Social Enterprise, A Smart Successful Economy

Social Enterprise, A Smart Successful Economy Assess the contribution of social enterprise, as a way of doing business, to Scottish Government’s vision of a successful and sustainable economy.

ABSTRACT

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A WAY OF DOING BUSINESS

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SCOTLAND’S SUSTAINABLE ECONOMIC GROWTH

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SMART & SUCCESSFUL

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ECONOMY

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ROOM TO GROW

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AND SO, STEADY‐STATE

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WORKS CITED

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Abstract Social enterprise is a business model which offers the prospect of a greater equity of economic power and a more sustainable society - by combining market efficiency with social and environmental justice. (Social Enterprise Coalition) Social enterprise is an explosively growing global movement. It is a way of doing business which in growth is experience a rapid evolution of it’s boundaries and as such is a hotly contested space; it is seen as some to be the way of the future and by others as an adjunct to the private and public sectors of the economy, a Third Way. In the UK, Prime Minister Toney Blair’s June 1997 speech linked social enterprise to government in a very public

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manner (The Institute For Social Entrepreneurs, 2008), reportedly seeing it as ‘an essential part of the drive to a more flexible, adaptable State’.

The current Scottish Government has committed itself to the single purpose of delivering ‘sustainable economic growth’; to this end all departments, programmes and initiatives are focused. Here we will consider how government proposes to mobilise social enterprise towards achievement of this single purpose; the perception of its place in the economy, the support offered to it and the ambitions for its future.

This is an exciting time for social enterprise, as the reality of global warming bites hastening the need to transform our societies to low carbon economies, and the global financial markets dramatically crash throwing the ‘old economy’ into recession. There is a pressing need to transform the business of living into a sustainable system. This is the chance to build a new world based on behaviours which make best use of all our resources and create relationships which sustain health and happiness for all (Ransom, 2009). We aim to establish the thesis that ‘social enterprise’ is essential to and as yet under utilised tool for achieving the Scottish Governments ambitions.

A Way of Doing Business By 1700, however, a new, more open architecture was beginning to develop in northern Europe: entrepreneurial/competitive business facilitated by more tolerant, open politics. The new business model rewarded people who would step up with better ideas and implement them, igniting a relentlessly expanding cycle of entrepreneurial innovation leading to productivity gains, leading to ever more entrepreneurs, successful innovation, and productivity gains. (Drayton, 2006) Bill Drayton founder in 1980, current CEO and Chair, of ‘Ashoka1’ sees the individuals who drive these social enterprises as a natural evolution of the entrepreneurial spirit shifting its gaze from the material world to the social sector. His is a vision of the future where everyone

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Ashoka strives to shape a global, entrepreneurial, competitive citizen sector: one that allows social

entrepreneurs to thrive and enables the world’s citizens to think and act as changemakers. www.ashoka.org MKTB540A1 Susan Pettie 26/05/2009 2/13 Pages

takes hold of the opportunity to make a better world; Everyone a Changemaker (Drayton, 2006).

In contrast John Pearce author of ‘Social Enterprise in Anytown’, and founding CEO of Strathclyde Community Business2 from 1984-91, puts more emphasis on communities driving this new wave, rather than individuals (Pearce, 2003). This emphasis is apparent in his ‘defining characteristics’ of a social enterprise, discussed in more detail later.

‘The Story of New Lanark’ published by New Lanark Trust3, itself a pioneering social enterprise, details the principles of Robert Owen, social reformer, industrialist, perhaps social entrepreneur, and the cotton mills manager in 1814. “Good housing, good education and disciplined, well organised but benevolent working conditions would produce a contented and efficient workforce. Philanthropy would go hand in hand with economic advantage.”

(New Lanark Trust, 2002).

Interestingly Robert Owen is credited with founding the cooperative movement as the following quote from teachers notes produced by the Trust illustrates “The village store at New Lanark, which under Owen was run for the benefit of the community, is regarded as the cradle of the co-operative movement. Prices were kept low by bulk buying, and the profits helped to meet the running expenses of the schools. As a result of this pioneering work in social reform, New Lanark became internationally famous.” (New Lanark Trust, 2009).

Pearce 2003 sights the ‘Rochdale Pioneers, founders of an ‘Equitable Society’ in 1844’ as the ‘immediate forerunners to what is now the Social Enterprise Movement’, those Pioneers are recognised as having been influenced by the ideas of Owen.

