History, definition and alternative forms of social entrepreneurship

Grass-root Level Actions
20.10.2019
Social impact and social change
16.02.2020

Content

  1. Social economy and social entrepreneurship: Definitions
  2. Evolution of the concept
  3. Similarities and differences between the commercial and social enterprise
  4. Social challenges around the world:
  5. Alternative forms of social entrepreneurship
  6. Activities for readers
  7. References

Social economy and social entrepreneurship: Definitions

In recent years, the world is facing multitude challenges which threaten the sustainable social development. Economic, political and environmental crisis brought up a number of issues that need to be addressed adequately. Public funds are becoming increasingly insufficient, while businesses are expected to assume greater share of responsibility for social and environmental welfare. Those trends lead to the emergence of new concepts such as social economy and social entrepreneurship.

Social economy is a hybrid sector between business (private) sector and public sector aimed at providing quality social services for needy communities and individuals.

Social economy encompasses enterprises and organizations, in particular social enterprises, cooperatives, mutual societies, associations and foundations producing and offering goods, services and knowledge, while pursuing economic and social goals and promoting solidarity.

The social economy is an important factor for creation of employment and fair distribution of goods. It promotes social inclusion and cooperation and contributes towards sustainable societal development while maintaining ecological balance and effectively regulating the socio-economic environment.

Why the world needs social economy?

  • There are social challenges that are not faced adequately by the existing social models
  • The social security system is overburdened
  • The traditional business model cannot meet society’s expectations for social contribution and growth
  • The global issues require global solutions which starts on community and individual level

Social entrepreneurship is a new business and social trend within the social economy concept that reflects the need to address various societal challenges in a creative and sustainable way. The main objective of the social enterprise is to have social impact rather than making profit for its owners or stakeholders. It operates by providing goods and services for the market in an entrepreneurial and innovative fashion and uses its profits primarily to achieve social objectives.

Similar to the traditional companies, social enterprises operate on commercial markets, generating profit from their activity. However, unlike other businesses, they exist to fulfil their specific social purpose.

Social entrepreneurship refers to ventures targeting underserved populations, decreasing the gap between those who have access to social services and those who do not. While commercial entrepreneurship often responds to a market opportunity, social entrepreneurship often tackles a market failure. The bottom line of a commercial enterprise is financial profit, while the bottom line of a social enterprise is the social impact it creates. Though social ventures could be both, for profit and non-profit, the profit is not the goal, but rather means for sustaining financial viability of the enterprise (Chahine, 2016). Usually the profit is not distributed among the shareholders but is re-invested to expand the activities for the benefit of the target groups, enhancing the scope and the quality of the social services.

Definitions:

Social entrepreneurship is the process by which effective, innovative and sustainable solutions are employed to meet social and environmental challenges.

Social enterprise combines societal goals with an entrepreneurial spirit. It focuses on achieving wider social, environmental or community objectives

Social entrepreneur is an individual who designs and implements product, service or solution to an existing social challenge aimed at improving the social welfare.

Social venture: any initiative, including project, organization or event aimed towards positive social or environmental change

Social start-up: A new company or organization formed with the primary purpose of tackling social or environmental challenges Social innovation: Act of pioneering new methods, processes, products and services that address social and environmental issues.

The social enterprises mainly operate in the following fields:

  • Work integration: training and integration of people with disabilities, long-term unemployed, immigrants, people from ethnic or racial minorities and other marginalized groups of the population.
  • Human rights: liberty, poverty alleviation, pursuit of happiness, integration, anti-discrimination, gender equality, freedom of speech etc.
  • Heath and care services – health, well-being and medical care, health services, childcare services, services for elderly people and people with disabilities
  • Education: professional training, education, personal and career development
  • Regional development: Economic and social development of remote, rural areas, neighbourhood development/rehabilitation schemes in urban areas, development aid and development cooperation with third countries
  • Environmental protection and sustainability: recycling, environmental awareness and protection, sustainable usage of natural resources, use of renewable sources of energy, bio and organic agriculture, preservation of cultural and heritage sites,
  • Others: Amateur sports development, arts and cultural projects, science, research and innovation, consumer protection, tradition, crafts and ethnic heritage enhancement, ethic consumpiton.

THE SOCIAL ENTEPRISE IS……

“The Young Social Entrepreneur’s Book of Guidelines and Checklists”

Definition of social entrepreneurship

Social entrepreneurship is an economic activity (business) that:

  • Has a mission aimed at solving important societal problems
  • Earns income
  • Is self-sustained for any type of business activity, but solves social issues.

Definition of social enterprise

  • An economic entity which stands between non-profit organizations and ordinary business entities;
  • A commercial, civic organization or cooperative with a basic social mission;
  • An organization aimed at solving socially significant problems;
  • Receives financial and non-financial support from the community
  • Can be a commercial entity, a foundation or association for public benefit, a cooperative.
  • An enterprise that is fully dependent on its economic activity.

