Social enterprise

Worker/employee owned trading enterprises, co-operatives and collectives. These vary from very large enterprises such as John Lewis Partnership in the UK and the Mondragon Corporation in Spain, to medium-sized enterprises owned by their staff with traditional management hierarchies and pay differentials, to quite small worker co-operatives with only a few director/employees who work in less hierarchical ways and practice wage parity. Within the trading enterprises there are employee owned enterprises and membership owned enterprises.

Saving and loans organisations such as credit unions, microcredit organisations, cooperative banks and revolving loan funds are membership-owned social enterprises. Credit unions were first established in the 1850s in Germany and spread internationally. Cooperative banks have likewise been around since the 1870s, owned as a subsidiary of a membership co-operative. In recent times microcredit organisations have sprung up in many developing countries to great effect. Local currency exchanges and social value exchanges are also being established.

Many community organisations are registered social enterprises: community enterprises, housing co-operatives and community interest companies with asset locks, community centers, pubs and shops, associations, housing associations and football clubs. These are membership organisations that usually exist for a specific purpose and trade commercially. All operate to re-invest profits into the community. They have large memberships who are customers or supporters of the organisation's key purpose. There are village co-operatives in India and Pakistan that were established as far back as 1904.

There are many NGOs and charities that operate a commercial consultancy and training enterprise, or subsidiary trading enterprises, such as Oxfam. The profits are used to provide salaries for people who provide free services to specific groups of people or to further the social or environmental aims of the organisation.

The idea of a social enterprise as a distinct concept first developed in the late 1970s in the UK as an alternative commercial organisational model to private businesses, co-operatives and public enterprise. The concept, at that time, had five main principles [5] divided into three values and two paradigm shifts. The two paradigm shifts were:

• a common ownership legal structure where members/owners have one voting share and different forms of investment
• democratic governance, where each worker/community resident is a member with one vote

The 3 principles, now referred to as the triple bottom line were:

• trading and financially viable independence
• creating social wealth
• operating in environmentally responsible ways

Furthermore, it was intended as part of the original concept that social enterprises should plan, measure and report on financial performance, social-wealth creation, and environmental responsibility by the use of a social accounting and audit system.[6]

The organizational and legal principles embedded in social enterprises are believed to have come from non-profit organizations. Originally, non-profit organizations relied on governmental and public support, but more recently they have started to rely on profits from their own social change operations. The Social Enterprise Alliance (SEA) defines the following as reasons for this transition:[7]

• the increase in non-profit operating costs
• the decline in government and public philanthropic support
• increased competition due to growth in the charitable sector
• the expansion in the demand for non-profit provided services

Social enterprises are viewed to have been created as a result of the evolution of non-profits. This formation process resulted in a type of hybrid organization that does not have concrete organizational boundaries. Various scholars (e.g. Eikenberry & Kluver, Liu & Ko, and Mullins et al.) have argued that this may have come about due to the marketization of the non-profit sector, which resulted in many non-profit firms placing more focus on generating income.[8][9] Other scholars have used institutional theory to conclude that non-profits have adopted social enterprise models, because such models have become legitimized and widely accepted.[10] Some organizations have evolved into social enterprises, while some were established as social enterprises.[9]

Social enterprise has a long history around the world, though under different names and with different characteristics.[11]

The first description of a social enterprise as a democratically owned and run trading organisation that is financially independent, has social objectives and operates in an environmentally responsible way, was put forward by Freer Spreckley in the UK in 1978 and later written as a publication in 1981.[12] One of the first examples of a social enterprise, in the form of a social cooperative, can be traced back to the Victorian era.[13] Like social cooperatives, social enterprises are believed to have emerged as a result of state and market failure. However, market failure is emphasized in the UK, while state failure is emphasized in the United States.[10]

Muhammad Yunus (Grameen Bank founder and 2006 Nobel Peace Prize laureate) used the term "social enterprise" in his book Banker to the Poor, published in 2009. Muhammad Yunus used the term referring to microfinance. His work in the area of lending money to women, who would never receive a regular bank loan, led to him to receive the Nobel Peace Prize in 2006.[14]

In the US, Harvard, Stanford and Princeton universities built on the work of Ashoka, and each made contributions to the development of the social entrepreneurship field through project initiatives and publications.[15][16][17]

As of 2018 the field of social enterprise studies has not yet developed firm philosophical foundations, but its advocates and its academic community are much more engaged with critical pedagogies (e.g. Paulo Freire) and critical traditions in research (e.g. critical theory / institutional theory / Marxism) in comparison to private-sector business education.[18] Teaching related to the social economy draws explicitly from the works of Robert Owen, Proudhon and Karl Marx, with works by Bourdieu and Putnam informing the debate over social capital and its relationship to the competitive advantage of mutuals. This intellectual foundation, however, does not extend as strongly into the field of social entrepreneurship, where there is more influence from writings on liberalism and entrepreneurship by Joseph Schumpeter, in conjunction with the emerging fields of social innovation, actor–network theory and complexity theory to explain its processes.

Social enterprise (unlike private enterprise) is not taught exclusively in a business school context, as it is increasingly connected to the health sector and to public-service delivery. However, Oxford University's Said Business School does host the Skoll World Forum, a global event focused on social entrepreneurs.

