors of the economy, the collapse of the markets and the public health emergency has led to conservative governments around the world behaving like latter day Keynesians, spending like crazy to keep the markets afloat and putting some money into the pockets of their citizens, intervening in mortgage and rental markets and nationalizing private health care in Spain and Ireland.

It is amazing to watch as big corporations and billionaires again drop their mantra that markets are about survival of the fittest and that competition leads to the creative destruction of the inefficient who are replaced by more efficient players. Instead they are demanding that taxpayers bail them out again. And Bernie Saunders and Elizabeth Warren are having their point made for them (albeit two months too late) that health care should be available to all and not linked to employment or the ability to pay for private insurance.

When the Financial Times has this to say in an editorial on April 4th: …

“Radical reforms — reversing the prevailing policy direction of the last four decades — will need to be put on the table. Governments will have to accept a more active role in the economy. They must see public services as investments rather than liabilities and look for ways to make labour markets less insecure. Redistribution will again be on the agenda; the privileges of the elderly and wealthy in question. Policies until recently considered eccentric, such as basic income and wealth taxes, will have to be in the mix. “

…. then surely the neo-liberal narrative is gasping on its death bed.

What replaces market fundamentalism is uncertain:  World War 1 and the Great Depression led to fascism across much of Europe. World War II led to Social Democracy across much of Europe. What happens next depends on what we all do next.

So how should the impact investing community respond. Some early rather random thoughts:

1.      Drop the notion that impact investing and social entrepreneurship will solve the world’s problems. This is something that governments and international agencies, urged on by social movements, have to do. It will involve redirecting and mobilising economies to address crises that have preceded the pandemic and that will be even greater when it has run its course.  

2.      Support progressive movements by organising and voting in your personal capacities.  Then see how your investments can support and contribute to the development of new economic paradigms. It should be a relief to be part of a much greater effort, rather than taking on responsibility for mobilising trillions of dollars to change the world. That is the job of governments that have powers and legitimacy that no impact investor has. Instead focus on doing the best you can in the niche where you work (impact investing).

3.      Drop the notion that there is a market solution for almost everything. Firstly, some things must be done by the state (like paying for public health initiatives). Secondly “the market” is not one thing, so you have to start defining the kind of market you want to invest in.

4.      Following directly from the above point, excise for ever the notion of market related returns, risk adjusted returns and the search for comparative valuations: (the “comps” so loved by investors everywhere).   These are nothing more than the historically established expectations of excessive profit by the private equity funds and investment banks that have vacuumed up society’s wealth leaving everyone else poor. They should not guide the impact investment community, and nor should market returns be an allowable goal for commercial partners in blended finance investments. Otherwise impact funding is simply enabling (and justifying) the continued expansion of a global economy driven primarily by shareholder profit.

5.      Invest in enterprises that showcase new (old) forms of business; where there is a cap on executive pay, workers receive decent wages and benefits and profits are shared with staff and perhaps the community as well as investors. 

6.      Lead the way in transforming the financial sector. The purpose of finance is not to make the financiers rich.    The purpose of finance is to enable the real economy to provide goods and services that people need by investing in ethical companies; and to help finance the emergence of new kinds of businesses and industries that contribute to economic and climate justice.  There are enough tools out there to be deployed in pursuit of this purpose.

It would be a pity if impact investors failed to adapt to the new reality and found themselves sitting to the right of the Financial Times, because of a short lived love affair with the notion that you can change the world without really changing anything very much at all.