Investing in voc. ed. & training as new capital market is not some interesting academic construct

Investing in voc. ed. & training as new capital market is not some interesting academic construct

I can’t believe how the old business models largely continue in the Private RTO space, how some so-called VET experts continue along the same old road and the perpetuation of the same old entitlement from Government business models persist. [Bruce D. Watson, 2015]

Building a new capital market is not some interesting intellectual construct. It requires a fundamental and courageous view of how to do things better from leaders across the sectors who truly care about investing in social change.

Money isn’t flowing to the right places to achieve social impact.

Of course, we understand that the challenge of measurement is different and more difficult in the social purpose world. However, we must recognise that it is the failure to be clear about desired outcomes that is the major inhibitor to effective capital allocation; desired outcomes must be the starting point for any sensible assessment of where to allocate capital. Very simply, we must be clear about the outcomes that we want capital to achieve and be able to measure them. By doing so we will create a virtuous loop so that when outcomes are achieved, we fund based on performance. And when they are not achieved, we defund and re-allocate accordingly.

The social purpose sector presents a very different picture [to Wesfarmers]. If we look at the pivotal area of education and its role in generating productivity for the nation, we have conspicuously failed to allocate funding efficiently. A 3.8% real increase in spending each year from 2000-2012 (a growth of around 45% over this period) has seen at best sideways performance on key global indicators, showing in the failure to improve outcomes for all students.

If education was a division of Wesfarmers, it is highly likely that it would be unsuccessful in accessing further funding.

If we don’t address this failure to use capital to drive success, we will be having the same discussion in 20 years time. And in the education space alone we will have wasted a potential cumulative GDP contribution of close to 0.7% a year on Grattan Institute estimates.

In the social purpose world however the motive for the allocation of capital flows is generally unclear.

Extracts: Michael Traill, http://bit.ly/1rXgud8

A picture of the social purpose capital market

Looking at the aggregate data about sources of capital, it is clear that the government, by orders of magnitude, is the major funder in the social purpose sector. Funding for education in schools (Figure 1) gives some idea of the relative weight of funding.

Figure 2
Figure 2: Government and philanthropic funding to school education

More broadly, government funding is split into three components. While these include endeavours by government to mirror the performance signalling of the commercial capital markets, in practice this is very inconsistent.

…government’s concern with process and probity results in a focus on the wrong measures of performance.

Lack of clear outcomes

The truth is that in many cases funders are not all that clear about the outcomes they want, nor are they monitoring outcomes. A survey of major United Kingdom trusts, charitable foundations and corporates, by New Philanthropy Capital (NPC), revealed that only 45% measured the impact of all their funding and only 38% used evidence of impact in their decision to award funding to applicants.[9]

Both government and philanthropic funders struggle with funding for the long term.

Of course, part of this is that it can be easier to fudge results in the social purpose world – to talk about individual stories of success rather than consistent, replicable systemic results.

Both government and philanthropic funders struggle with funding for the long term. Our experience tells us long term social change is hard. One of our clear insights from 12 years in the sector is that to systematically change the trajectory of opportunity for excluded Australians requires a patient commitment over 10 to 20 years.

This is not something that comes naturally to philanthropic funders who typically offer short term funding. Nor to government, where funding is often tied to short term political cycles.

Clear outcome measurement in the social purpose world

There is … an increasing focus internationally on determining common and readily understood performance targets. NPC’s report highlighted that clear outcome measurement in the social purpose world can and should form the basis for more rigorous funding allocation decisions. The increasing adoption of explicit measurement tools by leading strategic funders in global philanthropy, including the Bill & Melinda Gates Foundation, is a major driver of this welcome trend.

There are also countries which have made real progress in long term performance in education – think of Finland, Singapore or perhaps culturally closer to home, Canada, and what has been done in Ontario. They have made well-documented commitments to identifying and supporting the known levers of performance change over periods of at least a decade.

Let’s change the way we think about changing the world

Four steps to drive an effective, efficient and sustainable capital market for social purpose

So out of this rather bleak picture of a dysfunctional, multi-billion capital market where the link between funding and the quality of outcomes at best lacks consistency and at worst fails to drive any obvious social change, is there any cause for optimism?

The picture of emerging bright spots of good practice tells us yes.

