What is social enterprise?

Geof Cox 2006Geof Cox at the Inspiring Communities Conference

Why is it that the most intense discussion at every social enterprise event is still around defining social enterprise? Even though everyone purports to be tired of the subject and sees the need to move on?

At the recent Inspiring Rural Communities - the National Rural Social Enterprise Conference I attended the workshop on Developing a UK Social Enterprise Research Programme and witnessed again the core problem with this definition issue:

social enterprise is an activity - a verb - not a thing, so it eludes any attempt to to pin it down to any particular kind of structure or business form

Interestingly, the workshop facilitator's proposed working definition was in fact verbal - doing business not primarily for profit - but when I pointed this out in the workshop the immediate response from somebody was 'but by that definition Tescos could be a social enterprise' - back again immediately to the illusion that social enterprise is something you are not something you do!

Personally I doubt if Tesco does do much business that is not primarily for profit - but if they do I'm very happy to welcome them to social enterprise - not as 'a social enterprise' but to doing social enterprise just as many freelancers, charities, etc that in fact do social enterprise never see themselves as 'social enterprises'.

How many times have I been called in to charities that want to 'develop a social enterprise' - or even 'become a social enterprise' only to find that in fact they already generate most of their income from contracting? How quickly the social enterprise fog clears when I tell them they are already doing it!

Another objection raised in the workshop was from Business Link - we need to define social enterprises as particular businesses in order to direct support. Here we have the real problem: there is a drive from various organisations - not least 'representative' social enterprise bodies, and of course the government - to define a 'sector' for their own purposes. The problem is that such a 'sector' really doesn't exist! I well remember how the use of the term 'social enterprise' was first adopted in the UK - taken from American/International usage where it is still a verb - in an attempt to cohere the disparate sectors of co-ops, community businesses, social firms, etc. It was only ever a presentational convenience - now we have swallowed our own propaganda and mistaken it for the real world.

This is dangerous not only because of the genuine confusion it wreaks for those looking at social enterprise - it also leads us to misunderstand where we are going. One of the questions posed by the workshop was whether the current databases of Social Enterprise Coalition members would give a reasonable sample of 'social enterprise'. Of course not! - if this means the databases of co-ops, social firms, development trusts, etc. Most social enterprise in this country is in fact carried on by people and charities - and indeed businesses - that do not define themselves as 'social enterprises' at all. There are big forces driving both the voluntary sector and the private sector onto the middle ground of values based business. Moreover, the really big growth opportunities for social enterprise now lie especially with young people who want to live ethically and above all sustainably, and have a lifestyle business or portfolio that reflects this; new technology and the true costs of transport etc will actually increasingly facilitate them rather than the old business models.

Some of us remember co-ops being the flavour of the month in the 1980s, and community business in the 90s - and some of us always argued that these were really about aims and values not particular structures. The 'noughties' has been the decade of social enterprise - wouldn't it be nice not to drive this down the same old blind alley?


Social Enterprise


Couldn't resist contributing - proof of your pudding - the debate has to go on....

Below is an extract from a draft of a new book chapter:

---- Start ----

The key contribution of Ellerman (1990) to the question of social enterprise, however, comes from his argument that it is an institution based on personal non-transferable member ownership rights, rather than transferable property rights. As such, his work provided the intellectual basis for the cooperative movement to argue that democratically owned and controlled enterprises were de facto social enterprises. The level of maturity in this approach is evidenced by repeated transformations of public and private organizations into social enterprises by restructuring membership based on personal rights (with elected leaders), rather than property rights (with appointed leaders).

These transformations, which provide an intellectual foundation for the definition of social enterprise, are succinctly articulated in a revised edition of Ellerman’s work, published as The Democratic Corporation (Ellerman, 1997:38):

"The old public/private distinction is supported by both capitalists and state-socialists. The former use it to argue that the idea of democracy is inapplicable to private industry, and the latter use it to argue that democracy can only come to industry by nationalizing it. But both arguments are incorrect, and the public/private distinction itself must be recast. The word “private” is used in two senses: (1) “private” in the sense of being non-governmental, and (2) “private” in the sense of being based on private property. Let us drop the first meaning and retain the second. Similarly “public” is used in two senses: (1) “public” in the sense of being governmental, and (2) “public” in the sense of being based on personal rights. Let us use the second meaning and take it as the definition of “social” (instead of “public”). Thus we have the suggested redefinitions:

Social institution = based on personal rights.
Private organization = based on property rights.