The first international social-enterprise journal was established in 2005 by Social Enterprise London (with support from the London Development Association). The Social Enterprise Journal has been followed by the Journal of Social Entrepreneurship, and coverage of issues pertaining to the social economy and social enterprise are also covered by the Journal of Co-operative Studies and by the Annals of Co-operative and Public Economics. The European Social Enterprise Research Network (EMES) and the Co-operative Research Unit (CRU) at the Open University have also published research into social enterprise. The Skoll World Forum, organised jointly by Oxford and Duke universities, brings together researchers and practitioners from across the globe.

Social enterprises are not only a structural element of a non-profit. A large portion of social enterprises are non-profits; however, there are also for-profit social enterprises.[3] Social enterprises are often regarded—erroneously—as nonprofit organisations, although many do take on a nonprofit legal form and are treated in academic literature on the subject as a branch or sub-set of nonprofit activity (especially when contrasted with Social Businesses).[20] Social enterprises in the nonprofit form can earn income for their goods or services; they are typically regarded as non-profits that use business strategies to generate revenue to support their charitable missions.[20]

In recent years, many non-profits have chosen to take on social enterprise models as it has become increasingly difficult to obtain financing from outside sources. The social enterprise model offers non-profit organizations an alternative to reliance on charitable donations. This may allow them to increase their funding and sustainability, and assist them in the pursuit of their social mission. However, two potential issues emerge: 1) distraction from the social goal in pursuit of a contradictory business activities and 2) inadequate skills, resources, and capabilities for the adoption of the social enterprise model.[8]

Many commercial enterprises would consider themselves to have social objectives, but commitment to these objectives is motivated by the perception that such commitment will ultimately make the enterprise more financially valuable. These are organisations that might be more properly said to be operating corporate responsibility programs. Social enterprises differ in that their commitment to impact is central to the mission of the business. Some may not aim to offer any benefit to their investors, except where they believe that doing so will ultimately further their capacity to realize their social and environmental goals, although there is a huge amount of variation in forms and activities.

Corporate social responsibility (CSR) is a practice that businesses can use to be conscious of the social and environmental impacts their activities make. There are a variety of CSR markers, such as accountability and internal/external elements. Social enterprises place a lot of emphasis on external social responsibility as a result of their social objectives, so social impact is built into the organization. However, there had been debate on whether or not social enterprises place enough emphasis on internal CSR. Internal CSR includes human resources/capital management, health and safety standards, adaptation to innovation and change, and the quality of management within the organization.[21] Since a large majority of social enterprises do not have sufficient funding, they are unable to pay competitive wages to their employees, and as a result they have to resort to other (non-financial) techniques to recruit employees. Many managers utilize the social component of the social enterprise's dual mission/purpose for this.[9]

Like social enterprise, social entrepreneurship has a variety of existing definitions. Currently there is not a widely accepted, standard definition for the term, and descriptions vary in level of detail. There is an emphasis on change agents for social entrepreneurship, in contrast to the organizational focus of social enterprises. Social entrepreneurship usually takes place in the non-profit sector, with a focus on creating and implementing new solutions.[22]

Social impact and social enterprise are not the same. Social impact may refer to the overall effects of a business, but a business that has social impact may or may not be a social enterprise. Social enterprises have socially bound mission statements and operate with the goal of solving a social problem as a part of their mission. Social enterprise has emerged as a businesslike contrast to the traditional nonprofit organization. Social enterprise is going to continue its evolution away from forms that focus on broad frame-breaking and innovation to a narrower focus on market-based solutions and businesslike solutions to measure social impact of programs.[23]

Socially responsible investing (SRI) seeks to maximize both financial gain and social impact.[3]

Social Enterprises often use for-profit business strategies to fund their social change. The methods in which these Social Enterprise's create sustainable revenue streams differ from social business to social business, but all share the goal of abandoning the need for government or donor support. Gregory Dees and Beth Anderson discuss this difference in funding strategies as the innovation that differentiates the social enterprise from the traditional non-profit actor.[24]

In 2012 Social Enterprise UK ran the 'Not In Our Name' campaign against Salesforce.com, a global software and CRM company, that had begun using the term 'social enterprise' to describe its products and had applied for 'social enterprise' trademarks in the EU, US, Australia, and Jamaica. The campaign was supported by similar organisations in the US (the Social Enterprise Alliance), Canada, South Africa, and Australia. An open letter was sent to the CEO and Chairman of Salesforce.com asking Salesforce.com to stop using the term 'social enterprise'. It was signed by people and organisations around the world, including Muhammad Yunus (Grameen Bank founder and Nobel Peace Prize laureate), Richard G. Wilkinson and Kate Pickett (co-authors of The Spirit Level). Salesforce said they would withdraw applications to trademark the term 'social enterprise', and remove any references to 'social enterprise' in its marketing materials in the future.[25]

