Friday, December 10, 2010

Aren't many private business also social businesses?

We in the ‘for good’ world often get in a twist about defintions and distinctions. To accommodate this we have developed a typology of organisational types - charities at one end and co-ops at the other with CICs, social firms and 57 other varieties inbetween.

Business doesn’t bother with this nearly as much. But there are as many different types of business, in my experience, as there are types of ‘for-good’ bodies. For a start, there are small, medium and large ones. There are private and public ones. Manufacturing and services. And there are some which are, essentially, values-driven and some which are excessively profit driven.

It is this ‘grey zone’ between exclusively profit focused business and the harder-nosed end of social business that is, I believe, little understood by our sector. It is most often found in the privately owned medium sized business sector, where owners are long-term engaged and also rooted in their own communities. In such companies, there is less short-termism, no remote shareholders and a relationship with staff that means that jobs are preserved where possible. We tend to lump these businesses in with the red-claw private sector, but, in reality, trust is high, employees involved and the business views itself in the round as an employer and a contributor to the local community.

This is a type of capitalism that was once prevalent in the UK but which has been slowly eroded by harder-edged shareholder- capitalism and its endless take-overs. Small and medium-sized firms do, of course, still exist in vast numbers, particularly in our smaller cities and towns, but they are not the force they are in, say Germany, where the 'Mittelstrand', of middle-level of family-owned business with up to 250 employees is still prevalent.

For me, this socially responsible form of capitalism - local, connected, balanced is actually not a million miles from social business. While ownership is still concentrated in a few hands, the modus operandi and social benefit of these ventures - employment, training, economic stimulation - often compares favourably to the charities and social businesses operating in the same space.

Here's a question for social enterprise to think about: Is it is better to run a 20 person business, private profit-making in Merthyr Tydfil...or set up a social enterprise? You would get grants for both, true, but which would need less long-term subsidy? Which would generate and sustain most jobs? Bring most money into the local economy? Train most people? Pay most tax? I think I know the likely answer.

This isn’t to say we shouldn’t set up social businesses in places like this. We should - business might fail to tackle specific problems that a social venture wouldn’t shy from - e.g. employing disabled people - but I think the social enterprise sector should get its head around the fact that not all businesses are the same and in terms of everything except ownership, some businesses probably deliver stronger social returns to capital than certain social enterprises.

Where would you put your money?


James said...

"I think the social enterprise sector should get its head around the fact that not all businesses are the same"

Wow - way to go, Craig - care to offer any other massive generalisations as to what the social enterprise sector thinks of business!?

Maybe this shows your own outdated perception rather than a common view amongst social enterprise.

Business can be good as well as bad. Wow, thanks for enlightening us with that insight.

If this post sounds angry, it's because your blog was inane drivel that any primary school kid could have written.

And you're meant to be a leader in the sector!?

Craig Dearden-Phillips said...

Hello James, I am not familiar with you but I have clearly annoyed you. Not my intention. You are clearly someone who thinks about the issues. In my experience not everyone does - which is reflected in my comments here. I spend a lot of time in all sector and am often surprised by lack of understanding/generalisations between them. In pointing them out I didn't mean to subscribe to them myself or make blanket statements. Thanks, neverthless for reading and commenting James, C

Jeff Mowatt said...

Yes, indeed they have a social dimension in the benefits they may bring to any community, where they adhere to principles of being good employers. It's aomething we've often argued.

We make the distinction between this and social enterprise, where a primary social purpose is intended and this may be found in the preamble to a description of a social enterprise trust fund mechanism for investment, published in 2007.

"An inherent assumption about capitalism is that profit is defined only in terms of monetary gain. This assumption is virtually unquestioned in most of the world. However, it is not a valid assumption. Business enterprise, capitalism, must be measured in terms of monetary profit. That rule is not arguable. A business enterprise must make monetary profit, or it will merely cease to exist. That is an absolute requirement. But it does not follow that this must necessarily be the final bottom line and the sole aim of the enterprise. How this profit is used is another question. It is commonly assumed that profit will enrich enterprise owners and investors, which in turn gives them incentive to participate financially in the enterprise to start with.

That, however, is not the only possible outcome for use of profits. Profits can be directly applied to help resolve a broad range of social problems: poverty relief, improving childcare, seeding scientific research for nationwide economic advancement, improving communications infrastructure and accessibility, for examples – the target objectives of this particular project plan. The same financial discipline required of any conventional for-profit business can be applied to projects with the primary aim of improving socioeconomic conditions. Profitability provides money needed to be self-sustaining for the purpose of achieving social and economic objectives such as benefit of a nation’s poorest, neediest people. In which case, the enterprise is a social enterprise. "