Evolution of the concept

Traditionally, the main goal of the entrepreneurship is considered to be the creation of financial profit through production and sale of goods and services. The social problems were left to the competencies of local and national authorities, the government, the NGOs, religious and charitable organizations. In recent years, however, the breach between business and social interests become more and more evident. On one hand, the severe competition between companies in an attempt to increase their profit and market share, lead to a number of negative outcomes for the society and the environment. The use of carcinogenic herbicides, GMO products, child labor exploitation, corruption, environmental pollution and many other notorious practices showcased the need of change in the existing business paradigm towards more socially responsible approach. On the other hand, it became clear that the governmental and non-governmental organizations are not capable to address adequately the various and complex problems related to the society and the environment. As social problems are becoming more poignant, those non-profit structures became ineffective due to cumbersome, institutional and donor-dependent model of operation. These organizations are expected to change and to become more entrepreneurial and less institutional. As a result, the new trend of combining social innovations in business settings lead to the creation of the third sector economy – the social economy which blurs the traditional boundaries between the public, private and citizen sectors.

The social entrepreneurship as a concept became popular in the mid-20th century with the H.Bowen’s (1953) book “Social Responsibility of the Business”, but the idea can be traced several centuries ago within the tradition of the fraternity and sorority religious organizations, the cooperative movement and the charitable ventures. Some notable promoter of the social entrepreneurship idea even before its conceptualization are Florence Nightingale (the founder of the first nursing school), Rober Ownen (the creator of the cooperative movement), Vinoba Bhave (the initiator of the India’s Land Gift Movement) and Maria Montessori, the founder of innovative teaching and educational methodology aimed at addressing children with various cognitive abilities, including mental illnesses.

The social entrepreneurship is in the same time evolutionary and revolutionary phenomenon. It evolved throughout the centuries as a hybrid organization between for profit companies and non-profit entities, but in the same time it offers an innovative approach and idea in creating added value for all – the consumer, the business owner and the society as a whole. The social entrepreneurship is aiming at maximizing the benefits for all stakeholders involved. Its principles, methods and organizational models continues to develop reflecting the technology development and addressing more and more group of people, social and environmental challenges.

Similarities and differences between the commercial and social enterprise:

Social and commercial enterprises share many common features concerning their organization, legal structure, management and marketing. In the same time, they have some notable differences and specificity.

Similarities:

  • Need for sufficient startup and operational capital
  • Creation of profit margin to ensure the financial sustainability
  • Similar legal structure
  • Similar approach in business planning, marketing, management and promotion
  • Aimed at achieving high quality products and customer service
  • Motivated, skillful and dedicated personnel
  • Competitive advantage, good marketing position and strong brand image

Differences:

  • Profit is not a final goal, but a tool for sustaining financial viability
  • Profit is seldom distributed, but is reinvested into new social initiatives
  • Staff members might be zero paid (volunteers)
  • Sources of financing can vary, apart from traditional financing tools they might include donations, fund raising initiatives and more innovative sources such as crowd funding platforms
  • The success of the social enterprise is measured by the positive social impact that it creates.

Social challenges around the world

On a global scale, the social enterprises face various issues and have different kinds of social, environmental and cultural purposes, reflecting the diverse needs and interests of the communities they work in. Some of the common goals include poverty alleviation, social inclusion of marginalized groups of people, enhanced welfare of the society etc., but there are a number of challenges that are especially relevant to specific world regions such as:

Social issues and challenges in Africa:

  • The incidence of HIV/AIDS, malaria and tuberculosis has dramatically worsened in most African countries;
  • Poverty, unemployment and socio-economic inequalities have aggravated throughout the sub-region, and the urban/rural disparity has widened;
  • Although secondary and higher education supply and demand have improved, the results in terms of quality do not meet the needs of the labor market;
  • Faults in the statistics system and unreliable data base hinder the monitoring and assessment of the social policies impact
  • The informal (“grey”) sector is the major source of employment in the urban and rural areas lacking appropriate policies for its regulation; and where such policies exist, they are not always implemented.
  • Recent economic reforms have not resolved the social problems, and in some cases they became even worse;

Social issues and challenges in Asia:

Violation of children’ rights (including child prostitution, child labor and exploitation, trafficking etc.)

  • Social exclusion for marginalized groups of people;
  • Gender disparity;
  • Geographical remoteness affecting the quality of life;
  • Income inequality;

According to the UNICEF report (http://www.unicefrosa-progressreport.org/), South Asia is suffering a number of problems related to social exclusion. The poverty and deprivation are among the worst levels globally, affecting as many as 330 million people. South Asia averages indicate that 46 per cent of children fewer than 5 are underweight, primary school enrolment is at 74 per cent rate, and adult literacy is at 58 per cent total and only 45 per cent for women.

