Critics seeing Chalmers’ essay as neoliberalism versus government intervention are missing the point

In his essay, the federal Treasurer makes the point that there are many sectors of the economy focused on large-scale, high-quality service delivery that lend themselves to the Goodstart model of large-scale impact investing.Picture: Nikki Short

I’ve watched with deep interest the debate play out over Jim Chalmers’ headland piece, Capitalism after the Crises. The commentariat who see this as a two-dimensional ideological debate about neoliberalism versus government intervention I believe are missing the point.

The practical and nuanced question is: what can good look like if the strength of market mechanisms are used in concert with explicit measurement of ­financial returns and social and environmental impact? And what is the potential for expanded capital flows in the many substantial sectors of the economy where the combination of business disciplines for social purpose will drive better outcomes?

The potential on both fronts is transformational. Better outcomes for individuals, the community and, ultimately and importantly, the federal budget.

Executed well, there is a real opportunity to mobilise large-scale capital from traditional institutional sources including superannuation funds for the kind of investments that meet reasonable risk-weighted financial hurdles and drive social impact. There is equal scope for sensitive use of the kind of market disciplines business is used to applying in meeting customer needs to drive better outcomes and significant cost savings and welfare reform.

It’s important to move from the ideological debate to the practical.

My perspective is shaped by the experience of walking in two worlds. I joined Macquarie Bank in 1987 and had the privileged opportunity to cut my teeth under the tutelage of business scions like David Clarke, Tony Berg, Robin Crawford and Mark Johnson. The culture the bank established has led to one of the enduring Australian corporate success stories.

As a co-founder of what was effectively Macquarie’s original private equity business, I got to understand and appreciate how capital could be accessed and mobilised. It was a powerful and effective model.

As part of a team that invested over $400m (which would be a rounding error given the scale of Macquarie in 2023), the rules were simple and effective. Aim to identify outstandingly run businesses (find the right talent), provide them with funding (the capital they need to grow) and monitor the performance closely (evidence that they are performing).

There was a simple and powerful elegance in the market signals this reflected. A virtuous circle in which well-run businesses with the right talent produced performance that enabled them to access more capital at a decreasing cost of funds.

I jumped ship from Macquarie in 2002 with an itch I needed to scratch that involved working in a different world. It reflected growing up in Morwell in Victoria in a community that faced plenty of social challenges. Despite the generation of economic growth of which I was a beneficiary, it was clear growth had not translated into improved access or opportunity for many Australians in communities like Morwell.

I wanted to see if there were things I had learnt in the business and private equity world that might be relevant or helpful in making some contribution to that divide. Most fundamentally, the discipline of capital and funding allocation that I had observed in my time at Macquarie in the business world didn’t seem to apply with any of that kind of rigour in the social purpose and philanthropy world.

Michael Traill.

We saw a lot of what I came to call “spray and pray philanthropy” – small random grants provided without expectations of accountability or performance. And in many cases, a failure to provide the kind of thoughtful long-term funding so critical to building quality organisations that was central to our Macquarie private equity business. In the area of government spending – representing so much of the sector – the impediments of short-term funding and excessive documentation with a focus on activities rather than outcomes seemed the default setting.

Where was the discipline of evidence of effective performance and outcomes, driven by talented and committed leaders and teams, leading to sustained funding and capital access?

And through all the jargon of the emerging fields of “venture philanthropy”, “impact investing”, “values-based capitalism” and the like, where were the practical examples of a better way?

Two case studies bring to life the simple power of mobilising capital for measurable good, anchored by the discipline of evidence of performance.

In late 2008, ABC Childcare, with a network of close to 1000 centres nationally, became a financial front page story for all the wrong reasons. After a meteoric rise and a peak market cap of $2.6bn, it was placed in the hands of receivers. This was the product of an aggressive and ill-conceived go-for-growth strategy with little attention to quality in the centres.

It created an opportunity into which four leading non-profits stepped, backing the belief that it would be possible to run a large-scale early learning network with the kind of business disciplines focused on social purpose that could drive both financial returns and measurable social impact. Many at the time felt you couldn’t do both those things. When Mission Australia, the Benevolent Society, Brotherhood of St Laurence and Social Ventures Australia combined resources to raise the $165m in capital needed, there was a deep commitment to making sure the talent at board and management levels would deliver.

Prime Minister, Anthony Albanese reading to children a book they wrote for him at the Goodstart Early Learning Centre, Baringa. Picture: NewsWire/Sarah Marshall

It’s more than 12 years since that pioneering large-scale impact investing transaction was completed, and deliver it has. Rebranded as Goodstart Early Learning, it continues to be the leading provider of early learning and care with a network of over 660 centres. It delivered a 12 per cent annual ­financial return for investors over eight years. As a billion-dollar-plus social enterprise, it explicitly measures impact across a range of key areas that include quality, social inclusion and advocacy. Not surprisingly, a focus on quality has positively affected demand for places and improved occupancy and financial performance – an obvious and virtuous loop that reinforces the long-term investment attractiveness of this explicit approach for mainstream investors such as superannuation funds.

The second case study comes from one of the most challenging areas of human service support – foster care for children under the age of five. The social and economic outcomes for young children being bounced from home to home have been a social services wasteland. In 2007, Uniting Care had piloted a program with strong outcomes based on providing a ­detailed care and support model, with parents and children at the centre, designed to reconnect children with their parents.

Supported by then NSW treasurer Mike Baird, Uniting Care worked in partnership with Social Ventures Australia to raise Australia’s first social benefit bond. Under this model, capital is raised from investors to support the program. They receive a modest coupon for the investment with a sliding scale based on the actual outcomes from the programs. That repayment is based on the quantifiable savings to government and taxpayers from successful outcomes. And if the outcomes are not up to par, investors can lose money. The Newpins Social Benefit Bond generated consistent positive results over the eight-year life of the bond. They are a great example of accessing long-term capital anchored by evidence of performance driven by an organisation with a commitment to ensuring the talent and leadership to focus on results

The point of these case studies is they provide powerful examples of using business disciplines for ­social purpose. Each mobilised capital based on creating or backing the right talent with the ­capacity to drive performance.

The question they raise is why are there not more examples such as Goodstart and Newpins?

In his essay, the federal Treasurer makes the point that there are many sectors of the economy focused on large-scale, high-quality service delivery – think social and affordable housing, disability service delivery, aged care – that lend themselves to the Goodstart model of large-scale impact investing. What’s missing is the thoughtful partnership contribution it often takes to help build the talent and market infrastructure. There are precedents around the world, particularly in Britain, which demonstrate that prudent partnership funding models involving government are often a necessary precursor to crowding in more traditional and institutional funding.

Equally, the simple and powerful notion of client-centred service delivery writ large in Newpins – with an emphasis on long-term measurement of appropriate outcomes – is an approach which needs to be scaled and repeated. It represents the practical application of a partnership funding model underpinned by the thoughtful application of market and performance disciplines.

There is much a thoughtful government can do to find ways to work in partnership across the sectors and exponentially grow investment that has measurable financial and social impact. Let’s get on with the practical challenges of execution and find smart ways to repeat what we know is working rather than get stuck in an arid ideological debate.

Michael Traill chaired the Social Impact Investing Task Force that was established by the Morrison government in 2019 and more recently reconvened by the Albanese government. He is chair of the Paul Ramsay Foundation, chair of the Investment Committee of Australian Retirement Trust and executive director of For Purpose Investment Partners.