One way of conceptualising the Social Enterprise Movement is through consideration of the ‘Three Systems of the Economy’ as described by Pearce in illustration of a model developed ‘from discussions between partners in a series of transnational European research and 2

Now Community Enterprise in Strathclyde. Our Vision is for communities and individuals who are

economically disadvantaged to realise their potential. www.ceis.org.uk 3

Set up in 1974 the New Lanark Conservation Trust, a register Scottish Charity, works on the restoration and

development of the New Lanark World Heritage Site. Its wholly owned subsidiaries New Lanark Trading Ltd & New Lanark Hotels Ltd return surplus profit to the Trust for reinvestment. www.newlanark.org MKTB540A1 Susan Pettie 26/05/2009 3/13 Pages

action projects’ (Pearce, 2003).

The model divides the economy into three systems differentiated by the way they approach the business of living; the first private ‘for profit’, the second democratically directed public service and the third self help citizen service. The Social Enterprise Movement is situated within the social economy sub section of the third system; where the citizen service sells goods and services to achieve their social and/or environmental aims.

They address ‘weaknesses in the operation of both markets and government’ (Leadbeater, 2007). Think charity shops, fair trade chocolate, credit unions, catering training restaurants and much, much more which we will go on to explore.

Scotland’s Sustainable Economic Growth The transition to an outcomes-based approach with delivery partners, including local government, will leave the detailed management of services to those who can best understand and tailor their resources and activities in line with local priorities.

(Scottish Government, 2007, p. 45) In 2007, the third elections to the devolved Scottish Parliament4 returned a Scottish National Party (SNP) government. In their Government Economic strategy published in November of that year the SNP set out their plans for a ‘wealthier and fairer; smarter; healthier; safer and stronger; greener’ Scotland. Here the First Minister Alex Salmond, in his forward, first introduced the innovative and distinctive concept of ‘increasing sustainable economic growth’ as ‘the one central Purpose’ for government (Scottish Government, 2007).

Defining sustainable economic growth in their strategy as ‘building a dynamic and growing economy that will provide prosperity and opportunities for all, while ensuring that future generations can enjoy a better quality of life too’, it seems that this government has much to gain from mobilising social enterprise to help achieve its ‘one central Purpose’.

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As a result of the UK government referendum in 1997, The Scotland Act 1998 was passed providing the

constitutional bases for the establishment of the Scottish Parliament and Government. Certain areas of law are reserved to the UK, devolved matters however include health, housing, local government, social work, tourism and economic development. The first elections to the parliament were in 1999 and it has a four year term.

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The Scottish Social Enterprise Coalition5 (SSEC) was very clear about the opportunity presented by social enterprise in response to the government strategy stating, ‘As many develop in response to specific need or as a result of genuine ‘bottom-up’ community regeneration, they have a level of insight, of huge value to the Scottish Executive as it sets out to achieve its key purpose and objectives.’ (Scottish Social Enterprise Coalition, 2007) Six months later the Scottish Governments ‘Enterprising Third Sector Action Plan’ (The Scottish Governmet, 2008) acknowledges this potential and presents an impressive array of commitments with which to liberate this force for good. Tying their aim in creating a ‘culture of enterprise throughout the third sector’, or third system, to inspiration from the ‘rise of the social enterprise business model’ and the provision of ‘high quality public services’. Housed in the Directorate for Public Services Reform: Third Sector & Social Economy, the responsibilities for delivering the plan come under the remit of the Cabinet Secretary for Finance & Sustainable Growth (The Scottish Government, 2009).

In his Ministerial Forward John Swinney speaks of how the third sector can help in achieving the government’s desired characteristics of ‘sustainable economic growth’, “Our three golden rules for ensuring that growth is shared and sustainable … These are solidarity, cohesion and sustainability. There is a very real key role for an enterprising third sector – of which social enterprise is an important part – to play in helping us achieve each of these” (The Scottish Governmet, 2008). No mention is made of how social enterprise can contribute to the key components of increased growth; increased productivity, participation and population, this will be considered further.

Smart & Successful Social enterprise offers a new way to do business that is animated by a social purpose. (Leadbeater, 2007)

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Is the national collective lobbying and campaigns voice for social enterprise in Scotland. It is a membership-

led organisation representing the needs and interests of social enterprise to politicians, policy makers and opinion formers. www.ssec.org.uk MKTB540A1 Susan Pettie 26/05/2009 5/13 Pages

Though definitions of social enterprise are many and varied, John Pearce identifies six ‘characteristics fundamental to social enterprise’. They offer us a useful structure from which to explore what makes social enterprise different. The six characteristics are; a social purpose/s, engaged in trading, not distributing profit to individuals, holding assets/wealth in trust for community benefit, democratically involving its constituency in governance, being independent and accountable to constituency and wider community (Pearce, 2003). It is clear from these widely accepted characteristics why the government would initially see social enterprise as contributing to the desired characteristics of growth; solidarity, cohesion and sustainability.

