Social Enterprise and Social Innovation:Office of the Third Sector Strategies for the Next Ten Years by Charles Leadbeater

Office of the Third Sector Social enterprise and social innovation:Office of the Third Sector Strategies for the next ten years By Charles Leadbeater A social enterprise think piece for the Office of the Third Sector, November 2007 Social enterprise and social innovation By Charles Leadbeater A social enterprise think piece for the Office of Third Sector, November 2007 This think piece represents the views of the author alone. It is intended to stimulate consideration of the issues and debate. The ideas and analysis contained in this paper do not represent the views of ministers or government policy. Contents 1 Contents 1. Introduction 2 2. Where social enterprise sits 5 3. Public policy for the next decade of social enterprise 6 4. Four ingredients of social enterprise strategy 9 5. Conclusions 14 Appendix: The social innovation system 15 2 Social enterprise and social innovation: strategies for the next ten years 1. Introduction This paper argues that government needs a framework for press governments around the world to spend taxpayers’ social innovation in which social enterprise is likely to play a money in ways that better reflect the values of people critical role. Social enterprise policy needs to be framed within who pay taxes. a more comprehensive strategy for social innovation that “If we find approaches that meet the needs of the poor is designed to deliver social impact by finding new ways to that generate profit for business and votes for politicians address unmet social needs. we will have found a sustainable way to reduce inequity All innovation involves the application of new ideas – or the in the world.” reapplication of old ideas in new ways – to devise better Social enterprise is critical to what Gates calls a more creative solutions to our needs. Innovation is invariably a cumulative, capitalism that can adapt business and the market to better collaborative activity in which ideas are shared, tested, refined, address unmet social needs. developed and applied. Social innovation applies this thinking to social issues: education and health, issues of inequality and Markets inclusion. Social enterprises trade products and services to further social Social enterprise offers a new way to do business that is and environmental goals. They are led by a sense of social animated by a social purpose. purpose and aim to show that businesses and markets can deliver social benefits and tackle intractable social problems. Although most social enterprises are small, and many are fragile, the sector has attracted growing interest from policy- A growing number of businesses, created in recent years, makers, young people, entrepreneurs, funders and established claim to marry commerce with an enhanced sense of social businesses. obligation and purpose. That interest is testimony to the way that social enterprise Sari UK recycles discarded saris to create fashionable products. addresses weaknesses in the operation of both markets and Its profits are reinvested in developing countries. government. Fifteen Foundation, begun in 2002 by Jamie Oliver the chef, Bill Gates, the founder of Microsoft, in his commencement helps under-privileged young people get training and jobs in speech at Harvard in June 2007, explaining why he and his the catering business. wife had decided to invest $39bn in projects addressing stark CaféDirect, is one of the leading fair trade businesses in the inequalities in health and education, particularly affecting country, paying above market rates for coffee, tea and cocoa children, put the case for social enterprise this way: growers to aid development. “If you believe that each life has equal value then it is The Furniture Resource Centre in Liverpool employs people disgusting to learn than some lives are worth saving and disconnected from the mainstream economy to recycle some not…We asked “How could the world let these discarded furniture which it sells. children die? Many of the most impressive examples of social enterprise “The answer is simple, and harsh. The market did not – the micro credit leader Grameen Bank is a prime example – reward saving the lives of these people and governments have come from the developing world. did not subsidize it. So the children died because their mothers and fathers had no power in the market and no Social enterprises deliberately adopt an uncomfortable position: voice in the system. they are in the market and yet against it at the same time. “We can make market forces work better for the poor This ambiguous position is based on a recognition that if we develop a more creative capitalism – if we can solutions to many problems – poverty and employment, stretch the reach of market forces so that more people environment and fair trade development – depend on can make a profit, or at least a living, serving people changing the way markets work. There can be no long- who are suffering from the worst inequities. We can also term solutions to many of these problems based entirely on 1. Introduction 3 government grants, subsidy or charitable donations. Long-term regeneration, creating jobs for those most marginalised in solutions have to be self-sustaining and in a market economy labour markets and environmental sustainability. that usually means finding a way to make money from them Most businesses would claim to have a social mission: they so producers can sustain themselves. The products and services create jobs for people; provide consumers with products offered by companies that are sold through the market only they need; pay taxes that support public services; donate to succeed by addressing social needs, from soap to keep us charities and foundations; often the best play a role in their clean, to mortgages that pay for our housing, to heating in the communities. winter and smoke alarms that keep us safe. The challenge that social enterprise poses is whether businesses Social enterprises are based on the recognition that innovative could be doing more to internalise social and environmental solutions to difficult social problems are unlikely to come from costs, to do business in a different way not just to donate to markets left to their own devices. charity or pay taxes. Some social businesses operate much like a mainstream business but covenant their profits to social causes. Many social Government enterprises, however, internalise their social mission. They make The way social enterprises operate is often, at least implicitly, it central to the way they operate. A business that focuses on a critique of the limitations of public service provision. Some employing people long disconnected from the jobs market or social enterprises, often based on charities, are established to ex-offenders needs to make an additional effort to do so. Extra meet needs – for example of particular patient groups – that time and costs are involved. Social enterprise is sometimes a government services cannot or do not reach. In other respects more complex, difficult and costly way to run a business. There social enterprises may deliver government-commissioned are often easier ways for a business to make a profit. services in a more responsive, personalised and joined-up way. Open markets promote choice, make transactions efficient, Social enterprise has become more significant to the state as stimulate competition and enable profit-driven innovation. Yet markets have extended into the organisation and provision of as Jeremy Nicholls points out in his paper in this collection, public services in the past two decades, through contracting markets suffer from well-known downsides and limitations. out, so social enterprises have taken on an increasingly important role. In more areas government now funds and Prices may take little account of externalities – the impact a commissions services but does not necessarily provide them, transaction might have on people not involved in it. A classic relying on for-profit and not-for-profit providers instead. example is pollution. Markets often take more account of obvious and short-term costs and benefits and are less effective Examples of these public sector oriented social enterprises in accounting for long-term factors, such as climate change. include the very successful Ealing Community Transport, which Not everything that has a value can be traded. True personal operates in the local authority sector, and Nuffield Hospitals, care, for example, involves more than just labour; it depends the largest not-for-profit healthcare business in the UK. on the quality of the relationship between the person caring The social enterprises build their position on a critique of the and the person being cared for. The value of many cultural state’s shortcomings in providing public services. experiences cannot be captured by the price we pay to access them. The state provides public goods that profit-driven companies will not provide; services where there is a significant market So although social enterprises make up only a small part of failure or where a market-driven distribution, based on what the total enterprise sector of the economy, they matter in is most profitable and consumers’ ability of pay, is considered the overall business ecology because they are pioneering morally or politically inappropriate, such as healthcare. approaches to show how business can operate successfully while also taking into account social and environmental However, there is also a growing acceptance that the state issues. Social enterprises are one vital source of new business finds it difficult to cope with diversity of needs of users, approaches to fair trade, social inclusion, community especially niche and specialist needs. Consumers have become 4 Social enterprise and social innovation: strategies for the next ten years 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.

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