Provocation: Power in impact investment

Speech delivered at the 2017 Impact Investment Summit Asia Pacific

The story I am going to tell you today is quite personal and not easy for me to speak about. It is actually a story about why I decided to stop attending conferences about Impact Investment (the only reason I am here today is because a good friend of mine happens to be organising this conference).

It’s been around 5 years now that I’ve attended quite a few of these conferences, in the US, UK, South Africa and Australia. I have genuinely been blown away by the growing scale and sophistication of the industry in terms of the deals and impact measurement tools; the increased understanding of how impact investment works across asset classes, industries, and demographics. I am genuinely inspired by the work being done; the brightest minds in Australia and internationally seem to be working in the space.

But it was becoming difficult to ignore a growing sense of unease in the pit of my stomach at these events. A feeling that something was not quite right. I had so many questions in my mind that I couldn’t find answers to, for example:

• Why is it that investors and entrepreneurs get to define ‘impact’ rather than the actual beneficiaries? Isn’t this the very same paternalism that has plagued the international development sector for decades?
• Why are so called ‘bottom of the pyramid’ models mostly focused on profiting from selling to the poor, rather than seeing them as producers and asset owners? If ownership of social enterprises is limited to the privileged, aren’t investors and entrepreneurs by definition extracting, rather than adding value to communities in the global south?
• At a time when 8 men, most of whom are white Americans own the same amount of wealth as half the world, is the impact investment industry actually perpetuating power structures that clearly position, whiteness, maleness, able-bodiedness, and heteronormativity squarely at the top?

All the questions I had were linked to the fundamental theme of power.

I often describe myself as a ‘recovering engineer’, but deep down I know once an engineer, always an engineer.

I set my mind to try to find answers to my questions. I looked at complex systems theory and did some research into the history of the economy. And what I found out was quite disturbing.

Systems theory will tell you that systems, like the economy, go through cycles of change. System disruptions, which in the case of the economy, are industrial revolutions. At this point the system reaches a point of ‘breakdown’, where the system descends into chaos, or ‘breakthrough’ where is reaches a new equilibrium.

Another critical principle of understanding systems is that early history of a system matters. Dynamic that are set up at the start a difficult to change.

So to apply these principles to help us understand the modern economy I’m going to take you back to the earliest and formative phases of capitalism. Back between the 14th and 18th centuries European nations grew their wealth by deploying military force to establish an economic system, in which colonies in the global south provided raw materials and slave labour. Then the industrial revolution began in 1760 onwards, led to a phase where steam and mechanical production led to the rise of factories and factory workers. Being ‘efficient’ and ‘machine like’ was the most valued trait of the factory worker, therefore devaluing the injured, sick and disabled. At this point former colonies became independent, but most remained trapped in a globalised economic system where they continued to serve the economic and strategic needs of the western capitalist world. Meanwhile women provided free domestic labour, and eventually once they entered the workforce, provided cheap labour. The ‘working wage’ offered to men was designed to support a nuclear family: a heterosexual couple with children.

So you may be thinking okay, great, thanks for bringing up our dark colonial and patriarchal history, but what does that have to do with impact investment and power today?

Well, it is clear that the flows of capital, ownership of assets and structural privileges of today’s economy are stubbornly stuck in the dynamics that were set up centuries ago. It is these dynamics that allow social and economic inequalities, and discrimination, to persist. It is the reason for the gender pay gap, the lack of women on boards, the reason why there are more black men in prison today in the US than were enslaved in the 1850s, and most painfully for me, the reason why there are so few entrepreneurs and investors who look like me.

It is widely acknowledged that we are now in the fourth industrial revolution, characterised by smart machines. We have an two options in front of us — breakdown, or breakthrough to a new economic paradigm. With this transition period before us, I am not interested in the size of your impact investment portfolio, the nature of your deals or your impact measurement metrics. I just want to know — is what you are doing challenging the problematic power dynamics at play in today’s economy, or is it serving to perpetuate the status quo?