Understanding Social Enterprise: Theory and Practice Defining Social Enterprise “Defining Social Enterprise” explores how different definitions and perspectives are linked to ideology and economic interests. Firstly, we explore views that have emerged in Europe, the UK, the USA, and the international co-operative movement. Having considered practitioner descriptions, we discuss theories of social enterprise that locate it on a ‘spectrum’ of entrepreneurial possibilities, or as a hybrid ‘cross‑sector’ form of organisation. The chapter concludes with a discussion of social enterprise as an activity, rather than a form of organisation.

Learning Goals Explain the practical relevance of debates about social enterprise definition. Compare and contrast linear and cross-sector theories of social enterprise. Identify popular definitions of social enterprise and understand their value commitments. Clarify the potential of social enterprise in different sectors of the economy.

Key Arguments There are different ways of understanding social enterprise. Social enterprise can be defined in terms of: Balancing economic and social goals Developing social capital Hybrid forms of organisation The purpose of a project or activity Social enterprise is possible in all sectors of the economy.

Boundaries of the debate EU-style Social Enterprise: US-style Social Entrepreneurship: Collective Action Individual Action Labour movement or government responses to social issues Entrepreneurial (market) responses to social issues Incremental building of social capital and assets Fast effective achievement of social outcomes Solidarity and Mutuality Champions and Change Agents Accommodation of stakeholders Adherence to a ‘vision’ Democracy (bottom-up governance) Philanthropy (top-down governance) Third sector Any sector

Boundaries of the debate The Grameen Foundation In 1976, Muhammed Yunus returned from abroad to teach economics in Bangladesh. Deeply affected by the poverty he could see from his classroom window, he went out into the streets and talked to women struggling to escape door-to-door loan sharks. Using the money in his pocket, friendship networks rather than material assets to provide security (“mutual guarantee groups”), and inter‑personal trust rather than written contracts, he established a micro‑finance organisation that now serves 6 million people. “In January 2008, Nobel Laureate Muhammad Yunus introduced a new term to the business lexicon: social business. Writing in his new book, Creating a World without Poverty, Yunus laid out the framework for two social business models and urged others to adopt them in the fight against global poverty. A social business is social-objective driven. In the first model, the company’s mission is achieved through creating or supporting sustainable "non-loss" business enterprises where all of the profits are ploughed back into the company rather than being distributed to shareholders. The second social business model is one which is profit-driven, but owned and operated entirely by the poor, who receive all company profits.” http://www.grameenfoundation.org/what_we_do/, accessed 08 October 2008.

Origins and Early Development Social entrepreneurship (primarily US-led) ASHOKA (USA) - 1980 School for Social Entrepreneurs (UK) - 1997 Schwab Foundation (USA) - 1998 Community Action Network (UK) - 1998 Social enterprise (primarily EU-led) Social Audit Tools - for worker and community co-ops (UK) - 1979 Social Cooperative Law (Italy) - 1991 Social Enterprise Institute (Harvard, US) - 1993 EMES European Research Network (EU) - 1994 Social Enterprise London (UK) - 1998 Social Enterprise Alliance (USA) - 1998 Social Exclusion Unit (UK Government Report) - 1999

Recent Development in the UK Social entrepreneurship Millennium Projects - Up to 2000 Sustainability Project (NCVO) - From 2000 UnLtd succeeds Millennium Projects - From 2000 Social Entrepreneurship Research Conference - From 2004 Skoll Institute for Social Entrepreneurship (Oxford) - Founded 2004 Now supported by growing academic scholarship Social enterprise Social Firms UK – Incorporates in 2001 (Conferences from 1999) Social Enterprise Unit – Created in 2001 at DTI, then DoH Social Enterprise Coalition - Formed 2002 Social Enterprise Journal - Launched 2005 Office of the Third Sector (Cabinet Office) – Established 2006 Social enterprise moves to the heart of government Office of Civil Society – Name change in 2010

Definition 1 - Cooperatives (ICA View) “An enterprise that is owned by those who work in it and/or reside in a given locality, is governed by registered social as well as commercial aims and objectives and run co-operatively may be termed a social enterprise. Traditionally, ‘capital hires labour’ with the overriding emphasis on making a ‘profit’ over and above any benefit either to the business itself or the workforce. Contrasted to this is the social enterprise where ‘labour hires capital’ with the emphasis on personal, environmental and social benefit.”   Spreckley, F. (2008) Social Audit Toolkit (Fourth Edition), St Oswalds Barn: Local Livelihoods Ltd, p4.

