Social Enterprises: Catalysts of Economic Transition?
Social entrepreneurship is growing fast. However, its success depends on more than quantity alone. Isolated social enterprises cannot deliver an impact beyond the microeconomic scale. They need to be part of a broader system and aware of the different layers behind local problems to become more influential and successfully increase impact as change agents.
The social economy is comprehensively concerned with the constitution of society and economy, including NGOs, NPOs, and social enterprises, discussed as niche sectors between the government and market sectors. The niches between the market and state emerge as the background for the transition to a global economy and diffusion of neoliberalism ideology and the financial crisis of welfare states. In the social economy, the third sector is viewed as an independent sector, complementing the role of the government and the market.
The social enterprise is a typical organization in the social economy. Social enterprise has two purposes: 1. Meeting the principle of profit maximization and 2. Addressing social and environmental Sustainability. These two purposes are aimed to be fulfilled simultaneously, as both allow profit gain in a market economy. The part of the profit distributed to several shareholders is the enterprise’s reinvestment for social and environmental purposes. Social enterprise emphasizes that the main goal of a company or organization is for social purposes, such as providing social services for a low-income group, creating job opportunities for women, and caring for homeless people, juvenile delinquents, and disabled persons. Social enterprises carry out these activities using reinvestment for society instead of asking for government subsidy.
Both NGOs and the private sector are experimenting with social entrepreneurship. While NGOs are adopting entrepreneurial values, companies are having to get used to the idea of taking social purpose into account in their core business decisions. By focusing on the latter, social entrepreneurship can be seen as a tool for inclusive growth.
Social entrepreneurship embodies the ideal of a social purpose that generates social impact by employing an entrepreneurial approach. Current discourse, however, concentrates mainly on the microeconomic dimensions of social enterprise. The social entrepreneur’s mostly isolated orientation on local problems can undermine the chances of social entrepreneurship becoming an important catalyst for changing economic power structures, and therefore being a game-changer for economic transformation at the macroeconomic level.
So how realistic is it to expect social enterprises to become catalysts for economic change towards inclusive growth?
Challenges to compete in the market:
Social enterprises operate through the market, where they face fierce competition. They may not seek the highest profit; holding costs low is evident to survive in the markets. But, generally speaking, the costs of services and products that social entrepreneurs provide are likely to be much higher on the market than their competitors, because they have to pay decent wages and build sustainable production lines. Furthermore, they focus on special groups who are mostly excluded, who are less accessible and who are less likely to pay because they do not have a lot of money to spend.
Becoming a game-changer:
In such a competitive environment, social enterprises are less likely to become real game-changers for economic transformation. Some impact will be generated at the local level; however, the objective of solving societal problems in an entrepreneurial manner is still far away for most social entrepreneurs. Yet, there are a few examples of social enterprises that have been able to scale up and increase their impact significantly at the same time, like BRAC in Bangladesh, the Greenbelt Movement in Kenya, India’s Self Employed Women’s Association (SEWA), and Valid Nutrition in the UK.
Looking for solutions:
Governments are willing to make reforms if they understand that social enterprises can overcome specific problems and provide goods and services that for-profit and public organizations have overlooked. As a result, public authorities can consider compensating in the form of fiscal advantages, for example in tax credits for social enterprises.
It is, however, not only about government policies. Changes in pension fund policies, like investing a minimal percentage of the money in social enterprises, can also help social entrepreneurs to scale up their activities and increase impact.
Going the extra mile:
A dramatic shift in thinking about the economy is required to enable social entrepreneurship to become successful. Corporate business, if not challenged by governments and consumers, largely believes that economic activity already creates enough social value because companies offer goods and services that people want to pay for, they provide employment, pay taxes, and spend part of their profits. As long as this remains the dominant idea, there is no encouragement for them to go beyond simply creating a healthy, profitable business.