All innovation involves the application of new ideas – or the reapplication of old ideas in new ways – to devise better solutions to our needs. Innovation is invariably a cumulative, collaborative activity in which ideas are shared, tested, refined, developed and applied. Social innovation applies this thinking to social issues: education and health, issues of inequality and inclusion, and environment.
SE offers a new way to do business that is animated by a social purpose. Although most SEs are small, and many are fragile, the sector has attracted growing interest from policymakers, young people, entrepreneurs, funders and established businesses. That interest is testimony to the way that social enterprise addresses weaknesses in the operation of both markets and government. SEs trade products and services to further social and environmental goals. They are led by a sense of social purpose and aim to show that businesses and markets can deliver social benefits and tackle intractable social problems.
SEs deliberately adopt an uncomfortable position: they are in the market and yet against it at the same time. This ambiguous position is based on a recognition that solutions to many problems – poverty and employment, environment and fair trade development – depend on changing the way markets work. There can be no long-term solutions to many of these problems based entirely on government grants, subsidy or charitable donations. Long-term solutions have to be self-sustaining and in a market economy that usually means finding a way to make money from them so producers can sustain themselves.
The products and services offered by companies that are sold through the market only succeed by addressing social needs, from soap to keep us clean, to mortgages that pay for our housing, to heating in the winter and smoke alarms that keep us safe. SEs are based on the recognition that innovative solutions to difficult social problems are unlikely to come from markets left to their own devices. Some social businesses operate much like a mainstream business but covenant their profits to social causes. Many SEs, however, internalise their social mission. They make it central to the way they operate. A business that focuses on employing people long disconnected from the jobs market or ex-offenders needs to make an additional effort to do so. Extra time and costs are involved.
SE is sometimes a more complex, difficult and costly way to run a business. There are often easier ways for a business to make a profit. A framework is required for social innovation in which SE is likely to play a critical role. Social enterprise policy needs to be framed within a more comprehensive strategy for social innovation that is designed to deliver social impact by finding new ways to address unmet social needs. Open markets promote choice, make transactions efficient, stimulate competition and enable profit-driven innovation.
Prices may take little account of externalities – the impact a transaction might have on people not involved in it. A classic example is pollution. Markets often take more account of obvious and short-term costs and benefits and are less effective in accounting for long-term factors, such as climate change. Not everything that has a value can be traded. True personal care, for example, involves more than just labour; it depends on the quality of the relationship between the person caring and the person being cared for.
The value of many cultural experiences cannot be captured by the price we pay to access them. So although SE make up only a small part of the total enterprise sector of the economy, they matter in the overall business ecology because they are pioneering approaches to show how business can operate successfully while also taking into account social and environmental issues. SEs are one vital source of new business approaches to fair trade, social inclusion, community regeneration, creating jobs for those most marginalised in labour markets and environmental sustainability.
Most businesses would claim to have a social mission: they create jobs for people; provide consumers with products they need; pay taxes that support public services; donate to charities and foundations; often the best play a role in their communities. The challenge that SE 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. SEs increasingly shares common ground with more socially responsible mainstream businesses that sell fair trade products for example. SEs sustain themselves within the market, but often they do so by relying on non-market resources and motives.
More social entrepreneurs = more social enterprises + well managed growth of social enterprises = more social impact