Only six hundred miles separate Westminster from Berlin's Tiergarten, the political heart of Germany. Yet London and Berlin stand far apart when it comes to social investment and innovative instruments like Social Impact Bonds (SIBs).
While the United Kingdom is championing the global development of social investment, Germany has taken a back seat thus far. German policy to further social entrepreneurship has remained lacklustre and enthusiasm for a watershed in social service financing and delivery seems limited.
German precaution is not surprising. At the Berlin-based think tank, Stiftung Neue Verantwortung (SNV), we are halfway through a 12-month project called, Innovative Government | Social Impact Bonds. The project brings together diverse stakeholders ranging from social entrepreneurs located in Kreuzberg, one of Berlin's most dynamic neighbourhoods, to policymakers at various federal ministries. And over the last six months a common theme has become apparent: a majority of the German stakeholders adhere to the mantra that the German social and welfare system differs significantly from its British counterpart, not only structurally, they proudly add, but also qualitatively.
Six social welfare associations, namely Caritas, Diakonie, Zentralwohlfahrtsstelle der Juden, Deutsches Rotes Kreuz, Arbeiterwohlfahrt, and Paritätischer Wohlfahrtsverband provide manifold services ranging from childcare assistance to nursing to care for the elderly in Germany's extensive social safety net. And while the former three are affiliated with religious organisations, all six profit from their contractual relationships with the state.
Therefore, the main questions our multi-sectored project team seeks to answer are: do Social Impact Bonds fit into the carefully orchestrated system of relatively high levels of public financing and social service provision by the "Big Six" welfare associations, which inclusively employ nearly 1.7 million people in more than 100,000 organisations? And if so, how?
There are two big areas of uncertainty. One is how the growth of a private social capital market will influence state funding for public welfare programmes and social service delivery. Welfare associations, politicians, and economists expect state institutions to withdraw funding for social services once private capital has taken root. Will public finance be crowded out by private finance?
A second major source of angst and contestation is the other potential negative externalities if the social service and welfare system is infused with the dynamics of private equity. Many observers feel the current modus operandi has room for efficiency gains. At the same time, they argue that the social and political contentment and the smoothness with which Germany sailed through the global economic crisis may prove the overall effectiveness of the current architecture. Major stakeholders wonder how the growth of a social capital market will affect the overall stability of the system and whether it will introduce a high level of volatility.
These questions were at the forefront of the UK-Germany Knowledge Exchange on Social Investment and Impact, jointly convened by the British Council Germany and stiftung neue verantwortung in Berlin in May 2014. The event, which included workshops on social impact analysis and the implementation of Social Impact Bonds as well as a public panel discussion on social innovation, proved fruitful for German participants in three regards.
First, it highlighted the potential of SIBs to introduce more rigour in evaluating social outcomes. Second, it stressed that Social Impact Bonds do not have to follow a clear structure and/or organisational setup; the institutional design of SIBs can be modified depending on the respective context. Third, the open and inclusive discussion highlighted the point that SIBs should not be seen as panacea for all social problems or constrained public finances. In the German context, this means SIBs may be primarily additive to existing structures rather than substitutive.
Likewise, the British participants took useful lessons home. Tamsyn Roberts, Head of the Centre for Social Impact Bonds, Cabinet Office, remarks, "While in many ways the UK is leading the way in the development of social investment and social impact bonds, we certainly don't have all the answers and have a lot to learn from the experience of other countries. The UK–Germany Knowledge Exchange was no exception – exploring the challenges to implementing SIBs in Germany raised a lot of questions and issues that we are also thinking about it the UK, particularly around the role of investors with different motivations and the impact that they may have on SIBs in the future."
The road ahead for social investment and Social Impact Bonds may still be long in Germany, but as author Hermann Hesse succinctly observed, "magic dwells in each beginning," and the UK-Germany Knowledge Exchange on Social Investment and Impact may prove to play a key part in that beginning.
Contact the British Council at social.enterprise@britishcouncil.org
More from the British Council partner zone:
• Myanmar: lessons from social enterprise in a frontier market
• Empowering women social entrepreneurs in India
• Nobel Peace Prize winner Yunus urges leaders to create "poverty museum"
Content on this page is paid for and provided by the British Council, sponsor of the International hub
