30th September 2011
Laurence’s Speech (Final)
“Is social enterprise really changing the world – or is it being changed by it?”
1.01 Senscot started in 1999 – as Scotland’s network for social entrepreneurs – from the outset we sensed the potential of social enterprise as a model – so we decided to promote it. In the early days there was powerful resistance – predictably from the traditional voluntary sector – defending its turf, but less predictably from Scottish Govt. The Scottish Executive’s 2002 report on the ‘Social Economy’ makes not a single reference to social enterprise – at a time when DTI in England had a bespoke SE unit.
1.02 In 2005, a debate in the Scottish Parliament resolved – on a amendment from the Green Party – to produce a ‘differentiated’ SE strategy – two years later in 2007 – a most impressive action plan emerged which the new SNP administration adopted enthusiastically.
1.03 So Senscot has been doing SE for 12 years – and we have played our part in shaping the present support infrastructure of our sector. Readers of our Friday bulletin will be aware that we are enthusiastic about SE’s potential to grow into a movement which could change the way society conducts its business.
1.04 But in recent times, we have expressed concern that this movement is under threat – from the private sector – seeking to push its way into our space. I’ll return to this theme – but I’d like to begin by placing SE in a wider global context.
2.00 THE WIDER CONTEXT
2.01 We live in a world which has a global economy – but not a global Govt to keep a grip on it. We heard this week that it’s not Govt’s which run the world its Goldman Sachs. The dominant economic system (which we call capitalism) appears to have got itself into trouble –again. Karl Marx was wrong about communism – it didn’t work – but he may well be right about capitalism – that it is inherently unstable, and will destroy itself.
2.02 But so far economists have not provided any alternative to the market economy – and our SE sector accepts this. We operate in markets – but we try to trade for the benefit of people and the planet – try to keep alive alternative values – so that eventually the framework itself may change.
2.03 This is how the German economist Franz Josef Radermacher puts it: “The world is convinced that market systems can solve all problems. Markets, however, mean the combination of competition and frameworks. It is the frameworks that are insufficient; we are quite good at competition – he says – I advocate the framework of an eco-social market economy – as an alternative to market fundamentalism. This model will include the social, cultural and ecological needs of our whole world’s society, and not only the economic expectations of a small wealthy minority.”
2.04 In the wider context – this, for me, is where the social enterprise movement sits – supporting global initiatives to shape an eco-social market economy – initiatives like the Millennium Development goals – the Global Marshall Plan – the Kyoto Protocol etc.
The eco-social market economy requires that – social fairness – and the protection of the environment are vital criteria for all economic activity. Its supporters maintain that free markets alone – are not able (or interested) to protect the environment or social justice – that trans-govt action is necessary.
2.05 I see SE as a part of the transition to a new economics – based on these explicit shared values. Protecting the ecology and habitat for future generations. Reducing the gap between rich and poor.
3.00 A NEW ECONOMICS
3.01 The new economics – that we are apart of – will involve a whole different set of production and ownership relationships – which enable and motivate wider participation.
3.02 This will mean much wider distribution of land ownership – and different, more co-operative business models. We need to dust off our copies of Schumacher’s ‘Small is Beautiful’.
3.03 Traditional business pursues growth – but as Green Parties and Friends of the Earth keep telling us – our present consumption is unsustainable – we would need 3 planets.
3.04 Traditional commerce is inherently expansionist and centralist. The new economics will seek to empower local people – to support local economies.
3.05 A strong metaphor for the new economics is the historic idea of ‘the commons’ – land and property (and other resources) held at local level for common use. This resonates with the values of the Open Source IT movement – a culture of collaboration.
3.06 Another strong idea is that of social capital – which can help us understand the characteristics of a society where everyone is looked after.
3.07 Banking and financial services in this new system would of course be mutualised. This is not new terrain – Scotland once had over 200 Trustee Savings Banks – every town had its own Building or Friendly Society – but these movements are now demutualised – How did the spivs end up with control of our money?
3.08 This new economics is where Senscot’s wider agenda sits – trying to identify – to recognise and support – elements of the emerging system – the ideas, initiatives, mechanisms, relationships – which can contribute to the ‘good society’. One of the most exciting of these mechanisms is social enterprise.
4.00 SOCIAL ENTERPRISE
4.01 Senscot has been a good vantage point from which to observe the evolution of SE in Scotland – since the Govt’s excellent 2007 Action Plan, its been bubbling away nicely. What they called a ‘pipeline’ of support was created – from work with kids in school – to business support – to access to markets – to social investment – it’s an impressive infrastructure. We have our coalition – the various intermediaries – including Senscot. The energy of all the SENs is encouraging – their very different development paths – reflecting the diversity of the sector. It’s a vibrant scene.
4.02 Along with substantial – prize winning SEs – with serious payrolls – our movement contains all manner of small scale ventures, community enterprises and assorted individuals – working mostly under the radar. They work in fields like community development, recycling, sport, health, local food, the arts, the environment etc . Senscot tends to face towards this ‘emergent’ activity.
4.03 What all these initiatives have in common is a fundamental belief that society works better on a local collective basis rather than driven by global shareholders and private equity. And this is where the SE and the Localism agendas come together.
4.04 Significant progress has been made by colleagues on the whole procurement process – with community benefit clauses etc. But almost every week Senscot will hear of some small community owned initiative – trampled underfoot by one of the big beasts – with national scale and reach.