Organizations that do not take the distinct form of either a private, public, or non-profit organization are classified as hybrid organizations.[9] For legal and tax purposes, hybrid forms are classified as for-profit entities. The two main types of hybrid organizations are the L³C, or low-profit limited liability company, and the benefit corporation (B-Corp). A L³C's main objective is to achieve socially beneficial goals. They are able to go about achieving these goals by employing the financial and flexible advantages of a limited liability company. States that have authorized the use of the L³C model have established three requirements: to operate for charitable or educational purposes, not the production of income, and not the fulfillment of a political or legislative agenda. A benefit corporation, or B-Corp, is a corporation that operates to achieve/create a "general public benefit".[7]

Tensions are separated into four distinct categories: performing, organizing, belonging, and learning.[28]

• Performing tensions arise as organizations seek to fulfill various conflicting goals such as varying stakeholder demands, social mission goals, and performance metrics. A major challenge is figuring out how to gauge success with conflicting goals.[28]
• Organizing tensions are caused by inconsistencies in organizational structure, culture, and human resource practices. Many social organizations grapple with whom to hire, as many want to help disadvantaged people, but also need workers with business skills to ensure the success of the enterprise. Organizations face the challenge of deciding on which organizational structure and legal form (e.g. Non-Profit, for Profit) to operate under.[28]
• Belonging tensions arise from identification or a sense of belonging to contrasting goals and values, which creates internal organization conflict. These tensions are amplified with the maintenance of relationships with stakeholders who may have conflicting identities from the organization.[28]
• Learning tensions are a result of conflicting time horizons (i.e. short term vs. long-run). In the short term, organizations aim for stability which can be evaluated based on metrics such as costs, profits, and revenues, but in the long run they want growth, flexibility, and progress in achieving their social mission.[28]

The Social Enterprise Alliance defines a "social enterprise" as "Organizations that address a basic unmet need or solve a social or environmental problem through a market-driven approach."[32]

In the U.S, two distinct characteristics differentiate social enterprises from other types of businesses, nonprofits, and government agencies:

• Social enterprises directly address social needs through their products and services or through the numbers of disadvantaged people they employ. This distinguishes them from "socially responsible businesses", which create positive social change indirectly through the practice of corporate social responsibility (e.g., creating and implementing a philanthropic foundation; paying equitable wages to their employees; using environmentally friendly raw materials; providing volunteers to help with community projects).
• Social enterprises use earned revenue strategies to pursue a double or triple bottom line, either alone (as a social sector business, in either the private or the nonprofit sector) or as a significant part of a nonprofit's mixed revenue stream that also includes charitable contributions and public sector subsidies. This distinguishes them from traditional nonprofits, which rely primarily on philanthropic and government support. The double bottom line consists of social goals and profit maximization. Here the two are not contradictory; however, proper financial management to achieve positive profits is necessary in order to undertake the organizations social goals. The triple bottom line is essentially the double bottom line, with the addition of environmental sustainability.[13] It focuses on economic vitality, environmental sustainability, and social responsibility.[33]

In the United States, "social enterprise" is also distinct from "social entrepreneurship", which broadly encompasses such diverse players as B Corp companies, socially responsible investors, "for-benefit" ventures, Fourth Sector organizations, CSR efforts by major corporations, "social innovators" and others. All these types of entities grapple with social needs in a variety of ways, but unless they directly address social needs through their products or services or the numbers of disadvantaged people they employ, they do not qualify as social enterprises.

The Social Enterprise Council of Canada (SECC) of Canada defines a "social enterprise" as "businesses owned by nonprofit organizations, that is directly involved in the production and/or selling of goods and services for the blended purpose of generating income and achieving social, cultural, and/or environmental aims. Social enterprises are one more tool for non-profits to use to meet their mission to contribute to healthy communities."[34]

Canadian social enterprise characteristics vary by region and province in the ways they differentiate social enterprises from other types of businesses, not-for-profits, co-operatives and government agencies:

• Social enterprises may directly address social needs through their products and services, the number of people they employ or the use of their financial surplus. This can distinguish them from "socially responsible for-profit businesses", which create positive social change indirectly through the practice of corporate social responsibility (e.g., creating and implementing a charitable foundation; paying fair wages to their employees; using environmentally friendly raw materials; providing volunteers to help with community projects).
• Social enterprises may use earned revenue strategies to pursue a double or triple bottom line, either alone (as a social economy business, in either the private or the not-for-profit sector) or as a significant part of a not-for-profit corporation's mixed income stream that may include charitable contributions and public sector assistance. This distinguishes them from some traditional not-for-profit corporations, which may rely in whole or part on charitable and government support.

Significant regional differences in legislation, financing, support agencies and corporate structures can be seen across Canada as a result of different historical development paths in the social economy. Common regional characteristics can be seen in British Columbia, the Prairies, Ontario, Quebec and Atlantic Canada.

There is no separate legal entity for social enterprises in the Middle East. Most social enterprises register as companies or non-profit organizations. There isn't a proper definition of social enterprises by the governments of the Middle Eastern countries.[35]

However, social enterprises in the Middle East are active and innovating in a variety of sectors and industries. A majority of the existing social enterprises are engaged in human capital development. Many are nurturing a cadre of leaders with the experiences and skills needed to enhance the region's global competitiveness while also achieving social goals. Trends in the region point to an increasingly important role and potential for such activities and for social entrepreneurship in general. These include the growing interest among youth in achieving social impact and growth in volunteerism among youth.[36]

According to the Schwab Foundation there are 35 top social entrepreneurs in the Middle East.[37]

In South Korea the Social Enterprise Promotion Act was approved in December 2006 and was put into effect in July 2007.

