Taking care of business

Has social enterprise proved it is not fit for purpose?

Ideas can sometimes suit a moment in time, and social enterprise shone brightly as the new millennium dawned. In the UK, the 1997 election of Tony Blair and the New Labour government, after 18 years in opposition, could be seen partly as a rejection of the consumerist, individualist dogma of the 1980s and partly as a reflection of the increasing social consciousness of the time. The New Labour thesis was that through an amalgamation of capitalism and socialism – the so-called ‘Third Way’ – free markets could be utilised to deliver economic prosperity and social justice. Hopes for the future were high.

Social enterprise was an attempt to use the power structures and business methodologies of conventional, capitalist systems but translate them so that social justice was at their core. This was a powerful idea, representing innovation at the intersection of social and financial paradigms and potentially even marking the start of a new economic era.

I have had the privilege to teach, support and work directly with thousands of dedicated, committed, bright and bold social entrepreneurs. And now, looking back, what has been achieved by their enterprises, my own, and the sector as a whole? Very much less than I had hoped. And I have come to think that, actually, we have even done harm.

What even is a social enterprise?

A social enterprise is generally understood as an organisation that seeks to solve social or environmental problems by using business as a tool for change.

There has been precipitous growth in ventures identifying as social enterprises. A database search from sources including mainstream newspapers, journals and broadcast transcripts shows mentions of social enterprise growing from fewer than 100 per year in 2000 to over 10,000 every year since 2014. Non-profits, community businesses and co-operatives, as well as more mainstream businesses that have social impact as a core purpose, are all often gathered under the heading of social enterprise. You also hear about impact businesses, social ventures, social businesses and B corps; the result is that the seemingly simple question of whether social enterprises are non-profit organisations or not is met with a caveated response. 

And yet the question of distribution of profit goes to the heart of the radical endeavour that social enterprise represents. Social enterprise was meant to be about reshaping capitalism, enabling the capture and release of social and economic value to communities. Some social enterprises extract profits for private gain; this enables social enterprise thinking to permeate the mainstream, but also allows uncertainty to enter, creating a lack of clarity about the underlying ethos of the sector. It opens the door for ‘social washing’ of regular businesses.

Problems, problems

Different forms of social enterprise are problematic in different ways. For instance, organisations that are akin to traditional charities might be seen to undermine voluntarism, while those that are more traditionally commercial might fail to create significant, genuine impact.

Take, for instance, a non-profit social enterprise that provides services to vulnerable young people and whose revenues mainly come in the form of annual contracts from the council. What is the difference between this and a charity doing similar work? Largely, it is in matters of culture. The social enterprise will think of the council as a customer, will expect contracts instead of grants, will perhaps have a less deferential relationship with the council. And what are the advantages of this? Charitable legislation can be a little clunky to work under, but it is wrong to suggest that charities per se are somehow less professional or efficient than other organisational forms. So, for a case like this it is a matter of choice – a social enterprise or a charity – with little real-world impact.

Or so it seems. I often meet people intent on establishing a social enterprise when a charity or community organisation would be a better fit, as the organisation is not intended to be revenue-generating. The prevalent social enterprise discourse tends to cast charities as somehow behind the times and suboptimal. Charities often feel pressure to convert to a social enterprise model in pursuit of ‘sustainability’, turning social problems into commercial opportunities, and abrogating public and philanthropic funders of their traditional responsibility to maintain social services.

Important things can be lost when work with vulnerable young people is undertaken by a social enterprise rather than a charity. Despite some difficult media coverage in recent times, charities are widely understood, well regarded and trusted. Social enterprise, perhaps due to the definitional ambiguity, has never really become a movement in the public eye. As many social enterprises have found over the past year, the business-like independence they seek has not built the type of relationship where a council sees much value in their organisation surviving. It is relatively easy to replace one contract delivery organisation with another. Social enterprises have often fallen between the gaps of support packages designed for either charities or businesses.

To turn to an example at the more commercial end of the social enterprise spectrum, let’s picture an ethically minded entrepreneur with a slow fashion business. Staff and customers are attracted to the explicit mission of the business: this is the classic win-win scenario. The organisation can be an exemplar that demonstrates that doing good business is possible.

