A framework for growing social and economic impact in place

In Australia disadvantage has a postcode, and one of its key indicators is persistent joblessness – with some areas experiencing many times the national level of unemployment. Despite the comparative strength of our national economy, some communities are still being left behind. For our most disadvantaged communities, joblessness has become entrenched and enduring as economic restructuring continues to shift the nature and location of employment.   

I recently authored two reports on understanding and building ‘Place-based Impact Investment’ in Australia. The reports were commissioned by a cross-sector group comprised of DEEWR, Mission Australia, JBWere and NAB. These reports argued that Impact Investment has the potential to play a part in preventing and reversing place-based decline and disadvantage in Australia. (These reports are available for download at http://www.deewr.gov.au/Employment/Programs/SocialInnovation/Pages/PBIIA.aspx )

While I’d encourage you to read these reports, I don’t want to outline their contents here. Rather, I’d like to explore how addressing enduring place-based disadvantage can potentially challenge some of our understandings of where to direct our efforts for change.

Importance of the role of investment and wealth creation

The reports call for a broadening of the ways in which we are currently conceptualise the space and the focus for social impact. They suggest that in order to address place-based decline and disadvantage, it is not enough only to focus on growing welfare and service delivery responses. We need to understand the role of investment and wealth creation if we want to build opportunities and pathways out of poverty.  This is not to discount the important work that’s being done through welfare and service delivery, but what is also needed is a framework that integrates social and economic responses to reverse underinvestment and grow local jobs. 

I’ve spent a great deal of time over the last decade in communities that could be described as disadvantaged. One of the things that has concerned me over this time is how the dynamics between public and private investment become interconnected in what has been termed a ‘spiral of underinvestment’, as depicted in the illustration below (this spiral has also been highlighted by the Social Investment Taskforce in the UK over the past decade). 

Importance of plugging capital leaks

In such communities decline and under-investment is often palpable in the number of empty shops and a lack of commercial services.

Yet it is too simplistic to suggest that all that is needed is new capital and greater investment. In order to shift or reverse decline, it is not only more inputs that are needed. We also need to make sure that the capital that is injected into these areas actually stays around and doesn’t leak straight back out again. To illustrate this we can look at two very different ‘growth’ sectors in many disadvantaged communities – the social welfare sector; and the low-end retail sector (such as the ubiquitous ‘two-dollar shops’).  Though they play vastly different roles in communities, they share a common economic trait in that most of the money that is brought into communities by both these sectors leaks straight back out of the local economy rather than circulating in it and thereby contributing to local economic development.  Yet it is this local economic development that can lead to opportunities and potentially to pathways out of poverty through job creation and economic regeneration. 

In relation to the social welfare sector, it is appropriate that services locate in areas where need is highest. However, it is no longer enough to focus only on the social impacts of these services in disadvantaged communities. We need to also to understand their economic impacts, including how money flows into and around such services and how much actually remains or is invested in a community.  Increasingly the challenge for such services is to really examine the economics of how they engage and contribute to community development, through, for example, their purchasing and procurement spends. While we frequently hear about how much money is spent on social services in particularly disadvantaged areas, when we actually track the flow of this money it is often the case that much of it does not flow into the target communities but rather leaks out into other areas (because, for example, staff are often not local and do not spend their wages locally; services do not spend monies locally; and/or premises are not owned locally so rent monies do not flow into local communities).  In other words, while social impacts of particular services may be great, it can be the case that the social welfare sector actually makes relatively little contribution to local economic development. 

Similarly, the ‘two-dollar shops’ may look like they are offering services such as cheap goods (and a handful of jobs) to the local community. In reality, however, they are often chain-stores, pulling money in from the local community but not re-circulating it, and thus much of it leaks straight back out. There are, of course many other ways in which monies leak out of disadvantaged areas and flow into more advantaged areas, and one of the challenges of addressing place-based decline is to find ways to plug these leaks. 

Importance of the social economy

There are certainly many arguments to be made here about how investing in social enterprise and community enterprise could contribute to local economic development in these communities.  And luckily there is now an increasing focus on growing what is termed the ‘social economy’ in order to break spirals of disadvantage. The ‘social economy’ is defined as that part of the social sector that “uses market mechanisms to pursue explicit social objectives” (see Mike Lewis’s work in Canada www.cedworks.com), including social enterprise, social business, mutuals, cooperatives and not-for-profit organisations.

However, as the ‘Place-based Impact Investment’ reports argue, it is not merely investment in the social economy or social sector organisations (such as social enterprises) that is important. In Australia (as elsewhere in the world), most new jobs are created in small to medium sized businesses, and these businesses have been shown to play a critical role in sustaining and regenerating local economies. If we want to make an impact on halting or reversing decline and disadvantage in local communities, then we also need to consider how we develop and grow such businesses.

Importance of the local economy and SMEs

In Australia we haven’t focussed much on the role that locally owned micro, small and medium sized businesses play in community development, nor their potential social impact (other than more recent explorations of the role of microenterprise in Indigenous communities). I believe that this is an oversight that needs to be rectified. Further, if we are to address place-based decline and disadvantage, we need a broader conceptual framework that helps us to see more clearly how we can interconnect social and economic goals in policy and practice. 

While I firmly believe that those organisations currently defined as comprising the social economy are a necessary part of this, we cannot forget that strong and prosperous local businesses, owned, run and anchored in a community, have clear and direct social impacts on the health and well-being of that community. They are more likely to employ local people, buy from other local businesses, invest locally, and give locally than are larger non-local businesses.



They are a critical part of a local economy, and their social impacts cannot be overlooked if we are wanting to address place-based decline and disadvantage. Indeed, I see them as playing an essential role alongside social economy organisations. 

Interestingly, one of the major critiques of the ‘Place-based Impact Investment’ reports is that they have largely ignored investment in the social economy. And this critique is correct. These reports focus on one dimension of how we can address place-based decline and disadvantage – and there is of course much else that needs to be done and explored. 

A framework linking social and local economy in place

In the framework below I have mapped some of the important dimensions that need to be developed if we really want to tackle place-based decline and disadvantage. As you will see in this framework, I believe it is essential that we develop an integrated understanding that links the local economy (particularly small to medium sized businesses) and the social economy. Impact Investment plays a part in this framework – but it does not constitute the whole response. In building pathways out of place-based decline and disadvantage the challenge for all of us is to design systemic responses that take account of both the parts and the whole. It is no longer the case that we can say one sector or one strategy provides THE answer. The conversation and the actions to address the issues need to be much more sophisticated and systemic than this. It is important that we consider different kinds of investment, but that we do not see investment as the only answer – it is equally important to understand the impact of how and what we spend in communities and how we can ensure that capital stays in and circulates in local economies; and that we understand how we can extend and grow economic as well as social capacity in place.