The article 2 defines social enterprises as "an organization which is engaged in business activities of producing and selling goods and services while pursuing a social purpose of enhancing the quality of local residents' life by means of providing social services and creating jobs for the disadvantaged, as an enterprise certified according to the requirements prescribed in Article 7," the disadvantaged as "people who have difficulty in purchasing social services necessary to themselves for a market price, the detailed criteria thereof shall be determined by the Presidential Decree," and social services as "service in education, health, social welfare, environment and culture and other service proportionate to this, whose area is prescribed by the Presidential Decree."

The Ministry of Labor is obliged to "establish the Basic Plan for Social Enterprises Support" every five years (Article 5), and not only enterprises but also cooperatives and non-profits can be recognised as social enterprises, which are eligible for tax reduction and/or financial supports from the Korean / provincial governments or city councils. 680 entities have been recognised as social enterprises as of October 2012. The majority of Korean social enterprises are primarily concerned with job creation.[38] The Korea Social Enterprise Promotion Agency was established to promote social enterprises, which include Happynarae and Beautiful Store.

There is no separate legal entity for social enterprises in Hong Kong. They are normally registered as companies or non-profit organisations. The Hong Kong Government defines social enterprises as businesses that achieve specific social objectives, and its profits will be principally reinvested in the business for the social objectives that it pursues, rather than distribution to its shareholders.[39] In recent years, venture philanthropy organizations, such as Social Ventures Hong Kong and Social Enterprise Business Centre of the HKCSS, have been set up to invest in viable social enterprises with a significant social impact.

In India, a social enterprise may be a non-profit non-governmental organization (NGO), often registered as a Society under Indian Societies Registration Act, 1860, a Trust registered under various Indian State Trust Acts or a Section 25 Company registered under Indian Companies Act, 1956. India has around 3 million[40] NGOs, including a number of religious organizations and religious trusts, like Temples, Mosque and Gurudwara associations etc., who are not deemed as social enterprises.

NGOs in India raise funds through some services (often fund raising events and community activities) and occasionally products. Despite this, in India the term "social enterprise" is not widely used, instead terms like NGOs and NPOs (non-profit organizations) are used, where these kind of organizations are legally allowed to raise fund for non-business activities. Child Rights and You and Youth United are examples of social enterprise, who raise funds through their services, fund-raising activities (organizing events, donations, and grants) or sometimes products, to further their social and environmental goals.

However, there are social businesses with an aim for making profit, although the primary aim is to alleviate poverty through a sustainable business model. According to Bala Vikasa Social Service Society sister organization of SOPAR-Canada "Social Enterprise is a hybrid business with a goal of solving social problems, while also generating revenues and profits like any other enterprise. However, when it comes to choosing between profits or social cause, social cause is paramount for social enterprises, while profits are considered only for sustainability."

In the agriculture sector, International Development Enterprises has helped pull millions of small farmers out of poverty in India.

Another area of social enterprise in India and the developing world are bottom of the pyramid (BOP) businesses which were identified and analyzed by C. K. Prahalad in "Fortune at the Base of the Pyramid". This seminal work has been a springboard for a robust area of both innovation and academic research.

Social Enterprise Alliance Malaysia defines social enterprises as "organizations created to address social problems that use business models to sustain themselves financially. Social enterprises seek to create not only financial returns but also social returns to their beneficiaries." Social Enterprise Alliance Malaysia regards social enterprises as businesses with a social focus, distinct from non-profit organisations.[41]

In December 1999, a group was organized called Social Enterprise Network. Its members, based in Metro Manila, include entrepreneurs, executives, and academics who believe in social entrepreneurship (setting up businesses by creating opportunities for the poor). SEN served is a networking opportunity for like-minded individuals to share their interests and pass on their experience to others. One of its projects eventually was adopted by the Foundations for People Development. It is called the Cooperative Marketing Enterprise. CME is devoted solely to providing the need for cooperatives, micro, small, and medium enterprises for the marketing of their products.

From the academe, a course "Social Entrepreneurship and Management" was first offered at the University of Asia and the Pacific School of Management in 2000. This course was developed and taught by Dr. Jose Rene C. Gayo, then Dean of the School of Management. It was offered as an elective for the senior students of the Bachelor of Science in Entrepreneurial Management. In March 2001, a seminar on "Social Enterprises: Creating Wealth for the Poor" was held at the University of Asia and the Pacific.

A social enterprise in the Philippines is GKonomics International, Inc., a non-stock, non-profit organization, incorporated in 2009. They are a Gawad Kalinga partner in social enterprise development. Their mission is building a new generation of producers.

In Thailand social entrepreneurship is small but growing. Thammasat University in Bangkok is the Southeast Asia partner of the Global Social Venture Competition (GSVC-SEA).[42] Every year new emerging social enterprises present their business model showcasing variety of business models ranging from agriculture, to technology, tourism and education. In 2013 the winners of GSVC-SEA were Wedu (female leadership development and education) and CSA Munching box (agriculture).

