The roles of pay-by-result within public policy
Source: Addarii et al., Funding Social Innovation (forthcoming)
Filippo Addarii, Alexander Shapiro and Marco Sebastianelli offer a short introduction to the ambition, limits and potential of business with value beyond profit.
Some of the most loyal supporters of the doctrine championed by the late Chigago economist, Milton Friedman, would argue that the purpose of business is to maximise profit. That is of course an important element of a market economy, but history has taught us – in the past decade more than ever before – that the pursuit of mere economic value stripped of its social and environmental components may put the world in a collision course with its own productive sector. So, if the creation of value – comprehensive, sustainable and shared – is the cornerstone of a healthy economy, is it possible for businesses to compete in modern markets and to look beyond the typical double bottom line of risk and return?
Companies like Invictor Led, an Italian lighting producer, prove that it is not only possible, but it may well constitute the essence of a successful business model. Invictor Led’s core product is a set of lighting products manufactured entirely by inmates of the Opera prison in Milan. The inmates are offered the opportunity to specialise in the production of LED lamps and thereby earning a wage and preparing themselves for the job market once they are released. This and similar initiatives do not simply create profitable businesses, but help solve social problems – in Invictor Led’s case, how to reintegrate former inmates into society. Many of them have caught the attention of a growing set of forward-looking financial institutions that are willing to explore what has been named impact investing.