By these redefinitions, a democratic firm is a social institution (while still being “private” in the other sense of being not of the government), while a capitalist corporation is a private firm (not because it is also non-governmental but because it is based on property rights)."

For Ellerman, a social enterprise acquires its status by rejecting the purchase of private property (transferable shares) as the rationale for participation rights. The intellectual argument is the same as for the definition of the social economy (Monzon & Claves, 2008). Whether an organization is not-for-profit, non profit, more-than-profit or for-profit does not enter into the debate. What matters is the basis on which participation rights are granted: in a private enterprise, membership is acquired by people who have purchased private property rights; in a social enterprise, membership is acquired by people granted corporate citizenship on the basis of an active role within the enterprise.


While the emerging literature on social enterprise is well-populated with discussions about the impact of ‘business practices’ on the voluntary and charity sector (Goerke, 2003; Seanor et al, 2007), this ignores a long-established argument that ‘social enterprise’ is a business based on member-ownership rights allocated on the basis of productive labour (Pateman, 1970; Dholakia and Dholakia, 1975; Ellerman, 1990). The danger, particularly in Anglo-American policy and research, is that the intellectual basis for social enterprise is supplanted by a government slogan that reduces it to ‘business with a social purpose’ (Dart, 2004; Peattie and Morley, 2008). While broadening its appeal, there is a concurrent weakening of its intellectual integrity and credibility. Developing ‘business’ practices may be a salient issue for voluntary and charity organisations converting to social enterprise, but it is a non-issue for cooperatives and employee-owned organisations who have established their market presence. What is salient to the latter is the nature and quality of the business practices developed, whether they effectively combat alienation, and whether the distributive mechanisms for financial and social participation improve the overall quality of life of the stakeholders that make up its constituency (Ridley Duff, 2008).

---- End ----

We lose our intellectual discipline at our peril. As you say, if (the current example of) Tescos can credibly claim it is a social enterprise, then surely the term is so meaningless that it is useless!

Best wishes

But Isn't this just another

But Isn't this just another discussion of what might constitute 'a social enterprise' if there were such a thing? It is predicated on the assumption that we can talk sensibly about things called social enterprises - rather than engaging with the prior question of whether this is meaningful at all.
What in fact drains the meaning from the term 'social enterprise' is precisely reducing it to structural or organisational issues. If an individual or a charity or a private company engages in an enterprise that actually does more good than a membership body of some kind, what is the point of applying the term 'social enterprise' to the latter only?
What about Cafedirect - majority owned by private (transferable) shareholders. Please let's avoid dancing on the pin-head of Cafedirect-social-enterprise-or-not?
And the idea that ‘business with a social purpose’ is a 'government slogan' is completely ludicrous - the whole effort of the UK government has been precisely the opposite - to distinguish 'social enterprise' from other sectors like charities and businesses SO AS NOT TO DISTURB older power/property relations.
The really radical position here is not to say - as the governemnt does - 'this is just one way of doing business' - it's to say 'this is the way EVERYONE should do business'.

Dancing on a pin-head


If we can't describe it, how can it exist in a meaningful way? How can knowledge about it be developed?

The above extract only looks at one construction of social enterprise, and I accept that there are others (dealt with in other chapters of the same book). The point that was being made, however, is that in the rush to redefine social enterprise as a 'social purpose' business, we devalue well established and useful ways of thinking that have a sound theoretical base, track record based on evidence, and a rich and useful history. It is worth asking *why* the term itself is a battle ground - much can be learnt from asking that question, and the answer may be to devalue or destroy other constructions of social enterprise to the advantage of a new political elite.