A major player in the social entrepreneurship space in Thailand is ChangeFusion, led by the Ashoka Fellow Sunit Shrestha. A major figure in the space is Mechai Viravaidya,[43] founder of the Population and Community Development Association (PDA).

Members of the Royal Family of Thailand have been involved in social entrepreneurship like with the creation of the brand Doi Tung by the Mae Fah Luang Foundation.

Singha Park Chiangrai is also a social enterprise.[44] With eco-agricultural tourism concept as main idea to attract tourists to the 8500-rai park, 1200 unemployed people became employee generating income for local people and their families. This not only helps prevent drugs problem because of constant salary people earns every month, but the park attracts tourist from around the country to visit and spend money in Chiangrai province as well.

The government of Thailand supports the creation of new social enterprises via the Thai Social Entrepreneurship office (TSEO).[45]

The best established European research network in the field, EMES, works with a more articulated definition — a Weberian 'ideal type' rather than a prescriptive definition — which relies on nine criteria:[46]

Economic criteria:

• Continuous activity of the production and/or sale of goods and services (rather than predominantly advisory or grant-giving functions).
• A high level of autonomy: social enterprises are created voluntarily by groups of citizens and are managed by them, and not directly or indirectly by public authorities or private companies, even if they may benefit from grants and donations. Their members have the right to participate ('voice') and to leave the organisation ('exit').
• A significant economic risk: the financial viability of social enterprises depends on the efforts of their members, who have the responsibility of ensuring adequate financial resources, unlike most public institutions.
• Social enterprises' activities require a minimum number of paid workers, although, like traditional non-profit organisations, social enterprises may combine financial and non-financial resources, voluntary and paid work.

Social criteria:

• An explicit aim of community benefit: one of the principal aims of social enterprises is to serve the community or a specific group of people. To the same end, they also promote a sense of social responsibility at local level.
• Citizen initiative: social enterprises are the result of collective dynamics involving people belonging to a community or to a group that shares a certain need or aim. They must maintain this dimension in one form or another.
• Decision making not based on capital ownership: this generally means the principle of 'one member, one vote', or at least a voting power not based on capital shares. Although capital owners in social enterprises play an important role, decision-making rights are shared with other stakeholders.
• Participatory character, involving those affected by the activity: the users of social enterprises' services are represented and participate in their structures. In many cases one of the objectives is to strengthen democracy at local level through economic activity.
• Limited distribution of profit: social enterprises include organisations that totally prohibit profit distribution as well as organisations such as co-operatives, which may distribute their profit only to a limited degree, thus avoiding profit maximising behaviour.

Ongoing research work characterises social enterprises as often having multiple objectives, multiple stakeholders and multiple sources of funding. However their objectives tend to fall into three categories:

• integration of disadvantaged people through work (work integration social enterprises or WISEs)
• provision of social, community and environmental services
• ethical trading such as fair trade

Despite, and sometimes in contradiction to, such academic work, the term social enterprise is being picked up and used in different ways in various European countries.

As part of its Social Business Initiative,[47] which ran from 2011 until 2014, the European Commission developed the following definition based on three key criteria: social objective, limited profit distribution and participatory governance:[48]

A social enterprise is an operator in the social economy whose main objective is to have a social impact rather than make a profit for their owners or shareholders. 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. It is managed in an open and responsible manner and, in particular, involve employees, consumers and stakeholders affected by its commercial activities.

The Commission uses the term 'social enterprise' to cover the following types of business:

• those for which the social or societal objective of the common good is the reason for the commercial activity, often in the form of a high level of social innovation,
• those where profits are mainly reinvested with a view to achieving this social objective,
• and where the method of organisation or ownership system reflects their mission, using democratic or participatory principles or focusing on social justice.

Thus:

• businesses providing social services and/or goods and services to vulnerable persons (access to housing, health care, assistance for elderly or disabled persons, inclusion of vulnerable groups, child care, access to employment and training, dependency management, etc.); and/or
• businesses with a method of production of goods or services with a social objective (social and professional integration via access to employment for people disadvantaged in particular by insufficient qualifications or social or professional problems leading to exclusion and marginalisation) but whose activity may be outside the realm of the provision of social goods or services.

In the Czech Republic a working party stemming from the development partnerships in the EQUAL programme agreed on the following distinctions (April 2008):

Social economy

It is a complex of autonomous private activities realized by different types of organizations that have the aim to serve their members or local community first of all by doing business. The social economy is oriented on solving issues of unemployment, social coherence and local development. It is created and developed on the base of concept of triple bottom line—economic, social and environmental benefits. Social economy enables citizens to get involved actively in the regional development. Making profit/surplus is desirable, however is not a primary goal. Contingent profit is used in preference for development of activities of organization and for the needs of local community. Internal relations in the social enterprises are headed to the maximum involvement of members/employees in decision-making and self-management while external relations strengthen social capital. Legal form of social economy entities is not decisive—what is crucial is observing public benefit aims as listed in the articles. Subjects of the social economy are social enterprises and organizations supporting their work in the areas of education, consulting and financing.

