Will Sturgeon has written in the Sunday Herald about how the Scottish Government should offer “equal access” to the c cus in the workforce.
We spoke to Nick Luff, Professor of Public Finance in the School of Economics at the University of Reading about this policy, and other policies to encourage more women into the workforce.
Professor Luff believes Scotland needs to use a mix of targets and programmes to encourage people to be more enterprising and enterprising businesses as part of a more sustainable labour market.
He also says the Scottish Government should take inspiration from Australia’s similar supply chain finance initiative. Australia’s Building Industry Guarantee (BIG) funding program, which was backed up by a target for business and employment growth among women, has so far been used by 10,000 companies to finance the establishment of 9,000 new businesses. While the KPMG index found only 12% of them employ women, this figure is growing every year.
What should Scotland do about social bonding schemes?
Innovation and change in the Scottish public sector have been very thin on the ground in recent years. Social bonds are an exciting way of doing this, but we are starting on an area of policy that is understandably not well understood.
In university economics courses, social bonds often get dismissed for a number of reasons:
Firstly, the predicted return on investment is small, and secondly it is quite difficult to find ready investors. When it was a pilot scheme the Scottish Government approached the European Investment Bank to provide the investment funding but the bank wanted the certainty of a long term investment period and the Scottish Government at the time was not in a position to provide that – they ended up raising money by raising taxes.
Ultimately governments need to rely on their own resources. If you look at big government schemes and their outcomes, then most will pay for themselves. If they do not, then it may be that they raise more tax, reduce spending or provide social services through a combination of the two.
But if social bonds are ultimately only the mechanism by which we can increase diversity in the workplace and in the economy, they may end up a new small method of public spending but one that has not been sufficiently tested.
Where is the ROI? What types of firms will benefit?
Social bonds serve two functions. They raise funds for new firms to employ women and they reduce social exclusion by providing people with new professional opportunities. The promise of the system is that you will get a pay increase and access to more career options if you invest now, and we know that that is not a real good strategy in any part of the economy. There is social fit and social fit is also need based rather than financial.
Will women benefit?
In the wider schemes, the bigger firm sign up will benefit from opportunities for some level of salary increases that will generally boost the company’s profits. But because both the employer and the funder have funded the business through the social bond, a proportion of the returns actually go to the women that have to go through the course. So the fact that social bonds are designed as well as they are in this context, then that is where they are going to have the biggest benefit: for women.
Is there a trade-off with fiscal sustainability?
When you look at these schemes you have to remember the company has come to the funders to finance the improvements in the workplace. So if they had taken on their own equity and then increased the wages they’d be looking at very large depreciation losses that could have put them into administration or even in debt. So all of these schemes are designed to protect the funders, that they have a small amount of capital and have been financed by others.
But we don’t yet know the method of distribution of the gains from the introduction of these policies. There is just as much or more pressure that we need for them to succeed as there are for the social equality outcome.
We want to bring the big firms into the initiative, provide additional funds that are already available to our big firms and which they use if they need to grow quickly or find cost efficiency to do so. We are trying to make sure that when social bonds are active it is an efficient and effective way of achieving both goals.