Editorial: Enabling genuine social entrepreneurship

Inclusive Economy28 Oct 2013Frans Bieckmann

Editor in Chief Frans Bieckmann argues in this editorial article that social enterprises will only really succeed if they can operate in a global economic system that rewards them for being competitive on fair, social, and environmentally sustainable grounds instead of on costs.

Entrepreneurs are the heroes of this era. They are playing the leading role in a saga that symbolizes current thinking on how to create economic progress. They embody all the virtues that are seen as essential in the fight against stagnation, decay, bureaucracy and governmental inefficiency. They are creative, cost efficient, flexible, always looking for new opportunities, capable of surfing the waves of a global network society. They are the bottom-up ‘searchers’ that economist William Easterly places against the top-down ‘planners’. If we were all entrepreneurs in a totally free market, our mutual interaction would lead to the most efficient allocation of resources and thus the most optimal economic performance that would benefit the whole of society.

That’s one way of looking at it. But there’s another story, in which enterprises are the villains. They are the main perpetrators in an on-going race to the bottom that is plundering the worlds’ scarce resources, exploiting billions of informal workers and farmers and the soil, and fuelling violent conflicts in many parts of the world in the competition for natural resources. In their continuous quest for control over markets and greater profits for their shareholders, they effectively abuse the illusion that markets are really free and are level playing fields, and they monopolize power and bend the rules to their own advantage. While an ever smaller happy few stuff their enormous pockets with the profits, the rest of the world’s population have to make do with the scraps.

Two competing narratives, both with some elements of truth. The first has dominated politics and policies for the past thirty years, while the second has been struggling in the margins. But now the world is trying to get to grips with financial, economic, security and ecological crises – partly caused by that same fairy-tale that put freedom of enterprise at the top of the bill – belief in the myth of the free market as a panacea for all the world’s ills is declining.

Beyond short-term profits

But there’s a solution: social enterprises. Social enterprises (SEs) retain the positive virtues of the entrepreneurial endeavour and jettison the negative aspects. They operate from the correct conviction that complex societies can only be supplied and served through more or less self regulating mechanisms, which we call markets. But they do that not to earn high profits for themselves or their shareholders, but to achieve social goals that benefit poor and marginalized people around the world. They look beyond the search for short-term profits inherent to an economic system that gives centre stage to listed companies whose main priority is to please their shareholders. And they go further than the ideal of corporate social responsibility (CSR), which demands that businesses take people and planet into account in the pursuit of profit. Social enterprises aim to make a profit for the purpose of serving planet and people.

This, in short, is how its advocates justify the current interest in social entrepreneurship. This Broker Dossier on Social Entrepreneurship examines the different incentives for companies, investors, NGOs and governments to engage in social entrepreneurship, and the opportunities and obstacles they are faced with. And, above all, the editors try to provide some clarity about what exactly can or should be called a social enterprise – i.e. an enterprise that has a genuine social and environmental impact – and what is simply hype or the clever use of noble goals to make more profit.

It is clear that – as in the two–decade-old debate on CSR – there is much window dressing. But at the same time there is not much agreement on the definition of social entrepreneurship. As you can read in ‘The emerging social enterprise’, there are several schools of thought in the discussion on social entrepreneurship, with different ideas of what it means.

Ideal type

So what is the ideal type social enterprise?

The basic conditions are of course that it should be an organization whose products or services serve a social or ecological purpose; and which does that in a way that provides its employees with a decent wage and recovers the costs, so that it in any case does not make a loss. Everyone will pretty much agree on this. In my view, at least one further condition should be added, that all activities in the production chain – i.e. including all suppliers, transport, marketing and sales – should be sustainable, fair and socially responsible. This is more difficult to achieve.

And if you manage to do all that and your customers have to pay a higher price for your products or services, so that they are only affordable to the rich, is that fair?

The next question is how the profits is spent. Ideally it will be reinvested, either in upscaling the business or in the community in which it operates. This raises the issue of ownership: can a social enterprise be owned by and individual or shareholders, or should it be owned collectively? If so, what form would this social ownership take?

Most of the time, however, the discussions on social entrepreneurship do not get this far. This is not to take the moral high ground. Who is to judge idealistic young entrepreneurs trying to make a living doing something good at the same time? We should value their energy and creativity.

Comprehensive approach

Many development organizations (see ‘Balancing social and entrepreneurial values‘) are moving towards social entrepreneurship. We need to judge these efforts from the perspective of the development debate. As they are forced to find alternative sources of funding to government grants, NGOs should be careful not to forget the lessons of sixty years of development cooperation and go back to square one. In terms of scale and impact, most current social enterprises are comparable to the development projects of some decades ago. They operate at the microeconomic level, providing basic necessities to poor people at community level. Social enterprises may have moved beyond the charity stage by making people pay for their products or services, but they do not try to change the more systemic root causes of lack of development, conflict or environmental degradation. Although many see it differently, development cooperation never was a matter of spending more money, but of changing economic, social and power relations. Of course, most development NGOs and aid donors do not address those root causes either, but part of the development community has at least reached the state of discussing a more comprehensive approach.

One school of thought in the debate goes beyond the notion of social enterprises as isolated microeconomic initiatives and sees them as change agents (see ‘The emerging social enterprise‘). Social entrepreneurship entails the creation of viable socioeconomic structures and relations that yield and sustain social benefits. When these SEs work within broader networks, I would say, they must be seen as part of social movements that are trying to create bottom-up alternatives to the dominant system, which keeps people poor, and are thus striving to alter power relations.

Race to the bottom

The question is, what to do about the macro-economic system in which social enterprises have to operate. The system is loaded against them and they will never win the game unless the enabling environment in which they work is drastically changed. That means that they should start thinking about how to organize it differently. And for that they will need to find allies, not only among themselves or among NGOs, but also among policymakers and politicians. Without governments and globally enforced rules SEs won’t be able to make a difference.

The prevailing feeling among entrepreneurs is that government should stay away from the markets. They believe that the ‘deregulation’ of the global economy in the past decades was a matter of fewer rules, while it was in fact a ‘reregulation’ that has led to a radical restructuring of economic power in favour of multinational companies and financial institutions. This new balance of power, with its corresponding economic and trade rules, is not at all to the advantage of social enterprises wishing to pay a fair price for labour, natural resources and other production factors. And it is even less conducive to making genuinely useful products and services affordable for all. This race to the bottom can only be reversed if governments or international institutions in some way prioritize social enterprises, for example by giving them tax exemptions, preferential access to public procurement, or creating specific legal forms for them (see ‘Social enterprise: catalysts of economic transition?‘). However, these are only symbolic measures when the same governments fail to change the structural barriers for social enterprises, and keep on favouring an economic system that rewards a race to the bottom in terms of wages and labour conditions, ecological plunder, and corruption and geopolitical manoeuvring to acquire access to scarce resources.

Social enterprises will only really prosper and deliver on their promises if they can operate in a global economic system that rewards them for being competitive on fair, social, and environmentally sustainable grounds instead of on costs, a system that has human wellbeing as its foremost goal rather than increasing profits and GNP growth.