Social entrepreneurship

Social entrepreneurship develops independent business activities and is active on the market in order to solve issues of employment, social coherence and local development. Its activities support solidarity, social inclusion and growth of social capital mainly on local level with the maximum respect of sustainable development.

Social enterprise

Social enterprise means "a subject of social entrepreneurship", i.e. legal entity or its part or a natural person which fulfils principles of the social enterprise; social enterprise must have appropriate trade license.

The above mentioned definitions stem from the four basic principles that should be followed by social enterprises. Standards with a commentary were settled for each principle. These standards were settled as the minimum so that they should be observed by all legal entities and all types of social enterprises. Specific types of enterprises, that are undergoing pilot verification within CIP EQUAL projects and that are already functioning in the Czech Republic, are social firms employing seriously disadvantaged target groups, and municipal social cooperatives as a suitable form of entrepreneurship with the view of development of local communities and microregions.

The legal form a social enterprise takes may not always be seen as important—however, they must be subject of private law. According to the existing legal system, they can function in a form of cooperatives, civic associations, public benefit associations, church legal entities, Ltd., stock companies and sole traders. Budgetary organizations and municipalities should not be social enterprises as they are not autonomous—they are parts of public administration.

Social entrepreneurship is defined very broadly. Beside employment of the people disadvantaged at the labour market it also includes organizations providing public benefit services in the area of social inclusion and local development including environmental activities, individuals from the disadvantaged groups active in business and also complementary activities of NGOs destined to reinvest profit into the main public benefit activity of an organization. Social entrepreneurship defined in such a wide way should not be directly bound to legal benefits and financial support because the concept of social entrepreneurship might be then threatened by misuse and disintegration. Conditions of eventual legal and financial support should be discussed by experts.

In Finland a law was passed in 2004 that defines a social enterprise (sosiaalinen yritys) as being any sort of enterprise that is entered on the relevant register and at least 30% of whose employees are disabled or long-term unemployed. As of March 2007, 91 such enterprises had been registered, the largest with 50 employees. In the UK the more specific term "social firm" is used to distinguish such "integration enterprises". This legal definition of a social enterprise (sosiaalinen yritys) made it hard for actual social entrepreneurship to enter the Finnish consciousness and public debate so a new term Yhteiskunnallinen Yrittäjyys (societal entrepreneurship) was dubbed and promoted by the early players in the field. Nowadays the term is recognised, accepted and even promoted by entrepreneurial NGOs, entrepreneurs themselves, co-operatives and government organisations. Finnish Social Enterprise Research Network FinSERN collects and exchanges national and international research data, maintains connections with social enterprise researchers and research networks around the world, and finds financing opportunities for research. There is also a growing interest in impact investment in Finland.

Italy passed a law in 2005 on imprese sociali, to which the government has given form and definition by Legislative Decree no. 155, dated 24 March 2006. Under Italian law a social enterprise is a private entity that provides social utility goods and services, acting for the common interest and not for profit.

In an effort to develop social enterprises and measure social impact, the Italian governmental work placement agency—Italia Lavoro—has developed a method to calculate the social efficiency of their project, from an economic point of view. For example, they measure the economic value to the society of providing a job to a disabled person. Since 1997, Italia Lavoro provides work placements to people with mental and physical disabilities, health problems or socially disadvantaged. To this aim, they help people who have fallen through the cracks of the general work system to reintegrate themselves into society through the creation of small and medium non-profit enterprises.[49]

Also intended to generate more social enterprises is the non-profit cooperative Make a Change. Make a Change provides financial, operational and management support to social start-ups. In 2010, they organized the first edition of a contest to elect the "Social entrepreneur of the year", as well as another contest entitled "The World's Most Beautiful Job". This year's winner of the former was the social cooperative "Cauto", which manages the entire trash life-cycle in the Province of Brescia. One-third of Cauto's workers are disabled or disadvantaged.

The winner of the "World's Most Beautiful Job" prize was the "Tavern of the Good and Bad" project by a group called 'Domus de luna' from Cagliari. The tavern employs mums and children recently graduated from rehabilitation programs. The prize consisted of a grant of €30,000 and 12 months of professional consulting and support. The awards ceremony was included in the program of the Global Entrepreneurship Week.[50]

In the UK the accepted Government-backed definition of social enterprise used by the UK social enterprise sector bodies such as Social Enterprise UK and Social Enterprise Mark CIC comes from the 2002 Department of Trade and Industry report 'Social Enterprise: a strategy for success' report as:[51]

A business with primarily social objectives whose surpluses are principally reinvested for that purpose.

The original concept of social enterprise was first developed by Freer Spreckley in 1978, and later included in a publication called Social Audit: A Management Tool for Co-operative Working published in 1981 by Beechwood College. In the original publication the term social enterprise was developed to describe an organisation that uses Social Audit. Freer went on to describe a social enterprise as:[52]

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 social, environmental and financial benefit.

Later on, the three areas of social, environmental and financial benefits used for measuring social enterprise became known as the triple bottom line. Freer later revised the Social Audit in a more structured way.[53]

Twenty years later Spreckley and Cliff Southcombe established the first[54] specialist support organisation in the UK Social Enterprise Partnership Ltd. in March 1997.