4.05 The present local authority procurement culture – fails to appreciate (and therefore protect) – the extra value which communities derive from local suppliers of services. The next big task for our movement is to challenge that culture – to put in place frameworks to protect local economies. Big National operators in our own sector need to be careful not to displace local initiatives.
4.06 I think we all assumed that our movement would take another decade to mature – at our own speed – and on our own terms – taking hold in communities – gradually spreading throughout the economy. But the landscape has shifted.
5.00 PRIVATE SECTOR ENCROACHMENT
5.01 In England – first Labour – then the Coalition – saw in SE a strategy for reforming public services – for reducing the size of the state. Praise for our work became fulsome – expectations from the SE sector were hyped way beyond reality. It gradually became obvious that SE was becoming a useful blind – for privatisation. Nick Hurd said openly – that our definition of SE is too restrictive – and what we have now is the private sector piling in. All manner of private businesses are now calling themselves SEs.
5.02 CIRCLE is a major English health care provider which gave 49% of the company to employees – and on that basis it calls itself an SE. But CIRCLE is 51% owned by some very profit hungry private investors – is just one subsidiary in a complex corporate structure that spans the Virgin Isles and Jersey.
5.03 And A4E one of the largest employability companies in the UK – billions of pounds of govt contracts – call themselves a social enterprise. Emma Harrison and her husband took £1.4 million out of the company last year. That’s not our understanding of SE.
5.04 I believe that the English Govt. is very relaxed about SE becoming a generic term – for organisations with a vaguely social purpose – including the soft end of private enterprise. A mish mash of authentic SEs – bogus SEs – and straight commerce.
5.05 Internationally – this generic vague understanding of SE already operates. The influence is mainly from the USA – where the pursuits of personal wealth is considered humankinds highest calling. Where SE – private enterprise – and corporate philanthropy are all mixed up – so that the motivations of a business is often obscured.
5.06 Last November JP Morgan and the Rockefeller Foundation published a report called Impact Investments: an emerging asset class. These are defined as ‘investments intended to create positive social or environmental impact, beyond financial return.’ The report estimates that this ‘new asset class’ will present a profit opportunity of around 300 billion dollars over the next 10 years. They are not talking about our world. They are talking about private corporations which provide poor people with water, housing, health etc.
5.07 The person who commissioned this research when he was with JP Morgan was Nick O’Donohue – who is now CEO of Big Society Capital. He and his chairman Ronald Cohen – another investment banker – have sold the UK Govt. their vision for SE. They want to make it as attractive as possible to private capital. They want SE to be a sub-set of the present economic system.
5.08 The determination of what SE will come to mean in England has passed from our sector to politicians and bankers. I don’t believe that this drift or redefinition of purpose has happened yet in Scotland – but even here – there are those who call themselves SE who might support a redefinition. The question for us today is do we want to stop this happening – if so what can we do about it.
6.00 THE ASSET LOCK
6.01 When Barbara Philips ran the SE Unit at the DTI in 2002 – they published a definition of SE which was also adopted by Scottish Govt – our Third Sector Division says that this remains the official definition. It says: “An SE is a business with primarily social objectives – whose surpluses are primarily 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”.
6.02 It’s not elegant – but it’s unequivocal – not much wriggle room. The word ‘primarily’ was introduced to allow for CICs which allow 35% profit distribution. As well as an integral social purpose – SE’s will have ‘profit distribution’ and ‘dissolution of assets’ clauses – which in shorthand we refer to as an asset lock. For me, this asset lock is the essential characteristic of a SE – the defining element which marks our boundary with private enterprise.
6.03 The asset lock says – We’re not in it for the money. On an individual level, our relationship with money is a personal choice – but if you feel the need to accumulate more wealth, don’t join the SE movement. We do reasonable pay – much more equal salary structures – often, the satisfaction of feeling useful – appreciated – that’s what we offer.
6.04 The fact that we are not trying to get rich – the asset lock – is very attractive to the general public – and releases them to contribute their time or money – in a way that would be inconceivable with a private business. This goodwill is what attracts bogus SEs like Emma Harrison’s A4E. But if we remain steadfast to the asset lock element of our brand – the private sector will leave it alone; their bottom line is one dimensional – money.
6.05 But the question arises – how do we do this? – how to protect the asset lock? Regulation could be a nightmare – but is there any alternative? Who would regulate – and how? Would OSCR do it if asked? Do we want them to do it? Could we do it ourselves through our coalition – so that ‘Scottish Social Enterprise’ remains a brand of value.
7.01 Recent research by UnLtd shows that 1 in 3 people – given the right support – would choose to create a SE rather than a private business. The figure is probably higher in Scotland where 80% of people vote for a broadly left of centre party. Some find 1 in 3 surprising – but honestly I don’t! The human impulse to collaborate – to make a better world – is deep rooted in our people and in our communities. We’re hardwired to share. We need to remind ourselves that this is normal – that it’s feral greed which is an aberration.
7.02 My remarks have positioned SE as an important mechanism in a new emerging system – an eco-social market economy – which will try to look after everyone. I have said that the current dominant system – global capitalism – is trying to appropriate SE as a subset of itself. Using it to upgrade the ‘ethical component’ of its brand. Using it to access hitherto inaccessible markets. And using it to create a new – and potentially lucrative – long term asset class.
7.03 I have suggested that in England it might be too late – but that in Scotland – there is still time to defend the integrity of our brand. I don’t want to pretend to anyone here today that Senscot knows the answers to the situation we face – but it is our hope that today’s gathering can lead to a determined response.