Big business? Big government? To deliver social change, we need a third way

Neither big government nor big business is capable of addressing the social fallout from neoliberalism – rising inequality, climate warming, populism and polarisation
Social enterprises can deliver true change, but they need private-sector know-how to tap funding from stock markets – to create social equity markets

Andrew Sheng

Published: 1:30am, 10 Sep, 2022

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For too long, we have been told the choice is the state or the market. Former US president Ronald Reagan famously said: “Government is not the solution to our problem. Government is the problem.”

Together with former British prime minister Margaret Thatcher, he launched the global shift towards free-market fundamentalism. This was a right-wing reaction to the endless fiscal deficits and inflation generated by left-wing Keynesian economists’ preference for government intervention to solve market failures.

By the 1990s, US president Bill Clinton and British premier Tony Blair were pioneering the neoliberal middle way, adopting free-market ideas of privatisation, while preaching kinder, gentler social protection. Instead of solving government failure, they ended up with failures of both the market and government, with rising inequality, climate warming, populism and social polarisation.

Neoliberal free-market ideas have, in effect, pushed for bigger governments in thrall to big businesses and huge vested interests. This sparked forces of polarisation since the 1 per cent benefited more than the 99 per cent. Guardian columnist George Monbiot argued that neoliberalism’s failures led to disenfranchisement and a feeling of wanting to go back to old times that opened the door to fascism.

US President Joe Biden’s framing of the fight between democracy and autocracy sounds suspiciously like big business Democrats trying to look green and inclusive, against the MAGA (Make America Great Again) Republicans, who seem like macho white supremacists to many non-Americans.

Economics or politics is supposed to be about “why?”, “what?” and “for whom?” But behind that is another question: who acts to deliver what the people want? Thus, the Trumpian call is for the private sector or big business to make changes, whereas the Bernie Sanders solution is for more government to do the job.

Former president Donald Trump speaks during the “Save America” rally at the Montgomery County Fairgrounds on January 29 in Conroe, Texas. Trump’s visit was his first Texas MAGA rally since 2019. Photo: Getty Images/AFP

Is finance serving the real sector or eating up the real economy? When government is too powerful and in thrall to the 1 per cent, how different is that from an unelected bureaucracy ruling the 99 per cent? Central banks just print money to enable politicians to buy votes.

Once elected, promises are forgotten until the next election. Top-down political structures cannot work when bottom-up feedback is missing. Worse, welfare programmes end up not reaching the poor and underprivileged, which is exactly what the inequitable vaccine distribution showed in the Covid-19 pandemic.

So what is the alternative to big business or big government? Historically, we have had social institutions to deal with the excesses of the state or markets, highlighting the importance of charitable work.

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When the social contract is broken, in the sense that the state is no longer delivering essential public goods and services, or failing to protect the masses from raw capitalist greed, then communities organised to help themselves.

Social enterprises are non-government or for-profit organisations that try to provide public goods not provided by the state or big business.

Some of the best public goods, such as changes in global public health, education and the green revolution, have been financed by charitable organisations like the Rockefeller Foundation. Today, the Gates Foundation is a big funder of social change.

Driven by the young, social enterprises are beginning to make waves in climate action, gender, poverty and social injustices. But their impact has been limited because they lack know-how and talent, funding and trust/branding.

A worker organises food at the West Alabama Food Bank in Northport, Alabama, on March 28. Food banks and pantries across the US are stretched so thin by soaring operating costs that they’re having to ration what goes out to feed the nation’s hungry. Photo: Bloomberg

Harvard business strategist Michael Porter was one of the first to ask why corporate philanthropy has not worked to fund more social enterprise. The answer is that CEOs were not focused or encouraged to push for corporate social responsibility. Today, as investors expect CEOs to deliver on ESG (environmental, social and corporate governance) criteria, executives still face the problem of how to allocate corporate philanthropy resources.

The hard reality is that the best talent for organisation, know-how and access to funding is with for-profit corporations. Their employees may be best positioned in their spare time to help micro, small and medium-sized enterprises (MSMEs) become more effective in delivering social projects that enable real change at the frontiers of climate action or social justice.

Social finance is defined as the network of processes, decisions and institutions that finance the production of public goods with private-sector participation. But that network does not exist because MSMEs are often too small and weak to access the talent, funding and branding/trust that donors (state, business or large charities) demand.

Funds are pouring into green development, but SMEs aren’t seeing it

However, the technological platform for raising public funding already exists in the form of stock markets, which have the approval, listing, trading information, registration, clearing, settlement and payment mechanisms. They simply do not operate for non-profit social enterprises.

Similarly, private equity/venture capital (PE/VC) firms have the technology, know-how and funding to “coach” good companies to list or raise capital for profit. So why can’t there be PE/VC firms that use their portfolio of MSMEs to decide which have for-profit potential, and which can best be groomed in their not-for-profit social objectives?

In short, markets like Hong Kong, Singapore and Kuala Lumpur have the opportunity to create social equity markets. From a philosophical point of view, Islamic financial markets are risk-sharing stock markets with moral issues defined by sharia law. So far, few Muslim countries have used stock markets to make social change.

A third way is technically feasible. All it takes is some courage to think and act out of the box.

Andrew Sheng writes on global issues from an Asian perspective