When States Build Markets: Policy support as a double-edged sword in the UK social investment market

Markets are the outcomes of political and institutional struggles where policy support plays a major role, but research to date falls short in explaining how the breadth of available interventions can have contradictory effects on the process of market formation. This article explores the consequences of policy support in the context of the nascent social investment market in the United Kingdom, between 2000 and 2015, when the government was a key actor in building the market infrastructure. I track the effects of a portfolio of policy interventions, including new regulation, direct investment and convening efforts. I show that, while policy support stimulated the market by driving supply and intermediation, it also led to an increase in contestation from the social sector. I link those intended and unintended consequences to the top-down features of the policy support (supporting the dominant logic, reinforcing hierarchical relations and optimistic rhetoric), hence showing when and how policy support can become a double-edged sword. The article contributes to the literature on policy support in market formation by showing the mechanisms through which top-down policy interventions can have important unintended consequences, especially when shaping the boundaries and features of markets that emerge at the intersection of financial and social sectors.