Social enterprise and social innovation: Strategies for the next ten years

Social enterprise and social innovation: Strategies for the next ten years
Charles Leadbeater




This paper argues that government needs a framework for social innovation in which social enterprise 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.


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.


Social enterprise offers a new way to do business that is animated by a social purpose.

Although most social enterprises 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.


Bill Gates, the founder of Microsoft, in his commencement speech at Harvard in June 2007, explaining why he and his wife had decided to invest $39bn in projects addressing stark inequalities in health and education, particularly affecting children, put the case for social enterprise this way:


‘If you believe that each life has equal value then it is disgusting to learn than some lives are worth saving and some not…We asked ‘How could the world let these children die? ‘The answer is simple, and harsh. The market did not reward saving the lives of these people and governments did not subsidize it. So the children died because their mothers and fathers had no power in the market and no voice in the system.

‘We can make market forces work better for the poor if we develop a more creative capitalism – if we can stretch the reach of market forces so that more people can make a profit, or at least a living, serving people who are suffering from the worst inequities. We can also press governments around the world to spend taxpayers’ money in ways that better reflect the values of people who pay taxes.


‘If we find approaches that meet the needs of the poor that generate profit for business and votes for politicians we will have found a sustainable way to reduce inequity in the world.’


Social enterprise is critical to what Gates calls a more creative capitalism that can adapt business and the market to better address unmet social needs.




Social enterprises 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. A growing number of businesses, created in recent years, claim to marry commerce with an enhanced sense of social obligation and purpose. Sari UK recycles discarded saris to create fashionable products. Its profits are reinvested in developing countries. Fifteen Foundation, begun in 2002 by Jamie Oliver the chef, helps under-privileged young people get training and jobs in the catering business. CaféDirect, is one of the leading fair trade businesses in the country, paying above market rates for coffee, tea and cocoa growers to aid development.

The Furniture Resource Centre in Liverpool employs people disconnected from the mainstream economy to recycle discarded furniture which it sells.

Many of the most impressive examples of social enterprise – the micro credit leader Grameen Bank is a prime example – have come from the developing world. Social enterprises 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 longterm 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.


Social enterprises 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 social enterprises, 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. Social enterprise 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.


Open markets promote choice, make transactions efficient, stimulate competition and enable profit-driven innovation. Yet as Jeremy Nicholls points out in his paper in this collection, markets suffer from well-known downsides and limitations. 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 social enterprises 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. Social enterprises 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 social enterprise 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.




The way social enterprises operate is often, at least implicitly, a critique of the limitations of public service provision. Some social enterprises, often based on charities, are established to meet needs – for example of particular patient groups – that government services cannot or do not reach. In other respects social enterprises may deliver government-commissioned services in a more responsive, personalised and joined-up way. Social enterprise has become more significant to the state as markets have extended into the organisation and provision of public services in the past two decades, through contracting out, so social enterprises have taken on an increasingly important role. In more areas government now funds and commissions services but does not necessarily provide them, relying on for-profit and not-for-profit providers instead. Examples of these public sector oriented social enterprises include the very successful Ealing Community Transport, which operates in the local authority sector, and Nuffield Hospitals, the largest not-for-profit healthcare business in the UK.


The social enterprises build their position on a critique of the state’s shortcomings in providing public services. The state provides public goods that profit-driven companies will not provide; services where there is a significant market failure or where a market-driven distribution, based on what is most profitable and consumers’ ability of pay, is considered morally or politically inappropriate, such as healthcare.

However, there is also a growing acceptance that the state finds it difficult to cope with diversity of needs of users, especially niche and specialist needs. Consumers have become increasingly aware of their distinct needs and able to voice their demands. Social enterprises often develop to cater for needs which the state does not fully meet: for example independent living schemes for young adults with learning disabilities.


Public services can be distant and clumsy, hierarchical, beset by bureaucracy, rules and regulations. Public services are often delivered by separate departments – social services, housing, health, job training, education – each with their own targets and accountability structure. A frequent complaint is that these service silos are often not joined up. Social enterprises have emerged to create more integrated and personalised solutions that are more people-focused.


A further strand of criticism of public services is that they can be paternalistic, encouraging a dependency culture in which people are treated and come to see themselves as recipients of solutions delivered to them by professionals rather than participants in creating solutions. Social enterprises in contrast are often out of necessity and their own values built on a model of self-help that encourages people to be participants in creating solutions for one another. They often mobilise peer-to- peer systems of support, for example, rather than relying on professionals. In short social enterprise approaches to public services often claim to be more personalised, engaging, joined-up, adaptable – providing better outcomes and value for money.


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