Definition 2 - EMES (EU Research) Social Dimensions An explicit aim to benefit the community An initiative launched by a group of citizens A decision-making power not based on capital ownership A participatory nature, which involves the persons affected by the activity Limited profit distribution   Economic Dimensions A continuous activity producing goods and/or selling services A high degree of autonomy A significant level of economic risk A minimum amount of paid work (i.e. at least some labour is compensated) See Defourny, J. (2001) “From Third Sector to Social Enterprise”, in Borzaga, C. and Defourny, J. (eds), The Emergence of Social Enterprise, London: Routledge, pp. 16-18.

Definition 3 - UK Government View “A social enterprise is a business with primarily social objectives those surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.”   See DTI (2002) A Strategy for Social Enterprise, London: HM Treasury, p7.

Definition 4 - US Development View “A social enterprise is any business venture created for a social purpose – mitigating/reducing a social problem or a market failure – and to generate social value while operating with the financial discipline, innovation and determination of a private sector business.” See Alter, K. (2007) Social Enterprise Typopology, www.virtueventures.com, Section 1.5 (PDF Version).

Academic Theories of Social Enterprise Can text descriptions capture the complexity and potential of social enterprise?

Linear Definitions of Social Enterprise Research participants locating themselves on a ‘spectrum’ of entrepreneurial options Seanor, P., Bull, M. & Ridley-Duff, R. J. (2007) "Contradictions in Social Enterprise: Do they draw in straight lines or circles?" paper to 30th ISBE Conference, Glasgow, 7-9th November, Drawing 1

Linear Definitions of Social Enterprise

Linear Definitions of Social Enterprise Is a one dimension ‘spectrum’ sufficient? What if social enterprise is multi-dimensional / multi-purpose? How is state / public sector involvement to be theorised? (Somers, 2007) Is the private sector affected too? (Ridley-Duff, 2008) Where is democracy in this debate? (Nyssens, 2006). So, more dimensions need exploring: Public Sector social entrepreneurship (supporting market development and welfare reforms) Private sector social entrepreneurship (partnerships / collaborations / innovations)

Public - Third Sector Spectrum

Public - Private Sector Spectrum

Cross-Sector Theory Hybridisation (Nyssens, 2006:318) "…we argue that social enterprises mix the economic principles of market, redistribution and reciprocity, and hybridize their three types of economic exchange so that they work together rather than in isolation from each other." Leadbeater's Model (1997) First theorisation of social entrepreneurship as cross-sector. Recognises private and public sector influences. Does not see social enterprise as a distinct sector. Does this lead to hybrid forms of organisation?

Cross-Sector Theories

Cross-Sector Theories Seanor, P., Bull, M. & Ridley-Duff, R. J. (2007) "Contradictions in Social Enterprise: Do they draw in straight lines or circles?" paper to 30th ISBE Conference, Glasgow, 7-9th November, Drawings 8 and 10

Cross-Sector Theory of Social Enterprise Type A Non-Profit Model Public interest outlook, hostility to private sector ownership and equity finance. Between public and third sectors. 'Non-profit' - obtains grants and/or contracts from public sector and third sector organisations - structured to prevent profit and asset transfers. Type B Corporate Social Responsibility Model Suspicious of the third sector as a viable partner in public service delivery and economic development. Between public and private sectors. Corporate social responsibility projects - environmental, ethical or fair trade business - ‘for- profit’ employee‑owned business. Type C More That Profit Model Antipathy to the state (central government); realistic about the state’s capacity to oppress minorities. Between private and third sectors. Single or dual stakeholder co‑operative, charity trading arm, membership society / association, or a trust that uses trading surpluses to increase social investment. Type D (ideal) Multi-Stakeholder Model Replaces public, private and third sector competition with a democratic multi- stakeholder model. At the overlap of all three sectors. Multi-stakeholder, democratic enterprise using direct and representative democracy to achieve equitable social and economic benefits. Adapted from Ridley-Duff, R. J. (2008) “Social Enterprise as a Socially Rational Business”, International Journal of Entrepreneurial Behaviour and Research, 14(5): 291-312.

