Social enterprise: what does it mean, and where does it come from?

Social enterprise: what does it mean, and where does it come from?
Cliff Mills, Local Government Chronicle

The underlying concept of social enterprise spans a whole range of motivations, sectors and types of legal structure.

What does “social enterprise” mean?

There is no clear legal definition, but it is generally used to describe an organisation, which is not controlled by the state, which is carrying on a business or trade for some purpose other than that of simply generating a financial return for investors, often described as a social purpose. People have set out to specify from time to time what they mean by the phrase, for example BIS and SEUK. But the underlying concept spans a whole range of motivations, sectors and types of legal structure.

So when did the term start to be used?

Although it may sounds like a well-established term, in fact the phrase “social enterprise” only came into mainstream usage in the early years of the new millennium. Even in the rather blinkered thinking and public/private mentality of the 1980s and 1990s, it was becoming clear that state and private ownership were not the only options for large-scale service provision: for centuries, philanthropic and self-help organisations had played a mainstream role which a decade ago neither private enterprise nor the state particularly wanted to acknowledge.

A Cabinet Office report Private Action Public Benefit in 2002 was probably the first government led initiative focussing on the subject area, and said that “Social enterprises are organisations which,like mainstream businesses, trade in order to build long-term sustainability, but which operate for a social purpose and use their profits for this end.” This report recognised the importance that such businesses played, and was the background to a number of policy and legal developments in relation to corporate forms. A social enterprise unit within the Department of Health was created soon after.

Where does “social enterprise” come from?

Although the phrase is relatively new, the concept of businesses trading for a social purpose has been around for centuries.

Broadly there are two strands to this heritage. The first is the voluntary and charitable background, where people who were generous with their time and money were driven by a personal philanthropic or faith-based mission to make provision for those in need. As well as giving rise to some of today’s leading charities caring for children and vulnerable adults, this is also the background to other parts of what we today regard as public services – for example the probation service. It is also the background to a number of the large hospitals which were set up by leading philanthropists and pioneering medical practitioners intent on using new science to meet the growing social and medical needs of industrialised communities. These well-known institutions were subsumed within the National Health Service when it was created in 1948.

The other tradition is that of self-help. This goes back to the mutual movement of the nineteenth century, which gave rise to co-operative, friendly and building societies and mutual insurers. These organisations were created by those who lacked access to basic goods and services, but who by working together collaboratively were able to meet their own and their collective needs. Just as many philanthropic medical institutions became pillars of the NHS when it was founded in 1948, so the financial protection afforded by friendly societies formed the basis for the welfare state thereby making the protection universally available.

Whereas the voluntary and charitable sector mainly emerged from those who were more prosperous, mutuals emerged out of poverty and deprivation, and this coincided with a broader development of the voice of the “working class” through trades unions and the Chartist movement. The self-help sector developed its own democratic ethos (one member one vote), and as well as distributing part of its surplus to customers to make sure that it was only charging a fair price, this community focussed movement started allocating surplus in order to provide early public services including libraries, education and culture.

The philanthropic and self-help traditions predated what we now recognise as the public sector and largely informed its culture and ethos (they did not emerge from nowhere in 1948). To this day, that culture and ethos enshrine both a personal commitment to service delivery, reflecting the philanthropic background of altruism and care of fellow humans, and a collective community concern for the well-being of all people, especially the vulnerable and marginalised.

But the creation of the modern welfare state marginalised these two traditions for the next 50 years or more, and although they both continued to exist, it is only in the last ten years or so that it has been recognised what an important role such organisations can and should play in modern society, as the state can no longer afford to provide the services citizens need, and private enterprise does not see the opportunity as sufficiently profitable.

But as self-help and philanthropy become mainstream in the context of public service delivery, it is important to recognise that this is not because they represent a warm and comfortable remedy in austere times. If that were the case, their return would be of limited interest, and probably short-lived. No, social and mutual enterprise, in their many and varied different forms, are back and here to stay; but there is a much more powerful and significant reason why they are the right approach to follow today.

Cliff Mills, consultant with Capsticks and principal associate with Mutuo