Innovative Finance Provides the Link Between Capital and the Common Good
Written by an executive director, author, professor, and graduate at Harvard and Yale, “Capital and the Common Good: How Innovative Finance Is Tackling the World’s Most Urgent Problems” is a guide to the world of innovative finance. Using innovative finance, businesses can help tackle deeply social problems and open up the market for higher profits at the same time.
Capital and the Common Good: How Innovative Finance Is Tackling the World’s Most Urgent Problems challenges and transforms the often contentious relationship between business and social problems. Traditionally, businesses were seen as “profit first, social impact later”, but this is starting to change. Capital and the Common Good takes this renewed focus on business impact beyond the balance sheet to a whole new level. Instead of donating just things (like money or items), businesses can offer radically creative and profitable ways that can save the world and earn some money while doing it.
What is Capital and the Common Good About?
Capital and the Common Good offers a specific response to complex problems like childhood disease, poverty and disaster relief using a very unlikely tool, finance. Finance, the book argues, has the ability and capacity to offer unique tools like micro-insurance, social impact investing, green bonds, catastrophe bonds, cap-and-trade agreements and pledge guarantees to fill in the funding gaps left by international aid, donations, and development work. These tools can be used to provide financial access to people who never had it, offer services and products (like vaccinations) and shift business activities toward socially desirable outcomes (like using alternative energy versus coal).
The philosophy behind the book’s belief in the power of finance stems from the concept of the”visible hand”, a market-based approach that addresses failures with the highly regarded economic principle known as the”invisible hand.” As the book points out, unchecked belief in the “invisible hand” can lead to negative social and environmental consequences. This market failure, however, can be uniquely solved by innovative finance because of the creativity and scale of the finance industry.
To give an example, childhood vaccines are critical in the fight against fatal childhood diseases but are often neglected by interested businesses because of financial risk and concerns for safety. Pharmaceutical companies, like many donors, want to know that their investment will be financially and socially effective. Capital and the Common Good turns these concerns into a question. What if, in addition to grants and donations, vaccines were funded by long-term passive income (such as interest from a low-interest loan, bond or premium payments from micro-insurance customers)?
The answers to this one “What if” question is a book-length journey into the world of innovative finance, where social problems are solved with the creativity and scale of the market’s “invisible hand.”
Author Georgia L. Keohane is Executive Director of the Pershing Square Foundation, a professor at Columbia University and a Senior Fellow at New America, an innovative think tank. In addition to those duties, she is also an author and speaker who has pursued various careers that contributed to a deeper understanding of the impact of economics on society’s problems.
What Was Best About Capital and the Common Good?
The best part of Capital and the Common Good is the content. Keohane has an incredible amount of experience in economics and finance and uses that experience to provide a broad overview of the potential for innovation from a variety of perspectives. The book, however, isn’t a “let’s just give more money to solve social problems” kind of book. Instead, the book focuses on one specific field (finance) and expands the possibilities within that field. This type of response adds a new approach for business owners in the “What are you doing to improve the world?” debate in business.
What Could Have Been Done Differently
The intended readers of Capital and the Common Good are finance professionals and people who spend all day talking about things like derivatives, front-loading assets and social impact bonds. For that audience, the book provides a guided journey through the possibility of the finance field using multi-national businesses as an example. This journey, however, does not include specific recommendations or strategies to follow in order to achieve a specific social or financial objective. Rather, the book is like a roadmap of current innovative finance tools and their future potential.
Why Read Capital and the Common Good?
If you are a business owner, work in finance, or just want to know more about the possibilities of social enterprise, Georgia Keohane has a book that you will probably be interested in. Capital and the Common Good goes further than most “using business to help solve social problems” books of its kind. In fact, her book offers ways for companies (particular large multinational companies) to make a profit while doing so. These ways are introduced from a variety of approaches and using a variety of tools giving readers an expert’s roadmap for using innovative finance and it’s potential for addressing social problems in the developing world.