Blog: Is social enterprise the way to go?

In light of last week's global entrepreneurship week, CEO of the London Early Years Foundation June O'Sullivan FRSA explores what it might take to shift more businesses to the social enterprise model, and what the benefits of this could be.

These unhappy times call for plans that build from the bottom up and not from the top down, we put our faith once more in the forgotten man at the bottom of the economic pyramid.

 - FD Roosevelt 1932

On route to the Alpbach European Policy Symposium where a European audience gathers annually to debate inequality, I was struck by the display of consumerism in Gatwick Airport. As you plod through the cleverly planned duty free shops to reach the departure gates, the sparkly, shiny displays lure you with promises of life-improvement in the shape of reduced perfume. I had been invited to Alpbach by the RSA to debate whether social enterprise was a suitably radical and creative business response to an unequal state, and this starting point was not lost on me. 

Given the continuing sense of dismay and fury about big business, the apparent growing powerlessness of the state, and the increasing social and economic inequality, the Alpbach audience was eager to look at alternative ways of doing business and enhancing social equality and cohesion.

For many, the current picture we paint of big business is pretty negative. Of course, there are big companies that do good things because size enables innovation which benefits the ordinary person. But often this image is lost amidst the vehemence held by so many against modern business, whether it’s fury at the food industry for creating foods that are fuelling obesity (UK Gov Chief Scientific Advisor Sir David King warns that cost of obesity will hit £49billion by 2050 which will cost everyone an average of £1200 in taxes to fund the health costs ); irresponsible manufacturing companies polluting the air; or supermarkets beating the price down from farmers to such a degree that they go out of business.

In addition, there is rising concern about how business is driving social behaviours - for example, through the much disliked call centre approach, alienating phone menus and cashier-less checkouts. A scary statistic from Frey and Osborne at Oxford is that 47% of jobs in the US will be lost to automation over the next 20 years.

However, despite its problems government continues to support this type of business practice, rewarding it with honours and contracts and CEOs with huge pay deals and payoffs. The median pay of the average UK household has fallen by 8% while CEOs of big FTSE 100 companies paid themselves 183 times more than the median full time employee.

But is all this a fair assessment of big business? Capitalism and particularly globalisation are working for many parts of the world, and the number of people in poverty has halved in the past 25 years. So why does it not appear to be working in the West? The gap between the rich and poorest is now at its highest level for 30 years in OECD countries. Key drivers of inequality seem to be related to shifts in power, de-unionisation, globalisation, growth part-time jobs, financialising, and technology.

There are also social consequences on local communities, which are beautifully articulated by John McKnight and Peter Block in their book The Abundant Community. They argue that we are particularly susceptible to the market promise because we have given up personal, family, and community sovereignty. In becoming consumers we have stopped being citizens and the roles that the family play in our lives has atrophied and the community has become incompetent. But according to McKnight and Block:

A competent community knows that we are not only individually but collectively responsible for things that make a full and connected life. It is the recovery of the public interest.  It is the transformation from consumer to citizen.

So is there a middle way? Could social enterprises fill that space?

Many think social enterprise could be a palatable alternative within the capitalist marketplace. Social enterprise is a business model shaped by capitalism operating within the same context of human psychology. The difference is subtle, but is summarised best in how the social business drives profit and how that profit is used to create significant social impact. 

For example, the London Early Years Foundation is a social enterprise running nurseries across London.  It is run as a business with a clear ambitious growth strategy. However, the business model has a pricing strategy and an acquisition approach that ensures we subsidise at least 40% of the 3,400 children so they can access high quality childcare with all the attendant educational and social benefits. The second element of the business is how and whom we employ. This includes operating in poor neighbourhoods, creating a local social enterprise supply chain and employing local staff as well as providing 60 apprentices with training and a job. Finally, we create community social capital through a multi-generational approach. These are all key elements of our business woven together to ensure continual and measurable social impact.

Certainly, a social enterprise can help address the point made by McKnight and Block about disengaged citizens because of the focus on localism. Saving the local pub by setting up a community interest company is a good example of community response. However, the self-governing capacity of citizens is soon worn out and we have to create systems and bureaucracy which will make it work. A social entrepreneur can rise to the challenge but without the infrastructure support that businesses need, the risk of failure is high. This can result in the social enterprise model itself being considered the failure unless we are at a point where Government is keen to support social businesses, and then it may find itself receiving quite a lot of backing. We have seen this happen with the quiet shelving of Big Society which was originally so publically supported by David Cameron.

Mariana Mazzucato (2014) argues that the state is perfectly capable of being entrepreneurial and can, in fact, think big and entrepreneurially to drive the innovation needed for change. So how would that affect social enterprise? Another competitor or an ally with which to forge a collaborative partnership and collective impact?

In his blog Joining up is hard to do, RSA CEO Matthew Taylor draws on his own experience of trying to get a local authority to cohere on the topic of employment. His experience of that particular mindset is well summed up by Jahn Kania:

“Collective impact is a messy and fragile process and many attempts will no doubt fail-even the attempt itself brings one intangible benefit that is in short supply today – hope.”

The Alpbach audience was divided in its response to social enterprise. Some worried that it might be either too market driven with too much emphasis on the enterprise and not enough on the social.  Others worried that social enterprise could be used to replace the state and therefore threaten universal services. Some questioned the strength of the model in terms of asset lock and use of profit. However, they accepted that the current system is failing too many, and unfettered businesses nurtured by fawning governments is not a good option either.