Sunday, September 28, 2008

The End of Social Business - Or the Beginning?

I have spent the last week talking to bankers, VCs, donors, millionaires, entrepreneurs and academics. I have also, of course, been reading the papers and watching the telly.

What is abundantly clear is that we are in the middle of what will be looked back upon as a major change in our economic life and, arguably, the end of a particular kind of capitalism.

What is not clear yet, as the bullets fly and the shells explode is what the world will look like once calm resumes. While we are likely to see a far more regulated Eurozone-type financial sector, what will this mean for the `real economy' in places like the UK which, since 1986 have forgone a major manufacturing role in favour of financial services? What depth of recession are we going into? How many jobs will go? What will happen to houses and rates?

And, at a more granular level, what will this mean for third sector and social business organisations which, even durign the good times, were struggling to survive?Short-term, one sees the third sector and emergent social businesses as an expendable luxury, a bit like organic food. Great in the good times, cut back on the minute things get tough. There is more than a little truth in this. Charities and social firms will find their income down as people look to their pockets.

Longer term, the picture, I think, looks better. Taking aside the inevitable body-blow to social business in 2009-12, the concept of a better type of capitalism has never seemed more attractive. Indeed, has there ever been a moment before this when it has possible to ask, to insist even, that the single-bottom-line business model has seen its heyday?

Now, in this time of flux, I believe it is the perfect time to push for three things. Firstly, the reform of all corporate law (not just for banks) to demand clear publication of both social and enviromental bottom lines and extent of adherence to ethical business practices. Second, the creation a new kind of PLC which makes explicit social and environmental aims that rank alongside its financial ones. Not a CIC, as the assets would not be locked nor profits capped to anything like that degree, but something much more balanced than the typical share-value driven company we see in the FTSE 100 today.
Third, and finally, let's have a Social Investment Bank, a wholesaler of finance to capitalise the social economy. Never, in the era of the `bad-bank' has the case for a `bank-for-good', been more profound.

Even a year ago, there was no real appetite for most of this. Anyone talking about messing around with corporate law would have been brushed off as a socialist-interferer. Only CSR and other acts of voluntary partnership with the social sector were viewed as ways forward.

While we did see through CSR a lot of good progress and engagement (and Speaking Up is one major beneficiary of this), there is a strong argument that this does not run deep enough or wide enough to have a major impact on social problems. That the problems caused by certain company and bank activities far outweigh any useful outcomes from CSR.

This coming few years represents a great opportunity for the this deepening and broadening - and for it to be intitutionally embedded in law. The politics are are good now is they have been. Few beyond people like Sarah Palin now believe that unrestricted markets produce the best outcomes for people and society. Even the mainstream right in the US and UK acknowledge that the market needs stronger rules if it is to work properly - just like human beings need robust laws if they are to form successful societies. Indeed it is no accident that the most successful societies in terms of cohesion, interpersonal trust and personal opportunity tend to be capitalist ones - but where the extremities of the free market (income-inequality, a large underclass, poor life-chances, low social mobility) have been dealt with.

Arguably, it is countries like Sweden that have gone furthest in this direction though social solidarity there is expressed principally through a conflated state rather than an active civil-society. There, companies such as Nokia have a much stronger concept of corporate citizenship than, say Merrill Lynch or Lehmann Brothers ever mustered.

My own view is that social enterprise will develop from being a fringe activity at the edges of the third sector (protected by nebulous kite-marks etc), to a small but growing band of progressive businesses which currently are seen as mainstream corporates but are, in fact, changing quickly into something more balanced.
This crisis, if capitalised upon by lawmakers, will accelerate this trend so that within fifty years, we could end up with a corporate sector, underpinned by a sensible banking sector, which is as close to social business as I think we are going to get in this century.

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