Ask the Experts: When Profit Meets Social Purpose
Can impact investment be an effective tool to reduce poverty?
Michael Edwards Answers:
Judging by the amount of buzz around impact investing, social enterprise and corporate social responsibility, one could be led to believe that these ideas provide the key to social progress in Latin America. But this would be a dangerous delusion, threatening to divert support from the kinds of public action and civil society activism that have reduced poverty and inequality across much of the region to levels that compare quite favorably with the United States.
Redistributive policies like raising the minimum wage, investing in education and strengthening the social safety net have had important effects across Latin American societies, mirroring the earlier experiences of successful development in East Asia and elsewhere. These experiences show that only a dynamic market economy can create the surplus that progressive social goals require; but only strong government intervention and sustained citizen pressure can direct the benefits of growth in the long-term public interest.
Of course, it would be crazy to discourage more social responsibility in business, and there will always be instances in which private investment can help to expand the provision of socially and environmentally useful goods and services—like microcredit and the spread of energy-efficient technologies. But the health and education of the poor and how we care for each other and create healthy communities will never generate the short-term returns that are required to pull in private resources on the necessary scale. “Social capital markets” will create a patchwork of social provisioning in place of guaranteed, universal access to services—and nowhere in Latin America will gain from that.
Experiments in impact investing and the like should be encouraged, but they are the icing on the cake of a more responsible capitalism: tasty and attractive, but a thin layer on top of the thick mix of policy action that really holds things together.