But with no robust standards it is tricky to differentiate an ‘ethical dress’ from the myriad of other not-actually or not-quite-so ethical dresses. There is marketing power behind the story of social impact and it is hard to compete on price with other businesses that are actually cutting corners. Our genuine social entrepreneur risks legitimising less ethical businesses, while also not being able to make the numbers stack up.

Realistically, there is a cost to being a social enterprise. There are structural challenges in business models that make the social entrepreneur’s job harder and, almost always, the margins lower. Our fashion business may break out of this conundrum and become large and profitable. However, if it is structured to allow profits to flow to the owners, rather than back into the business, this then exacerbates inequality in terms of asset accumulation among the wealthy.

Reaching the wrong destination

Importantly, both organisations are failing to explicitly critique the systems within which they work. They are trying to apply a business solution to a social problem, but they are not looking at the root causes of the problem.

Much of the work undertaken by social enterprises in the education and health sector would not be needed if adequate public services were in place. This is an argument long levelled at charities, and social enterprises are no different; the challenge should also be made to them. When an organisation patches up such problems downstream, there is less incentive for the problems to be eliminated at source. If the only tools in our box are social enterprise or charity, then we are missing the opportunity to use other properly different levers, such as addressing disadvantage by reforming the benefit system or introducing innovations such as a universal basic income.

Similarly, an entrepreneur motivated to consider making changes to the fashion industry is likely to be thinking of the impact of cotton farming on water usage and the exploitation of workers in garment factories. But they may not focus on the fashion industry’s systemic problems. The industry exists within an economy that systemically exploits people (particularly women) in service of fashion cycles and consumer spending. Now that is a problem worth addressing, but the tools to address it are not in the shape of a social enterprise but, for instance, in educating our children differently, in campaigning and in consuming less. In general, social enterprises undertake little campaigning, as it is not a revenue-generating activity. It is therefore more frequently the domain of charities.

Neoliberal at heart

In practice, endeavours that appear to be radical often serve to maintain the status quo. This is the case with social enterprise. The focus on markets, scale and investment is telling: social enterprise is neoliberal at its core.

The implicit and explicit focus on markets reinforces the hegemony of market-based approaches and an assumption that markets will produce optimal outcomes. This construction is firmly open for debate. There are many ways to get things done that are not market dependent: the UK’s response to the pandemic, for example, has included both massive, non-market-based public interventions and an extraordinary galvanising of community-based mutual aid.

According to Social Enterprise UK, around three in 10 social enterprises have a turnover of under £50,000, and the lack of scale of much of the sector has been recognised as a concern for some time. Yet scale is a normative business concept and so it is worth interrogating. To take one example, the Body Shop was a venture with a deeply ethical founder at its core who was unable to retain control of the business – or its impact – when it was sold on to a larger organisation. The evidence is clear: bad things happen literally every time organisations become very large. We must challenge the presumption that scale is inherently positive in any organisation – regular business, social enterprise or charity.

And then there is impact investing. Any critique of the social enterprise sector reaches its apogee in this arena. The topic deserves a full airing in its own right, but, in summary, those who seek social equity should question the process that leads to such uneven distribution of resources that a class of investors exists in the first place. And we need to face up to the fact that the underlying facilitating condition – a growth economy – is unsustainable for the planet.

Social enterprise has taught us that there is huge appetite for a different way of doing business: from entrepreneurs, from customers and yes, even from investors. I draw some hope from the fringes of the movement; a pocket of activity in which there may be an antidote to the anomie and isolation of modern commerce. This radical transformation of our economies and communities rarely calls itself social enterprise. It is taking place in organisations such as co-operatives and community land trusts that have a clear ideological and governance framework and an intentional approach to creating fair forms of work and sustaining communities. This is how social enterprise could have been and, perhaps, still could be.

But, for the most part, social enterprise has been unable to demonstrate that it is really possible to make more things count in capitalism than just the bottom line. To be truly radical it is necessary to go to the root causes of things. Those involved in social enterprise – funders, practitioners, policymakers –should perhaps refocus on the systems and context and consider how that broader environment can be adapted, improved or dismantled. For me, it is time to go back to the drawing board.  

Dr Belinda Bell is currently a Fellow of Social Innovation at the University of Cambridge Judge Business School, where she previously established and led the programmes for social entrepreneurial support.

This article first appeared in the RSA Journal Issue 3 2021