Foreword

David Erickson
Federal Reserve Bank of San Francisco

In Karl Polanyi’s seminal work, The Great Transformation, he argues that it was a radical
departure for Western society in the early modern period to divorce land, labor, and
capital from their traditional values, turning them into commodities that could be
bought and sold.

The crucial point is this: labor, land, and money are essential elements
of industry; they also must be organized in markets; in fact these markets
form an absolutely vital part of the economic system. But labor, land, and
money are obviously not commodities….Labor is only a another name for
human activity which goes with life itself, which in its turn is not produced
for sale for entirely different reasons, nor can that activity be detached from the rest of life, be stored or mobilized; land is only another name for nature, which is not produced by man; actual money, finally, is merely a token of purchasing power which, as a rule, is not produced at all, but comes into being through the mechanism of banking or state finance. None of them is produced for sale. The commodity description of labor, land, and money is entirely fictitious.1

Not long ago in Europe, and still in many places in the world today, traditional and
community values reigned. In those circumstances, laborers did not measure their time
by the hour and sell it to an employer, there were no real estate sales offices in the village center, and capital had yet to accumulate. (If Marx was right and capital was frozen labor, then the world still needed the nation-state and a modern financial system to play the role of the freezer.)

We may be on the edge of another period when we reintroduce community values to
the commodities of land, labor, and capital. In this issue of the Review, we explore how
both business enterprises and investment decisions can be infused with community goals—providing for those who are less capable of providing for themselves, promoting better health and stronger community fabric, and respecting the environment. Community development finance is already playing a supporting role in this evolution.

Kathy Brozek kicks off this issue and gives an overview of social enterprise, providing a
context and tools for understanding the entire spectrum of business enterprises—from purely profit-motivated on one end, to purely charity on the other. Kevin Jones also explores social enterprises, particularly in terms of how their social missions can survive all stages of growth, even an initial public offering.

Antony Bugg-Levine and John Goldstein provide an overview for what they term “impact
investing,” with an eye to how public policy, CRA-motivated banks, and individuals might
promote this category of investment. Lisa Hagerman and Janneke Ratcliffe explore how
we might better measure progress on community values in a given investment; sophisticated financial tools help measure profit, but these authors explore how to measure, in a meaningful and standardized way, the social and environmental good that comes from the investment. Saurabh Narain is also interested in measuring social and environmental outcomes and specifically shows how intermediaries—community banks and community development financial institutions—can provide the bridge from the world of global capital to the neighborhoods of need. Bruce Cahan also explores how a mission-oriented bank can be a useful intermediary between socially motivated savers and consumers and the larger economy.

Finally, our commentary section features a lively debate among leading thinkers in the
field of social enterprise and impact investing, including Jed Emerson, Dan Pallota, Michael Shuman, Don Schaffer, Penelope Douglas, and Carla Javitz.

After the near collapse of the world financial system, it is time to reflect on whether
social enterprise and investing might not offer some lessons for creating a more sustainable economy.

1 Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time (Boston: Beacon Press, 1944), 72.