Social Entrepreneurship Developing a Social Economy

British Council, Montenegro

Dr Rory Ridley-Duff, Sheffield Business School,
Course Leader - MSc Co-operative and Social Enterprise Management UnLtd/HEFCE Ambassador for Social Enterprise

14th March 2012

An orientation for this presentation…
• What do people mean by 'social' when they talk about 'social enterprise'?
– Are they referring to an enterprise's task or mission? – Are they referring to the way the enterprise is organised? – Are they referring to the way the wealth created is distributed and invested? – Are they referring to the values and principles that underpin sustainable business practices?

The author's interest in social enterprise
• Interest as an educator/researcher:
– Lead author of Understanding Social Enterprise: Theory and Practice, Sage Publications (student text for post-graduate study). – Course leader for MSc Co-operative and Social Enterprise Management, and module leader for two MSc Charity Resource Management modules, at Sheffield Business School (SBS).

– Frequent contributor (and reviewer) of academic articles on social enterprise / social economy / co-operative enterprise.

• Interest as a practitioner:
– Co-founder of Social Enterprise London (1998) – Serve on four co-operative and social enterprise boards, including.
• Social Enterprise Yorkshire & Humber • Co-operatives Yorkshire & Humber

• Explain social entrepreneurship and social economy as concepts and terms.
• Discuss contexts in which social enterprises are emerging. • Link the contexts for social enterprise to different types of social entrepreneurship.

Key Arguments
• Social entrepreneurship varies in its activities, forms, values and beliefs.
• It involves the creation of alternative business cultures at arm's length from both the state and private markets. • The „social economy‟ is an emergent concept that captures the value systems guiding trade in a new type of economy.

First System
Private Market-driven Profit oriented

Second System
Public Service Planned provision Non-trading

Third System
Self-Help Mutual Social Purpose

Pearce (2003)

Forms of Social Economy
• Co-operative and Mutual Social Enterprises
• Co-operatives, based on reciprocity, mutuality and solidarity.

• Social Firms and Social Businesses
• The adaptation of (private) company law for the pursuit of a social purpose or mission.

• Charitable Social Enterprises
• Charity as “the absolute willingness to give everything for the sake of another” (Morgan, 2008:3). • Primary purpose trading that fulfils a charitable purpose.

Boundaries of the debate
EU-style Social Economy: Collective Action Organised labour or government responses to social issues US-style Social Entrepreneurship: Individual Action Entrepreneurial (market) responses to social issues

Incremental building of social capital and Fast effective achievement of social assets outcomes

Solidarity and mutuality Accommodation of stakeholders Democracy (bottom-up governance)
Third sector / third way

Champions and change agents Adherence to a „vision‟ Philanthropy (top-down governance)
Business thinking / any sector

Co-operatives and Mutuals
• Date from 1769 (Harrison, 1969)

• •

Co-operative and Friendly Societies from 1760s.
Found in USA from 1790. 9.5m members in the UK by 1908 (Weinbren & James, 2005).

• Rochdale Pioneers
• • The Rochdale Principles were established in 1844 Revised by the International Cooperative Alliance (1966, 1995)

Coop 300 (top 300 co-operatives) > $1.1 trillion turnover

Rochdale Principles
The Rochdale Pioneers were a group of weavers and artisans who were inspired by Robert Owen. They opened co-operative stores and pooled their resources based on mutual principles that have been adapted worldwide over the last 150 years.

The 1844 Rochdale Principles
1. Open membership. 5. Political / religious neutrality. 2. Democratic control (1 person 1 vote). 6. Cash trading (no credit). 3. Distribute profit in proportion to trade. 7. Promotion of education. 4. Pay limited interest on capital.

1995 ICA Statement of Co-operative Identity
1.Voluntary and open membership 2.Democratic member control 3.Member economic participation 4.Autonomy and Independence 5. Education, training and information 6. Cooperation amongst co-operatives 7. Concern for community

For further details see,

Mutuality and Philanthropy
• The „reciprocal interdependence‟ and mutual care implicit in mutuality can be distinguished from the charity implicit in philanthropy. Mutuality implies a bi-directional or network relationship in which parties to an enterprise help, support and supervise each other. This is qualitatively different from the unidirectional relationship between a philanthropist (or trustees) and their beneficiaries. While charity can be present in mutual relations, it is framed in law and practice as a financial and managerial one-way relationship in which one party (trustee) gives/directs while the other (beneficiary) receives/obeys (Coule, 2008; Ridley-Duff and Bull, 2011). This asymmetry in obligations (i.e. the lack of „reciprocal interdependence‟) distinguishes mutuality from charity.
• Ridley-Duff and Southcombe (2011)

Theorising ‘social’ in social enterprise
• Socialised enterprises (mutual):
– Where social enterprise is seen as a process of distributing wealth, power and control to primary stakeholders (workforce, customers, suppliers, service users). – Where economic activity and social organisation is selected on the basis of its contribution to human well-being. – Where the management philosophy is changed to one based on „mutuality‟, „reciprocity‟, „participatory democracy‟ and 'network governance'.