Ellerman (1990, 1997) argued strongly that customers and suppliers, for example, are not 'governed' by an enterprise (there is no duty of obedience). As such, attempts to elevate their rights above those of workers/employees is itself highly political. He also argues, with considerable force, that it is intellectually indefensible to regard external stakeholders as entitled to "democratic" rights. As external stakeholders are not governed by the enterprise, if they acquire governance rights it actually *increases* the social exclusion of those who *are* governed (dilutes their power). I don't agree with his argument entirely (some customers / suppliers are "governed" through contracts) but the point he makes is a powerful one, and should not be discarded too quickly.

This debate comes sharply into focus if we consider the goal of social enterprise on its own terms (to reduce social exclusion). While we can argue about the impact of individual enterprises, let us not forget what is known about regional economies when participation rights to wealth and power are acquired through citizenship, rather than property rights? Klein's book (The Shock Doctrine) leaves little room for doubt everywhere an economy is based on private property rights, it exercerbates divisions in society, creates conflict and offers advantages to those that are already more powerful. Conversely, where participation is based on citizenship, we know that health and education outcomes are significantly better, more widely distributed, and are particularly good in locations where there are higher concentrations of public or cooperative enterprises (Erdal, 2000; Turnbull, 2003). Why are we abandoning this wisdom?

Others can make up their own mind. For me, a 'social enterprise' necessarily includes an ownership structure, combined with management and governance *practices*, that promote social inclusion. Power based on transferable property rights, whenever the evidence has been tracked, leads to power becoming steadily concentrated in the hands of a few people or institutions. This recreates social exclusion. A social enterprise, therefore, cannot - if it is be successful on its own terms - deliver its primary goal if it adopts structures and social practices that lead to concentrations of power in the hands of a few people. The structures and social practices need to be designed to reverse this trend by distributing power and wealth more widely.

This argument is only "academic" if you ignore empirical evidence. Once you take account of empirical evidence, it ceases to be "academic".

Best wishes

Your opening point is upside

Your opening point is upside down Rory: the problem is that we can describe many things that don't really exist.
It seems to me your (and Ellerman's) argument stumbles on the actual diversity of social enterprise. This is evident in your own construction of social enterprise:
* to talk about either employees or customers, for example, being 'governed' by an enterprise is to miss the real complexity of such relationships (the differing levels of choice that different employees, or different customers, have, at different times, etc.)
* reducing social exclusion is only a goal of SOME social enterprise - environmental enterprises for example may be pretty indifferent to this, as might arts and cultural enterprises - and rarely is it 'THE' goal of social enterprise.
In many ways I agree with the political thrust of your comments, and especialy your wish that social enterprise would more often consciously challenge capitalism.
Some of the organisations that originally developed Cafedirect have now developed Liberation Foods. They used grants not just to fund the development directly but to purchase shares on behalf of suppliers (largely farmers co-ops in developing countries) - thus moving the 'fair-trade' model decisively towards challenging not only the unfairness of international trade, but the unfair ownership and financial and management participation arrangements that underpin it. But they're still 'transferable shares' - and it's hard to think of a structural arrangement that would achieve the political abd social purpose as effectively as ordinary shares.
I'm currently working with People & Places – Ethical Volunteering - which chose to be an ordinary share company precisely because it wanted to demonstrate that you don't need a different structure from ordinary businesses to be entirely ethical: to say MORE effectively 'this is the way EVERYONE should do business'.
I can multiply examples of great social enterprise that doesn't fit particular organisational definitions all day long.
You're right about the rich and useful history of other terms - so why not use them? Co-operatives, community businesses, etc do have widely shared and acknowledged organisational elements to their definitions - they don't need the term social enterprise. In the main they do in fact 'do' social enterprise, even if only by living the democratric business experiment - but there are examples of co-ops etc that are more exploitative, or poluting, or dishonest, than other businesses.
The possibility in the term 'social enterprise' now is precisely to identify what we believe in with the actual achievement of social progress, not just some dusty intentions lying forgotten in the bottom desk drawer. Why abandon the wisdom of this?