When the third sector went to market: the problematic use of market failure to justify social investment policy

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Peter Wells Centre for Regional Economic and Social Research, Sheffield Hallam University, UK

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This article explores the use of market failure by the coalition government in the United Kingdom to redress the under-capitalisation of the third sector. Drawing on evidence gathered in the evaluation of Futurebuilders in England, an initiative of the previous New Labour government, the article considers five market failures used by the coalition government to justify its policies towards social investment. These are: imperfect information; imperfect competition; externalities; absence of public goods; and cultural and behavioural barriers. The evidence shows that policy makers should be cautious in the use of market failure, suggests alternative approaches that may be of use, and in relation to social investment outlines how the concept has taken on a discursive power to justify actions to expose the third sector to financial markets.

Peter Wells Centre for Regional Economic and Social Research, Sheffield Hallam University, UK

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Voluntary Sector Review
An international journal of third sector research, policy and practice