In the most stereotypical light: ‘for profit’ enterprises are lead in their decision making by their main aim in creating a return for investors while ‘not for personal/private profit’ or ‘more than profit’ social enterprises are lead by their primary purpose in creating a positive social and/or environmental impact.

Legislation has evolved from government forcing ‘for profit’ enterprises into taking account of their actions on society and the environment in pursuit of profit (trade unions, health & safety, equal pay, environmental regulations), while ‘more than profit’ enterprises make protecting society and/or the environment (social care, recycling, jobs for folk with different abilities) their main aim.

Charles Leadbeater’s 2007 point that, ‘The challenge that social enterprise poses is whether businesses could be doing more to internalise social and environmental costs, to do business in a different way not just to donate to charity or pay taxes’ has implications when we consider the governments key components of growth; productivity, participation and population.

As explained social enterprise is seen in the UK as part of a third sector, system or way. This perception, as a result of the historical trajectory of development, has seen support for social enterprise placed within the remit of the ‘third sector’ at local and national government level. While more recent developments have seen this new way challenging ‘for profit’ enterprise, social enterprise has traditionally taken on public service provision.

As the SSEC acknowledges in their social enterprise procurement guide for local authorities, social enterprises ‘are market leaders in the field of social care’, ‘are also found providing MKTB540A1 Susan Pettie 26/05/2009 6/13 Pages

housing, transport and welfare services – they are active right across the spectrum of public service delivery’ (Scottish Social Enterprise Coalition, 2008).

Leadbeater 2007 again, ‘In short social enterprise approaches to public services often claim to be more personalised, engaging, joined-up, adaptable – providing better outcomes and value for money’.

Economy economy; noun 1. Careful management of resources to avoid unnecessary expenditure or waste; thrift. 4.a. the complex of activities concerned with the production, distribution, and consumption, of goods and services. (Collins Concise English Dictionary, 1992) While the word economy has come to describe the production and distribution of products and services in any given area, it’s original definition that of the careful management of available resources, is brought to life in social enterprise.

In contrast to ‘for profit’ business social enterprise is perceived as working to a ‘triple bottom line’, they consider the environmental and social as well as the economic objectives of their activities. Recent work in Europe adds to this notion by taking economic objectives as a given – if you don’t make money, you’ll not be in business – and proposes cultural objectives, culture change aims, as the third of the bottom lines6.

This conscious and active orientation towards acknowledging and pursing multiple impacts as an aim of business behaviour puts quality of relationship centre stage in social enterprise.

This notion of relationship quality can be seen in Pearce’s fundamental characteristics and is added to in his further listing of the distinct values unique to the third system: co-operation, decentralisation, inclusivity, good work, sustainability, people-centred (Pearce, 2003).

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A Europe wide training initiative for the social economy. www.cest-transfer.de MKTB540A1 Susan Pettie 26/05/2009 7/13 Pages

These values, the fundamental characteristics and the triple bottom lines mean that products and services bought from social enterprises make your money go further towards creating a ‘wealthier and fairer; smarter; healthier; safer and stronger; greener’ world.

The Social Enterprise Coalition’s7 guide ‘There’s more to business than you think’ illustrates the range of ways in which you can spend your money with social enterprise. This list includes office furniture, oysters, gas engineers, tap water, soap, bier, swimming and childcare (Social Enterprise Coalition, 2003). Social enterprises operate within the primary (exploitation of raw materials), secondary (manufacturing) and tertiary (services) sectors of our economy.

Developing a standardised way of measuring the multi bottom line impact of each pound spent is an essential way of proving this economy. This process of proving is experiencing the same growth and differentiation in line with the social enterprise movement.

Pearce has been involved in its evolution since working in community business focusing on the process of ‘social accounting and audit (SAA)’. Here he describes, ‘the fundamental concept which lies behind social accounting and audit: to understand the impact of organisations on society and on the environment; on people and on the planet’ (Pearce, 2003). SAA is a complex, involved and thorough multi stakeholder approach to measuring impact.

A key player in the member led Social Audit Network8 (SAN) and a registered SAN approved social auditor, Pearce sees the requirements to report on ‘the sustainability of the organisation’ and the ‘sustainability of behaviour which contributes to a future for the people and planet’ as something which needs legislated for across ‘all institutions’ with ‘society demanding that social accounts be kept’ (Pearce, 2003).

