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Social Enterprise:

Good For Society, Good For The Economy.

THERE HAS BEEN a dramatic shift in the mindsets of millennials. Since the 2008 financial crash and the loss of faith in traditional financial institutions, fewer people than ever are entering traditional finance and more and more people are starting their own businesses, disrupting established industries, innovating and, crucially, trying to make the world a better place. By 2020 almost half of the working population will be millennials. This group no longer see salary as the most crucial factor when choosing a job, and place increasing importance on a business’s commitment to Corporate Social Responsibility (CSR), diversity and work-life balance. This demographic, which represents a large proportion of the workforce, wants to be associated with companies that bring about positive social change, and this has been a major contributing factor in the growth in social enterprise over the past decade.

Social enterprise is a business that, rather than focused on making money, tries to address a social problem in addition to or in place of making as large a profit as possible. Businesses of this kind have a double bottom line: they need to be both financially sustainable and able to have a definite positive impact on a societal issue, whether that relates to economic well-being, health or human rights. But social enterprise is also good for the economy. It isn’t impossible for profit-motivated businesses to make a social impact, but there is always the risk of their producing negative externalities; social enterprise, in contrast (and by definition), produces positive externalities. Some of these negative externalities or outcomes, like waste, come about because of consumption, while other externalities, like factory carbon emissions, arise from production. In both the developing and the developed world, these negative externalities hold back economies from achieving their productive potential, and this can lead to societal problems. When poor governance or corporate mismanagement create these externalities, social enterprise has the power to correct them.

Last month, the British government published a report estimating there are 471,000 social enterprises in the UK and that 1.44 million people are employed by the sector. Nearly all social enterprise employers generated a surplus or profit in the same year, compared to three-quarters of SME employers. These social enterprise employers also reported higher levels of innovation, were more open to advice and guidance, and were more optimistic when it came to their longer-term growth prospects. This is hugely encouraging. We now have some of the brightest young minds in the world devoting their mental energies to solving social issues. On top of this, the technology to make real and meaningful change to the lives of the poorest and most vulnerable now exists.

The whole of the Western world stands to benefit if this trend towards social enterprise becomes a dominant feature in economic life. For that to happen, there has to be a reconsideration of our core economic principles. Instead of focusing on wealth creation we need to focus on job creation. This is something that microfinanciers have understood for decades. ‘Social businesses flourish thanks to microfinance loans,’ Muhammed Yunus, Nobel Peace Prize winner, said recently. ‘People are born to be entrepreneurs, but this nature gets constrained in a system that teaches them to be merely job-seekers, limiting job creation to a privileged few. Some people would fulfil that natural inclination by starting businesses that don’t have wealth accumulation as their only goal, if only they thought doing so were an acceptable measure of success.’

Changing our definition of economic success takes time, but the incentives are already in place: there is a rapidly growing body of evidence that suggests that Private Equity funds that observe environmental, social and governance (ESG) standards in their strategies tend to outperform those that don’t by a wide margin. ‘Investors are finding that if they are good to the planet and good to people, they also end up, on average, benefitting themselves,’ an article in the FT read last month.

We seem to be in the middle of a paradigm shift. Our perception of business and enterprise and the landscape, from blockchain to ICOs to social enterprise, is changing with it. We need to continue this push against Profit-first, exploitative business and decide to use our cash to better the world. After all, social enterprise is good for the economy, not just society. 

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