Composite Theory of Social Enterprise

Social Enterprise as an activity Morgan (2008:2) argues: “Social enterprise is not, in my view, a type of organisation, it is a type of activity, where a trading venture is undertaken primarily with a social aim: such as running a community bus, or providing employment for people with special needs. Social enterprise activities can be undertaken in any of the three sectors.” Has advantages: Fewer restrictions on funding ‘activities’. Does not have to be a legal entity. But if social enterprise is only an activity… 23

Laws Passed in Europe (1991 – 2006) …how do we explain the attention governments are giving to defining its forms and characteristics? 1991 – Italy – 8th November – Social Co-operatives Law 1993 – Spain – Social Initiative Co-operatives 1995 – Belgium – 13th April – Social Finality Enterprise Law 1996 – Portugal – 7th September – Social Solidarity Co-operative Code 1998 – Portugal – 15th January – Social Solidarity Co-operative Decree 1999 – Spain – Social Initiative Co-operative – National Law 2001 – France – 17th July - Collective Interest Cooperative Society 2004 – Finland – Social Enterprise Law 2004 – United Kingdom – Community Interest Company (CIC) 2005 – Italy – 13th June – Social Enterprise Law 2006 – Italy – 24th March – Social Enterprise Law Decree 2006 – Poland – 5th June – Social Cooperative Law Source: CECOP (2006) 24

Summary Different meanings are attached to social enterprise in the American non-profit sector, UK third sector, European social economy and international co-operative movement. Social enterprises transcend traditional sector boundaries and have the potential to form a social economy with distinct characteristics. Models and diagrams can help to describe and explain the boundaries of the social economy, and its link to other economic sectors. Social enterprise is a useful umbrella terms for any (democratic) organisational form / activity where ‘people are not in it for the money’ but still generate a financial surplus. Is social enterprise a ‘fix’ for the ills of capitalism? Or a social democratic business movement?

Resources and Support Harvard Business School: http://www.hbs.edu/socialenterprise/about/history.html Brief history of social enterprise at a leading US university Social Enterprise Alliance: http://www.se-alliance.org/ The lead organisation advocating for social enterprise in the USA The Social Enterprise Coalition: http://www.socialenterprise.org.uk/ The lead organisation advocating for social enterprise in the UK EMES European Research Network: http://www.emes.net Leading European network of researchers examining Third Sector and Social Enterprise Co-operatives UK: http://www.cooperatives-uk.coop/ One of the founders of Social Enterprise Coalition in the UK. Social Enterprise Magazine: http://www.socialenterprisemag.co.uk/ Popular sectoral magazine. The Social Enterprise Institute: http://www.sml.hw.ac.uk/socialenterprise/ Scottish institute researching social enterprise at Herriot-Watt University Office of the Third Sector: http://www.cabinetoffice.gov.uk/third_sector/social_enterprise/

References and Reading Alter, K. (2007) Social Enterprise Typology, www.virtueventures.com/typology (version 1.5, published 27th November 2007) CECOP (2006) “Social enterprises and worker cooperatives: comparing models of corporate governance and social inclusion”, paper to CECOP European Seminar, Manchester, 9th November. Dees, G. (1998) “Enterprising Non-Profits: What do you do when traditional sources of funding fall short?”, Harvard Business Review, January-February, pp. 54-67. Defourny, J. (2001) “Introduction: from third sector to social enterprise” in Borzaga, C. and Defourny, J. (eds) The Emergence of Social Enterprise, London: Routledge, pp.1-28. DTI (2002) A Strategy for Success, London: HM Treasury. Leadbeater, C. (1997) The Rise of the Social Entrepreneur, London: Demos. Morgan, G. G. (2008) “The Spirit of Charity”, Professorial Lecture, Centre of Individual and Organisation Development, Sheffield Hallam University Nyssens, M., (2006) Social Enterprise at the Crossroads of Market, Public and Civil Society, London: Routledge. Ridley-Duff, R. J. (2008) “Social Enterprise as a Socially Rational Business”, International Journal of Entrepreneurial Behaviour and Research, 14(5): 291-312. Seanor, P., Bull, M. & Ridley-Duff, R. J. (2007) “Contradictions in social enterprise: do they draw in straight lines or circles?”, paper to 31st Institute of Small Business and Entrepreneurship Conference, Glasgow, 5th-7th November. Somers, A. (2007) "Blurring boundaries? New Labour, Civil Society, and The Emergence of Social Enterprise", presentation to the 4th Social Entrepreneurship Research Conference, London Southbank University. Spreckley, F. (2008) Social Audit Toolkit (Fourth Edition), St Oswalds Barn: Local Livelihoods Ltd. Westall, A. (2001) Value-Led, Market-Driven: Social Enterprise Solutions to Public Policy Goals, London: IPPR.