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Is the UK counterpart to the SSEC: Our mission is to be the voice of social enterprise, through being a

progressive, authoritative body, that brings together all types of social enterprises in the UK. www.socialenterprise.org.uk 8

Seeks to promote and support social accounting and audit as the preferred means whereby organisations

operating in the community, social economy, and public sectors report on their social, environmental and economic performance. www.socialauditnetwork.org.uk MKTB540A1 Susan Pettie 26/05/2009 8/13 Pages

Since the Scottish Government is backing it plans for an enterprising third sector with investment of £93 million between 2008 and 200119 it is also interested in this process of measuring impact. Jointly funding a pilot project looking at an alternative process ‘social return on investment (SROI)’, the report on the pilot highlights the characteristics of the approach, ‘SROI holds an instant appeal because it speaks the language of finance and appears to provide a way of proving that investment into social enterprises is “worth it” (Durie, Hutton, & Robbie, 2008)’.

Though it may appear there would be tensions between the SAA and SROI impact measuring processes, true to the social enterprise values of cooperation there is acknowledgment that working together will make measuring impact more robust. ‘Effective social reporting will include the best of both SAA and SROI – as well as using other tools which are available’ was one of the key points accepted following debate at the SAN AGM 200810 and the Investing in Impact Report states, ‘development should be aligned with wider efforts in the impact measurement and evaluation field, with the long-term aim of developing a common and consistent approach to social reporting for use by social enterprises and other third sector organisations. (Durie, Hutton, & Robbie, 2008)’

Room to Grow In the first Scottish Global Entrepreneurship Monitor (GEM) 2000, a survey of entrepreneurship which has as a central purpose ‘”to measure activity of individual people as opposed to organisational forms” (Levie, Harding, Brooksbank, Hart, Jones-Evans, & O'Reilly, 2006), it was noted that out of the 21 countries surveyed “74% of Scots felt that everyone should have the same standard of living – a majority exceeded in only 5 GEM nations”, while entrepreneurial activity was near the European average (Levie & Steele, 2001).

Two years later GEM 2003 introduced a question on social enterprise, a chapter on which was sponsored by Scottish Enterprise11. In his forward to the report Tom Hunter explains a useful discovery, “45% more Scots said they were currently trying to start a social 9

http://www.scotland.gov.uk/Topics/People/15300/funding

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www.socialauditnetwork.org.uk/news&events2.htm

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Scotland’s main economic, enterprise, innovation and investment agency – government funded.

www.scottish-enterprise.com MKTB540A1 Susan Pettie 26/05/2009 9/13 Pages

enterprise than said they were trying to start a business. This represents an important social phenomenon and a potential powerful force for good in Scottish society”. The data has a further welcome surprise when we find “Three times as many adults aged 18-24 in Scotland say they are trying to start a social enterprise (7.3%) as businesses (2.3%)” (Levie, Brown, & Cooper, Global Entrepreneurship Monitor Scotland 2003, 2004) .

Young people are being brought up on fruit smoothies that invest in ‘building sustainable futures for the world’s poorest people’12 and cutting edge fashion that ‘pioneer industry standards of social and environmental responsibility in the workplace’13.

And so, steady-state The closer the economy approaches the scale of the whole Earth the more it will have to conform to the physical behavior mode of the Earth. That behavior mode is a steady state—a system that permits qualitative development but not aggregate quantitative growth. Growth is more of the same stuff; development is the same amount of better stuff (or at least different stuff). Herman E. Daly14 With the impacts of global warming and the global financial crash there is pressing need for social change to a sustainable system for dealing with the business of living. Individuals and communities have an interrelated responsibility and potential for driving this much needed change.

Social entrepreneurs and social enterprises merge market systems with social and/or environmental goals. They take an approach to business, which focuses on ‘quality of relationship’, and they are defined by characteristics which facilitate sustainability.

The Scottish Government has made increasing sustainable economic growth its one purpose. The social enterprise movement is recognised as have great potential to help it

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www.innocentfoundation.org/

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www.americanapparel.co.uk/contact/profile.html

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He was an economist for the world bank www.theoildrum.com/node/3941 MKTB540A1 Susan Pettie 26/05/2009 10/13 Pages

deliver this purpose, initially through provision of public services and in relation to their desired characteristics of growth; solidarity, cohesion and sustainability.

Social enterprises are active throughout the wider economy producing a huge range of goods and services. Their economical approach to the business of living, carefully managing resources to avoid waste, makes them a business model fit for the challenges of the 21st Century. Effectively measuring this economy of approach and its multiple impacts is an essential part of supporting the development of this third system or way.