Social issues and challenges in Europe:

The social system in most of the EU members is well developed and include special measurements and regulations aimed at addressing:

  • Health care and medical insurances
  • Retirement funds
  • Unemployment
  • Labor regulation and labor organizations
  • Education, child care, deviant behavior of youngsters
  • Integration and inclusion especial of marginal groups such as ethnic minorities and immigrants
  • Regional disparities

It is a common practice throughout the European countries that medical insurances and retirement allocations are made mandatory by law and secondary legislation. As a result, the number of people who are out of the social security or health care system is very small. However, those policies have faced a number of challenges in recent years, as the population is aging and the number of contributors is dwindling, while there are more and more beneficiaries. The outgrowing number of immigrants from Africa, Asia and the Middle East put additional pressure on the EU social systems which is becoming a key issue for the European policymakers.

The division of Northern and Southern, Eastern and Western Europe is being reshaped through a social policy of integration and cohesion. Most of the EU countries have strong focus on improving the well-being of the society as a whole and allocate enormous resources for achieving goals like social inclusion, health, environmental protection, education and increased employability. It is not evident however if those goals have been achieved, since they are hard to measure. Moreover, an economically prosperous society does not always mean healthy and happy society and often there is a discrepancy between achieved and desired outcome.

Social issues and challenges in Latin America and The Caribbean:

Due to the improved social climate, safety and security, the investments toward South America countries are expecting to increase, thus impacting positively the well-being of the people. There is however a number of problems that calls for urgent solutions, such as:

  • The increasing incidence of civil and armed conflicts constitutes a serious threat for the safety and security in several Latin America countries;
  • In view of massive and accelerating urbanization, access to decent housing in the urban areas for the disadvantaged segments of the population is becoming increasingly difficult;
  • Despite the relatively adequate global food supply in terms of quantity, cases of malnutrition in children and pregnant women persist;
  • The high unemployment rate especially amidst the youngsters lead to criminal behavior such as street mobs, thefts and drug abuse
  • The public and private institutions involved in social development have inadequate capacities.
  • Despite the significant progress in the government regulations in some Latin America countries, corruption remains a critical problem;

Other issues faced by the South American countries are:

  • Regulation of issues related to marriage, divorce, adoption and abortions;
  • The legal status of euthanasia;
  • Poverty, welfare and homelessness
  • Traffic of women and children
  • Drug control

Social issues and challenges in the North America:

North America includes countries such as the United States of America, Canada and Mexico that have different stage of economic and social development and consequently face different social problems. For example, most poignant issues in the USA and Canada include:

  • Inadequate and overpriced health care system, that drains the incomes of the majority of the middle class families, while in the same time provides little benefits. The dental care is too expensive and many people don’t have access to quality dental treatments.
  • Great income inequalities and huge disparity between super rich and very poor
  • Racial discrimination especially persistent in some Southern and Central States
  • Exclusion of the Indian indigenous population which lives mainly in remote areas and closed tribes
  • Abortion and anti-abortion movements
  • Lack of adequate social security system, social benefits and retirement policy on national level
  • Lack of maternity benefits which leads to gender disparities and prevents many women to continue their professional development
  • Low food quality and mass usage of harmful substances in food production, mass sale of GMO produce leading to obesity problem and other generic diseases
  • Inadequate gun control and frequent incidences of mass shootings in public places, schools and shopping centers
  • Illegal immigration especially in southern parts of the USA

In Mexico, the social issues are similar to those faced by some of the Latin American countries including:

  • Insecurity and safety issues concerning organized crime activities. Shooting between various drug barons have become an increasing threat for peaceful citizens especially along the frontier regions
  • Poverty, unemployment and lack of opportunities for development for some strata of the society (Poverty level at 47% as per Reuter, 2015)
  • Social disparities
  • Imbalanced regional development

Alternative forms of social entrepreneurship

The social entrepreneurship has various forms and legal options such as:

