Policy

Can a Modern Economy Accomodate Social Enterprise?

The concept of social enterprise can be seen as a ‘best of both worlds’ between the social impact of non profit, volunteer led charities, and the financial feasibility of businesses. They fill an important gap in society, addressing smaller scale problems which the public would be less willing to fund charitably, but can these vital organisations survive in a modern economy?

Some are concerned that this can be a used means for businesses to appear to be more ethical to consumers. The main distinction is that a social enterprises’ profits are directly fed back into its mission. Social enterprises are a broad group, they include Students’ Unions, specific offshoots from larger businesses, networks, and so on. However, because these organisations contain a business element, trade is an important factor in their financial feasibility. The question of whether social enterprises can succeed in a modern economy is a nuanced and complex one; we can explore it by examining the components of our modern economic system and how it interacts with social progress; this provides an opportunity to develop insight into how elements of our modern capitalist society can be leveraged through appropriate government interventions to support social and economic progress simultaneously. 

Investors can invest in a social enterprise in two ways: debt, or equity. The former is a loan that is paid back with interest, and the latter is buying a certain percentage of the organisation (e.g, £10,000 for 10 percent), and get some say in how the organisation is run, and its goals, mission, values and/or direction. There is a tension of ideals between equity investment and social enterprise; as social enterprise prioritises social development, while the typical investor prioritises return on capital foremost. ESG (Environmental, Social & Governance) investment is arguably a welcome bridge between the two, however, a more interesting question lies in whether a modern economy can accommodate economic prosperity for a social enterprise in the first place. Current capitalist systems in the west encourage overconsumption in order to achieve the wide profit margins which are the success measures for organisations. These priorities may be seen as having led to exploitation of labour, and deliberate avoidance of environmental regulations to keep production as cheap as possible. 

An example of a social enterprise thriving in our modern economy is FIGS, an American social enterprise dedicated to creating ‘innovative, comfortable [and] functional medical apparel’ has identified the social need for better fitting medical wear for female bodies, with material that is friendly to skin. Their investors are minority shareholders, and since Covid19, the size and capital of their company have grown exponentially. This investment is socially conscious, and stands out for being so in a time of global emergency; when results beyond functionality can be seen as frivolous. However, the pandemic has also seen rise to a number of companies and organisations profiting from increased demand for medical wear, more specifically designer face masks. This capitalisation on a basic need (similar to the pricing of clean water) is an example of how the need for capital profit is at odds with socially conscious behaviour. 

Within the current economic system, one solution is to open up pathways enough for social enterprises to replace the organisations and businesses whose sole mission is profit. The competition the pandemic has created an environment for, as well as lack of government provision and regulation, has drawn money away from said socially conscious enterprises and businesses that need financial prosperity to sustain, let alone grow.

Is There a Solution?

Academics, civil society and businesses are able debate ethical capitalism endlessly; it is however, undeniable that we live in a world run by financial power. Businesses have immense political and financial influence to prioritise ESG and sustainability values, and many are beginning to. However, it could be argued that much of this change is driven by increased regulation, such as the EU’s MiFiD ii which places more stringent requirements on ESG disclosures.

Government intervention could create and uphold regulations that avoid monopolies or exploitation of resources, as well as encouraging businesses to act on issues including equality and human rights. By centralising said resources and funding social enterprises to build on the work already done by governments, social enterprises could be freed from corporate mismanagement with it’s overarching focus on funding. Funding from either sector would come with its own freedoms and limitations; many enterprises perform ‘on the ground’ advocacy work, and some also engage in lobbying and policy impact. Commodifying the resources needed for said enterprises to achieve their goals contributes to the messy organisational structure within movements where there are suddenly too many conflicting and/or similar actors at play. Government intervention, therefore, could create an economic environment more conducive to the success of social enterprise as it would allow further access to policy impact work, policy actors and makers, and will allow enterprises to engage with consumers on a less financially driven level, helping to make meaningful change. 

It has been said that we are entering a new era of pandemics, and possibly a new recession. These strains on natural and social resources, combined with economic fragility, when we know from history that environmental and social concerns are pushed to the backburner in favour of an economy, that upholds the same priorities that created the social and environmental degradation in the first place. There is a clear need to rethink how our economy functions and an increasingly strong argument for the use of regulatory, ethically minded bodies to direct businesses to avoid financial crises and create greater resilience to the ever increasing natural and social emergencies our world is approaching.