Due to its values, characteristics and multiple bottom lines the social enterprise movement also sets a challenge to ‘for profit’ enterprises. This has implications for the governments key components of growth; productivity, participation and population. With qualitative development essential to survival in a steady state world, where we have come up against the limits of aggregate quantitative growth, the social enterprise movement steps up to the mark.

In a country where there exists a strong sense of a fair distribution of wealth and where young people are becoming more entrepreneurial the social enterprise movement presents an attractive opportunity for fulfilling those two motivations.

In agreement with Leadbetter 2007, ‘Arguably the biggest impact social enterprise will have will be to change the way that business and markets operate’, ‘Social enterprises can challenge mainstream businesses to operate in more socially responsible and inclusive ways. They can also inspire consumers to demand such products.’

The Scottish Government can go further in its ambitions for social enterprise, current global challenges create an imperative and the local culture appears open to the development of the social enterprise model as the way for dealing with the business of living.

The time is ripe for being bold ... To make it the norm to celebrate being a social enterprise with firmly held beliefs rather than to work away in the marketplace pretending to be like any other business. To pin our colours to the mast of radical, global change. (Pearce, 2003)

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Works Cited Collins Concise English Dictionary. (1992). Glasgow: HarperCollins.

Drayton, B. (2006). Everyone A Changemaker: Social Entrepreneurship's Ultimate Goal. MIT Press, Harvard University, George Mason University.

Durie, S., Hutton, E., & Robbie, K. (2008). Investing in Impact: Developing Social Return on Investment. Glasgow: EQUAL Social Economy Scotland.

Economy, E. a. (2009, May 12). News Releases. Retrieved May 25, 2009 from Scottish Parliament: http://www.scottish.parliament.uk/nmCentre/news/news-comm-09/ceet09-s3004.htm Leadbeater, C. (2007). Social enterprise and social innovation: Strategies for the next ten years. London: Office of the Third Sector.

Levie, D. J., & Steele, D. L. (2001). Global Entrepreneurship Monitor Scotland 2000.

University of Strathclyde. Glasgow: Hunter Centre for Entrepreneurship.

Levie, J., Brown, W., & Cooper, S. (2004). Global Entrepreneurship Monitor Scotland 2003.

University of Strathclyde. Glasgow: Hunter Centre for Entrepreneurship.

Levie, J., Harding, R., Brooksbank, D., Hart, M., Jones-Evans, D., & O'Reilly, M. (2006).

Measuring Social Entrepreneurship: Lessons from Three Years of Experimentation. Madrid: UK GEM Team.

New Lanark Trust. (2009). Information Notes for Teachers about New Lanark. Lanark: New Lanark Trust.

New Lanark Trust. (2002). The Story of New Lanark. Lanark: New Lanark Trust.

Pearce, J. (2003). Social Enterprise in Anytown. London: Calouste Gulbenkian Foundation.

Ransom, D. (2009, April). The Age of Possibility. New Internationalist (421), pp. 13-16.

Scottish Government. (2007). Scottish Budget Spending Review 2007. Scottish Government, Finance and Sustainable Growth. Scottish Government.

Scottish Government. (2007). The Government Economic Strategy. Scottish Government.

Scottish Social Enterprise Coalition. (2008). Adding up the value: Why buy from social enterprise? Edinburgh: Scottish Social Enterprise Coalition.

Scottish Social Enterprise Coalition. (2007). How social enterprises deliver for Scotland.

Edinburgh: Scottish Social Enterprise Coalition.

Social Enterprise Coalition. (n.d.). About Social Enterprise. Retrieved May 25, 2009 from Social Enterprise Coalition Web Site: http://www.socialenterprise.org.uk/pages/about-socialenterprise.html MKTB540A1 Susan Pettie 26/05/2009 12/13 Pages

Social Enterprise Coalition. (n.d.). Social Enterprise Identifier Project. Retrieved May 25, 2009 from Social Enterprise Coalition Web Site: http://www.socialenterprise.org.uk/pages/social-enterprise-definitions.html Social Enterprise Coalition. (2003). There's more to business than you think: A guide to social enterprise. London: Social Enterprise Coalition.

The Institute For Social Entrepreneurs. (2008). Evolution of the Social Enterprise Industry: A Chronology of key events. Dallas: The Institute For Social Entrepreneurs.

The Scottish Government. (2009). Scottish Government Senior Management Structure.

Edinburgh: Scottish Government.

The Scottish Governmet. (2008). Enterprising Third Sector Action Plan 2008-2011.

Edinburgh: Scottish Government.

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