  1. For-profit companies
    This is the most commonly used legal structure for commercial businesses, but a number of social enterprises choose also the traditional business options, because of the greater flexibility and independence in the company’s internal management and investment policy. A social enterprise registered as a for-profit entity will incur all risks and responsibilities usually without help from the government and not benefitting from tax alleviation (unlike the charities). On the other hand, it will have the advantage of exercising maximum control over its operations and the profit distribution and won’t be obliged to report its activity before the authorities or external organizations.
  2. Nongovernmental organization (NGO)
    The nongovernmental organization is a specially registered legal entity with the aim to address collective interests by funding and supporting various activities, thus fulfilling socially important missions and goals. Many NGOs are focusing at providing social services for disadvantaged groups and communities helping them to achieve good quality of life and social inclusion. In the same time, they remain accountable before the community and need to report their activities and the outcome of their interventions on a regular basis.
  3. Cooperatives
    The cooperatives are structures whereby the organization is owned by a number of individuals (or other organizations) known as members. Cooperatives are very popular in the agricultural, industry and the service sector. The very idea of the cooperatives is to benefit its member and the community as a whole. In some countries, the cooperatives are economically important as for example in the UK, where they are responsible for almost half of the Gross domestic product, while in Argentina, up to a quarter of the population is a member of a cooperative.
  4. Charity
    Charity (or charitable organization) is defined as a non-profit organization with primary objective of social well-being and philanthropy thus serving public interest or common good. Each country has its own version of the charity organization legal form. In the United Kingdom, for example, there are four main types of charity structure: unincorporated associations, charitable incorporated organizations, charitable companies, and trusts. One of the main advantages associated with registering under this legal option is that having a charity status facilitates the fundraising. When individuals donate to charities, they receive tax deduc¬tions. This was set up by most governments in order to encourage people to give. Similarly, when businesses and other institutions support social enterprises, they too receive tax deductions, which provide a significant incentive for this type of transactions. (Chahine, 2016)
  5. Hybrid setups
    Many social entrepreneurs opt for hybrid models by registering one profit and one nonprofit entity. The two organizations provide more flexibility and allows to benefit from a larger range of funding options combining both: venture capital and charity donations. It is often the case, when a social enterprise starts as a charity or NGO and then move to a for-profit business upon gaining recognition and market size.
  6. Special type of entities
    Some countries have updated their legislation by developing and implementing a special legal entity to address more adequately the need and specificity of the social enterprises. Usually those new legal structures combine successfully the two models (for-profit and non-profit). Example of those include Benefit Corporations in the USA and the Community Interests Companies (CIC) in the UK.

Activities for the readers

  1. Watch the videos
  2. Do a study on the topic
    • “What is the contribution of social enterprises to the economy in your community?”
    • The text should be at least 500 words in the form of a report.
  3. Which vulnerable group do you want to help?
    • Write a description of this group.
    • What are its basic needs?

Self-assessment Test:

  1. The social economy:
    a) places the individual in the center of society well-being
    b) places the community in the center of society well-being
    c) both individual and community are in the center of well-being
    d) in the center of well-being is the interests of the business
  2. The Nongovernmental organization can be a social enterprise if:
    a) it is in public utility
    b) it is in private utility
    c) it receives social aid
    d) it receives funding from Government
  3. Social entrepreneurship is:
    a) person with social mission
    b) a business activity with social mission
    c) a project with community mission
    d) an organization with social mission
  4. Cooperation is:
    a) nongovernmental organization
    b) trade company in private utility
    c) property of workers and specific business subject
    d) joint activity between two organizations in trade sector
  5. Social entrepreneurship has to:
    a) self-sustain with own resources
    b) use only public resources
    c) use only private resources
    d) use only donation

References and links to self-study resources

Alter, K. (2006). A social enterprise typology. Virtue Ventures http://virtueventures.com

Arvidson, M., Lyon, F., McKay, S., & Moro, D. (2010). The ambitions and challenges of SROI. Ashoka. (2011). http://www.ashoka.org/

Bosma, N., & Levie, J. (2010). Global Entrepreneurship Monitor 2009 Global Report.

Cassel, Gustav :1967. The theory of social economy https://mises.org/sites/default/files/The%20Theory%20of%20Social%20Economy_3.pdf

Chahine, Theresa (2016), Introduction to Social Entrepreneurship, CRC Press

Drucker, P. (1994) The Age of Social Transformation. The Atlantic Monthly Company. The Atlantic Monthly; November 1994; Volume 274, No. 5; page(s) 53-80

Eurostat. (2013). People at UNECLAC, official site, http://www.eclac.org/default.asp?idioma=IN

International Federation of Social Workers (IFSW), official site, https://www.ifsw.org/

Monzón J. L. Campos &- R. Chaves, 2012. The social economy in the european union, European Commision, https://www.eesc.europa.eu/resources/docs/qe-30-12-790-en-c.pdf

Organisation for Economic Co-operation and Development (OECD) http://www.oecd.org/cfe/leed/inclusive-entrepreneurship.htm

Report of UN, 2015 https://www.un.org/en/sections/issues-depth/africa/index.html

Report International Centre of Research and Information on the Public, Social and Cooperative Economy (CIRIEC) “The social economy in the European Union”, 2012 https://www.eesc.europa.eu/resources/docs/qe-31-12-784-en-c.pdf

Valenduc, V. & P. Vendramin, 2016. Work in the digital economy: sorting the old from the new, Working Paper 2016.03, ETUI, Brussels, ISSN 1994-4446.