In the British context, social enterprises include community enterprises, credit unions, trading arms of charities, employee-owned businesses, co-operatives, development trusts, housing associations, social firms, and leisure trusts.

Whereas conventional businesses distribute their profit among shareholders, in social enterprises the surplus tends to go towards one or more social aims which the business has – for example education for the poor, vocational training for disabled people, environmental issues or for animal rights, although this may not always be the case.[55]

Social enterprises are often seen as distinct from charities (although charities are also increasingly looking at ways of maximising income from trading)[56] and from private sector companies with policies on corporate social responsibility. An emerging view, however, is that social enterprise is a particular type of trading activity that sometimes gives rise to distinct organisation forms reflecting a commitment to social cause working with stakeholders from more than one sector of the economy.

Three common characteristics of social enterprises as defined by Social Enterprise London are:

• Enterprise orientation: They are directly involved in producing goods or providing services to a market. They seek to be viable trading organisations, with an operating surplus.
• Social aims: They have explicit social aims such as job creation, training or the provision of local services. They have ethical values including a commitment to local capacity building, and they are accountable to their members and the wider community for their social environmental and economic impact.
• Social ownership: They are autonomous organisations with governance and ownership structures based on participation by stakeholder groups (users or clients, local community groups etc.) or by trustees. Profits are distributed as profit sharing to stakeholders or used for the benefit of the community.

• The Big Issue
• Cafédirect
• Camara
• The Co-operative Group
• Divine Chocolate (Kuapa Kokoo)
• The Eden Project
• Fairfield Materials Management Ltd
• HCT Group
• John Lewis Partnership
• London Symphony Orchestra
• Skoll Centre for Social Entrepreneurship
• Technology Trust
• Two Fingers Brewing Co.
• Welsh Water

A survey conducted for the Social Enterprise Unit in 2004 found that there were 15,000 social enterprises in the UK (counting only those that are incorporated as companies limited by guarantee or industrial and provident societies). This is 1.2% of all enterprises in the UK. They employ 450,000 people, of whom two-thirds are full-time, plus a further 300,000 volunteers. Their combined annual turnover is £18 billion, and the median turnover is £285,000. Of this, 84% is from trading. In 2006, the government revised this estimate upwards to 55,000, based on a survey of a sample of owners of businesses with employees, which found that 5% of them define themselves as social enterprises.[57] The most up to date estimates suggest that there are approximately 68,000 social enterprises in the UK, contributing £24 billion to the UK economy.[58]

Using the EU definition of social economy, the annual contribution of social enterprises to the UK economy is four times larger at £98 billion[59] because it includes the contribution of all co-operatives, mutuals and associations that produce goods or services to improve human well-being.

Every two years, Social Enterprise UK carries out and publishes the findings of the state of social enterprise survey, the largest piece of research looking at the UK's social enterprise sector. The most recent report, The People's Business, details the findings of the 2013 survey.

The first agency in the UK—Social Enterprise London (SEL)—was established in 1998 following collaboration between bodies supporting co-operative enterprise. SEL did more than provide support to emerging businesses: it created a community of interest by working with the London Development Agency (LDA) to establish both an undergraduate degree in social enterprise at the University of East London and a Social Enterprise Journal (now managed by Liverpool John Moores University). SEL built a network of over 2,000 social enterprises and social entrepreneurs, directly brokered over 500 social enterprise jobs under the DWP's Future Jobs Fund and delivers consultancy and business support across the world in countries including Vietnam, Korea and Croatia.

The national membership and campaigning body for the social enterprise movement in Britain is Social Enterprise UK (SEUK) (previously the Social Enterprise Coalition),[60] and this liaises with similar groups in each region of England, as well as in Northern Ireland, Scotland and Wales. SEUK's chief executive, Peter Holbrook, joined in January 2010 from the award-winning social enterprise, Sunlight Development Trust, based in Gillingham, Kent. Claire Dove is the Chair of SEUK and runs the social enterprise Blackburne House in Liverpool.

Social Enterprise Mark CIC is the accreditation body responsible for the only internationally available social enterprise accreditation—the Social Enterprise Mark and Social Enterprise Gold Mark. It exists to recognise and promote the capabilities of social enterprises as competitive, sustainable businesses, dedicated to maximising social impact above shareholder profit. It ensures the social enterprise business model remains ethical, credible and commercial through accreditation. There are over 200 organisations that currently hold Social Enterprise Mark/Gold Mark accreditation. The assessment and accreditation process is overseen by an independent Certification Panel, which ensures that the Social Enterprise Mark/Gold Mark criteria are rigorously applied.

In 2002, the National Council for Voluntary Organisations (NCVO) established the Sustainable Funding Project. Using funds from Futurebuilders England, Centrica and Charity Bank, this project promoted the concept of sustainability through trading to voluntary groups and charities.[61] From 2005 onwards, NCVO began using the term social enterprise to refer to voluntary sector trading activities.