• Social purpose enterprises (philanthropic):
– Where social enterprise is seen as pursuit of a social goal using business practices. – Where economic activity is justified in terms of improving the well-being of a beneficiary group. – Where the management philosophy remains unchanged, rooted in „rationalist‟ and „managerialist‟ logic under board and executive control.
Based on Ridley-Duff, R. J. (2010) “Social Rationality and its Implications for Social Entrepreneurial Thinking”, Plenary to 2010 Research Colloquium on Social Entrepreneurship, Oxford University, 22nd – 25th June 2010.

Social Firms and Businesses
Private management / mutual ownership
• Privilege social entrepreneur/managers over workforce/stakeholders • „Strong‟ boards, less stakeholder or member-engagement • No commitment to democratic management techniques

Private ownership / charity management
• Based on social (charitable) objects • Retain private sector ownership and control (limited or no dividend) • In other respect, looks and behaves like a private company

UK Charities Act 2006, S1, Clause 2(2)
Definition of “Charitable Purposes”
a) b) c) d) e) f) g) h)
i) j)

k) l)

the prevention or relief of poverty; the advancement of education; the advancement of religion; the advancement of health or the saving of lives; the advancement of citizenship or community development; the advancement of the arts, culture, heritage or science; the advancement of amateur sport; the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity; the advancement of environmental protection or improvement; the relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage; the advancement of animal welfare; the promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue services or ambulance services.

Trusts and Charities
As Morgan (2008:5) comments: “From the outset, one of the key planks of charity law has been the principle of voluntary trusteeship – that is, that those who are entrusted with charitable funds should apply them to advance the charity‟s objects without seeking personal benefit and charity trustees can only be paid in exceptional circumstances.”

Theorising the Social Economy
External Aim to benefit general public or external group pro-market (trading) Charities and voluntary organisations that trade to fund, or subside public services Charities and voluntary organisations that use mixed income strategies to fund a public or community service. Charities and voluntary organisations that fundraise and/or seek grants to deliver a public or community service. Beneficiary Orientation Mixed Orientation Multi-stakeholder organisations trading to support more than one stakeholder. Multi-stakeholder organisations using mixed income strategies to support more than one stakeholder. Multi-stakeholder organisations that fundraise and/or seek grants to benefit more than one stakeholder. Internal Aim to benefit members of the organisation Co-ops that trade to fund members/workers' welfare and secure a sustainable income "Social" Coops and Friendly Societies using mixed income strategies for the benefit of members Voluntary associations that charge membership fees to provide facilities to members

Market and Fundraising Orientation

anti-market (fundraising)

• • Social enterprises can be for-profit, for more-than-profit, not-for-profit, non-profit - it depend on the context. They are not defined by whether they make profits or not. They are defined by: • How they organise – e.g. spreading ownership, control and wealth to primary stakeholders (workforce, customers, suppliers)

• •

What they do – e.g. pursuing a social purpose and making a social impact
How they do it – e.g. implementing fair trade principles / ethics

A 3-sector economic model (private, public, social) recognises competing ideologies: a) trading private property in markets; b) taxing and spending public monies; c) trading for mutual / social benefit. Social enterprises may emphasise one approach more than another, but their defining characteristic is their capacity to combine different systems of exchange to improve human and societal well-being.

Resources and Support
Center on Philanthropy and Civil Society, Charity Commission, Co-ops UK, and EMES European Research Network, International Society for Third Sector Research, International Co-operative Alliance (ICA), National Council for Voluntary Organisations (NCVO), The European Civil Society Corner, The Social Economy Network, Third Sector European Network,

References and Reading
Avila, R. C. & Campos, R. J. M. (2006) The Social Economy in the European Union, CIRIEC, N°. CESE /COMM/05/2005, (The European Economic and Social Committee). Defourny, J. & Nyssens, M. (2006) “Defining social enterprise” in Nyssens, M. (ed) Social Enterprise at the Crossroads of Market, Public and Civil Society, London: Routledge. Gates, J. (1998) The Ownership Solution, London: Penguin. Haugh, H. & Kitson, M. (2007) “The Third Way and the third sector: New Labour‟s economy policy and the social economy”, Cambridge Journal of Economics, 31(6): 973-994. Kalmi, P. (2007) “The Disappearance of Cooperatives from Economics Textbooks”, Cambridge Journal of Economics, 31(4): 625-647. Knell, J. (2008) Share Value: How Employee Ownership is Changing the Face of Business, London: All Party Parliamentary Group on Employee Ownership. Leadbeater, C. (1997) The Rise of the Social Entrepreneur, London: Demos. Monzon, J. L. & Chaves, R. (2008) “The European Social Economy: Concept and Dimensions of the Third Sector”, Annals of Public and Cooperative Economics, 79(3/4): 549-577. Morgan, G. G. (2008) “The Spirit of Charity”, Professorial Lecture, Centre of Individual and Organisation Development, Sheffield Hallam University, April 3rd. Nicholls, A (2006) Social Entrepreneurship: New Paradigms of Sustainable Social Change, Oxford: Oxford University Press. Pearce J. (2003), Social Enterprise in Anytown, London: Calouste Gulbenkian Foundation. Ridley-Duff, R. J., Bull, M. (2011) Understanding Social Enterprise: Theory and Practice, London: Sage Publications. Ridley-Duff, R. J. and Southcombe, C. (2011) "The Social Enterprise Mark: a critical review of its conceptual dimensions", Sheffield: Centre for Individual and Organizational Development, Working Paper.

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