And if we consider all of this to be a call to arms – and at SVA we think it should be – we need to understand what has been driving these beacons of better performance and how to make them mainstream, rather than sporadic.

We believe there are four drivers of a more consistent and systematic approach to capital allocation.

1. The social purpose sector needs to step up

The social purpose sector must embrace the need for change. There are still many providers who acquiesce in the grants game, by chasing and accepting short-term funding from a variety of sources. Providers themselves need to be more strategic, more outcome-focused, adopt longer time frames, give greater priority to prevention, and fashion service offerings that have a real chance of achieving deep long term change. And when smart philanthropists ask for evidence of the impact of their investment, be able to provide it. This is an essential requirement to catalysing change in government, institutional investor and philanthropic behaviour.

2. Leadership from government is critical

Significant culture change is required to empower the machinery of government. Well intentioned public servants will not adapt behaviour unless there is strong encouragement and alignment from political leaders in driving the following:

  • An explicit focus on outcomes and preparedness to put hard targets on the table (the New Zealand example stands out)
  • A willingness to be transparent about what doesn’t work recognising that the deepest learning will come from this
  • A focus on developing partnership funding models that are innovative and require the engagement of business skills
  • The recognition that when government supports programs, it needs to allow and enable service providers to be accountable for delivery of outcomes; but not to manage funding allocation in such a way that it distorts program delivery and performance measurement.

3. Impact investing needs mainstream institutional investors

A scaled impact investing market is possible but will require mainstream institutional support to build a market of the scale needed. Focus is required to build the large scale partnership funded deals. Government will need to be an engaged participant in these partnerships, providing, where appropriate, the kind of long term funding and/or policy commitments that help create impact investment products which provide institutional quality, financial returns and measurable social outcomes. The effective precedent has been established in GoodStart, where the provision of childcare benefits and rebates are fundamental to the stability of the financial structure. Financial institutions are conservative. They will respond to evidence of performance and availability of robust product before they commit.

4. Catalytic philanthropy can drive the case for change

Strategic, evidence-based philanthropy is a key component of a more efficient capital market for social purpose. The model of ‘catalytic philanthropy’, being pioneered by the Gates Foundation and other leading US foundations, is one being adapted and followed by SVA. It recognises the need for philanthropic funding to target programs and organisations which, with investment to prove their case, have the potential to drive significant and systemic outcomes. Catalytic philanthropy is about building and enabling partnerships to ensure progress against clearly defined high impact targets. It explicitly focuses on identifying people, partnerships and organisations that:

  • Have clear evidence of driving positive outcomes, and
  • Contribute to systemic change.

The Gates Foundation’s work in education in the US is an example of this. In particular, the strategy of sharing the findings of the US$45m Measures of Effective Teaching (MET)[13] project enables a large number of schools to use the insights. The Foundation explicitly builds partnerships with teacher unions and government education departments to maximise the reach, impact and funding support for this powerful work.

…we can use catalytic philanthropy to drive social change.

At SVA we believe that we can use catalytic philanthropy to drive social change. We can get the right partners aligned around the game-changing issues, and use the leverage of a combined and strategic ‘ask’ from business, philanthropic and social purpose organisations.

We have brokered major corporate philanthropic support to help take an outstanding program called Exceptional Teachers for Disadvantaged Schools from Queensland University of Technology to campuses around the country. How? By documenting clearly what works, broadening access to capital and ensuring the right talent is brought to the table to get it to happen. And very explicit in that process is demonstrating to government as a policy and funding partner what can be achieved. As the analysis of the social purpose capital market showed us, government must be engaged.

Backing winners, and winning a better society

I grew up in the Victorian town of Morwell; now a postcode of disadvantage. What happens in Morwell, where kids of potential and promise are not given full opportunity to achieve, should not be acceptable in a country that prides itself on the notion of the fair go. It’s not morally consistent with what most of us believe. It’s also dumb economically and we pay the productivity costs for generations of talent and potential slipping between the cracks.

It requires a fundamental and courageous view of how to do things better…

We must think afresh about how we change that.

Building a new capital market is not some interesting intellectual construct. It requires a fundamental and courageous view of how to do things better from leaders across the sectors who truly care about investing in social change.

HOW TO?

www.headstogether.com.au

HEADS TOGETHER is part of a world wide community where businesses, charities and individuals come together to make a difference.

 

 

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