In 2002, the British government launched a unified Social Enterprise Strategy,[62] and established a Social Enterprise Unit (SEnU) to co-ordinate its implementation in England and Wales, primarily to consult on a new type of company to support social enterprise development. After a consultation (see CIC below), policy development was increasingly influenced by organisations in the conventional "non-profit" sector rather than those with their origins in employee-ownership and co-operative sectors. The 2003 DTI report on the consultation shows the disproportionate influence of charitable trusts and umbrella organisations in the voluntary sector, and evidence now exists that the voices of progressive employee-owned organisations were marginalised in the course of producing the report.[63]

The Social Enterprise Unit was initially established within the Department of Trade and Industry (DTI), and in 2006 became part of the newly created Office of the Third Sector, under the wing of the Cabinet Office.

Following broad consultation, SEnU adopted a broader definition which is independent of any legal model. This latitudinarian definition could include not only companies limited by guarantee and industrial and provident societies but also companies limited by shares, unincorporated associations, partnerships and sole traders.

In April 2012, Prime Minister David Cameron launched Big Society Capital, the world's first social investment wholesaler. Capitalised with a total of £600 million, it will distribute funds to intermediaries that will lend money to social enterprises, charities and community groups.

In Scotland, social enterprise is a devolved function and is part of the remit of the Scottish Government.[64] Activities are co-ordinated by the Scottish Social Enterprise Coalition, and intellectual leadership is provided by the Social Enterprise Institute at Heriot-Watt University (Edinburgh), established under the directorship of Declan Jones. Senscot, based in Edinburgh, supports social entrepreneurs through a variety of activities, including a weekly email bulletin by co-founder Lawrence Demarco.[65] The Social Enterprise Academy "deliver leadership, enterprise, and social impact programmes" throughout Scotland,[66] and further support is provided by Development Trusts Association Scotland and Co-operative Development Scotland.[67][68]

The UK has also developed a new legal form called the community interest company (CIC). CICs are a new type of limited company designed specifically for those wishing to operate for the benefit of the community rather than for the benefit of the owners of the company. This means that a CIC cannot be formed or used solely for the personal gain of a particular person, or group of people. Legislation caps the level of dividends payable at 35% of profits and returns to individuals are capped at 4% above the bank base rate.

CICs can be limited by shares, or by guarantee, and will have a statutory "asset lock" to prevent the assets and profits being distributed, except as permitted by legislation. This ensures the assets and profits are retained within the CIC for community purposes, or transferred to another asset-locked organisation, such as another CIC or charity. A CIC cannot be formed to support political activities and a company that is a charity cannot be a CIC, unless it gives up its charitable status. However, a charity may apply to register a CIC as a subsidiary company.

Another type of social enterprise category in the UK is a social firm, a business set up specifically to create employment for people otherwise severely disadvantaged in the labour market.[69]

In Kenya, many NGOs use business models to improve the lives of people, mainly in rural Kenya. An example of this is KOMAZA, a social enterprise that plants trees with smallholder farmers and uses economies of scale to enable them to access high value markets for processed trees. Another example of this is RISE Kenya that runs projects to mitigate climate change in the semiarid Eastern Province of Kenya. They also run weaving projects whereby women who would traditionally engage in weaving make products that are marketed in the capital city Nairobi and in overseas markets of Europe and America.

Other development-oriented social enterprises in Kenya include the One Acre Fund, Nuru International and Alive & Kicking, which has produced over 200,000 sports balls from its stitching centre in Nairobi.[70] Kenya's social enterprises include M-Pesa, which facilitated economic transactions via mobile phone.

Social enterprise in Kenya has grown to include spaces with IT infrastructure such as internet connectivity and computer hardware. Two of these, the iHub and NaiLab, are centers for technological enterprise, with ventures such as Tandaa in cooperation with the ICT Board of Kenya and Akirachix.[71]

As in much of Africa, social enterprises in Zambia are often focused on the creation of sustainable employment. Alive & Kicking established a stitching centre in Lusaka in 2007, which employs 50 stitchers and produces 2,000 sports balls a month.[72] Zambikes produces a range of bicycles from their Lusaka factory, including 'Zambulances' and ones made from bamboo, and provide three levels of mechanic training.[73]

Chile is promoting social inclusion and further development of the private sector through Social Enterprises. Support to social enterprises has been included as part of the Productivity, Innovation and Growth Agenda, which has 47 measures, 10 bills and 37 administrative initiatives with an investment of US$1,500 million between 2014 and 2018.

Social enterprises in Chile adopt various forms like cooperatives, associations, private limited companies or corporations. The Ministry of Economy is developing a law project to create a new legal form through which they will establish the rights and duties for social enterprises.[74]

The Government has launched several initiatives to support social enterprises. For example, the Chilean Economic Development Agency CORFO has implemented programs like the Social Innovation Program and the Seed Subsidy for Flexible Asignation to Support Social Innovation Start Ups Program. Through these programs they have provided access to seed capital to social entrepreneurs and financial support to incubators supporting social entrepreneurs. Additionally, the Ministry of Social Development also promoted matching grant funds like Mas por Chile[75] (More for Chile) and Incubia Fund in order to support the development of solutions aiming to reduce poverty and strengthen youth.