Social Enterprise: Criticism of Definition

Social Enterprise: Criticism of Definition

 

Introduction

According to the Department of Trade and Industry, social enterprise refers to a business whose primary objectives are targeted towards social development that directly benefits the community, rather than being driven by the need to maximize profits(Great Britain, 2002). This definition is not far from that which has been suggested by various economists around the globe. All commercial strategies of a social enterprise are targeted towards community development (Alter, 2006). This concept of business has been used by many organizations over the past periods, and continues to be applied in today’s economy. A social enterprise can take the form of either a for-profit or non-profit organization, but the main distinguishing characteristic is that its main focus is not profit-making. It may be structured as a charity organization, co-operative, social business, or mutual organization. But does this definition hold much weight? Are social enterprises structured as is assumed by the Department of Trade and Industry? The author of this paper develops a criticism that social organizations are not entire focused on community development as many economists purport, though there are a few legitimate ones that have brought real changes in their respective communities, thus befitting the definition.

Overview of the Concept of Social Enterprise

The concept of social enterprise has been in use for a long period. The origin of the word can be traced to early 1978 in Beechwood College, England, where tutors freely helped co-operatives formed by workers to acquire skills in social auditing(Austin, Leonard, Reficco& Wei-Skillern, 2006). Ever since, the concept has been under various applications with different names and trends. During these antique times, social enterprises used not to seek help from the state, and came up with independent ideas and strategies to help the community. Today, many businesses in form of social enterprises are either affiliated to a given government program/project, or request for fiscal help in one way or another(Dey&Steyaert, 2010). This means that the original decency and meaning of the word has been distorted over time.

A business can be classified as a social enterprise based on three main determinants: the extent to which it reviews ethical nature of its goods and services, as well as the entire production process; the extent of how it provides evidence of its social impact, and defines it social purpose; and the extent to which its leadership system is democratized,including governance and management as passed to its social, human, and financial capital in the absolute benefit of the community. Therefore, the primary purpose of social enterprises is the common good, which in turn acts as their major revenue driver.

Social Enterprise: Criticism

As many economists and scholars battle with the correct definition of the word “social enterprise”, critics have had their fair share of the bargain, marveling at the correctness of such definitions. What is perfectly clear is that social enterprises are formed by entrepreneurs; in fact, the word itself seems to have a close relationship with the term “entrepreneurship”(Austin, Leonard, Reficco& Wei-Skillern, 2006). It is this part of the business concept of social enterprise that brings a lot of contention. Critics tend to think that the definition put forth by the Department of Trade and Industry does not heed to the entrepreneur part, since the understanding of the latter points to an ego-maximizing initiative, rather than promoting the social aspect (Say 2001). Moreover, it is also a general belief that entrepreneurship is interchangeable with profit-making, which is not the primary objective of social enterprises. It therefore leaves one with the question whether the definition was blind to the meaning of the word entrepreneur, or if it is myopic in a critical sense.

Apart from the contention about the entrepreneurial aspect of the definition, it can also be argued that generally, the purpose of the current social entrepreneurs has been diluted since there is no succinct demarcation of their boundaries, as much as there is no consensus on their forms, domains, and meanings (Austin, Leonard, Reficco& Wei-Skillern, 2006). This lack of unison has given room for all kinds of businesses and entrepreneurial minds to venture into the field of social entrepreneurship, which can be graded in a broad spectrum from corporations, charitable organizations, to for-profit organizations. In this regard, instead of the concept giving power to the poor and the powerless in the community, it has become a market entry strategy, heralded by stiff competition to catch the attention of the public(Dey&Steyaert, 2010). However, this disclaimer should not be taken as a criticism of the current state of business among corporations; rather, it is meant to pronounce the incomprehensive nature of the definition put forth.

It is clear, at least from a critical perspective of what social enterprises really do, that the bottom line that determines whether a particular entity falls under the field or not, is its ability to combine entrepreneurial/business interests with its service to the community. This idea develops from the philosophy of a “common good”, which holds that in all that a business does, the interests and well-being of the community is considered. Based on these inclinations, the purpose of social enterprise – so it appears – is not purely focused ondirectly benefiting the community, but also generating profits. An entity will only be gauged based on its impact on social change, and that is what determines its commitment to the concept of social enterprise. For instance, Google, which has made tremendous efforts in making global information accessible from every part of the world could be considered a social enterprise, but based on the above definition, it does not perfectly fit in.

In another aspect, it is arguable that since the inception of the concept of communism, the animus against its predecessor, capitalism, has not subsided (Pirson, 2011); indeed, much more attacks have been lodged against social enterprises, as there is no modest replacement in the market that has challenged its purpose(Alvord, Brown & Letts, 2004). Instead, several duplicates have arisen which tend to put them out of the market, and as Porter conceives, the economic environment is a competitive one where only the innovative entities survive (Porter& Kramer, 2002). Thus, it is difficult for an entity to exist and operate purely on one purpose, and therefore the principle of share value makes more sense. In this regard, enterprises formulate their objectives to include profit-making, creation of economic value, sustaining competitiveness, and giving value to the society. If this concept is anything to go by, then corporations have to adopt an intelligent way of shifting interests from service to the society to sustaining competitiveness. An entity that adequately serves the interests of the society must have an impressive and competitive organization structure, as well as good economic profile (Alvord, Brown& Letts, 2004). This is only possible if it engages in healthy and innovative competition, through targeting the external market different from the interests of the community. This analogy disputes the inclusiveness of the above definition, since the latter does not focus on the how of social enterprises, but centers purely on the what.

Although it is in the public knowledge that social entrepreneurship has gained substantial momentum, its true objectives brew a lot of distrust among people. Besides, the concept of shared value or shift of interests has considerable accountability and governance risk, since economists argue that hybrid organizations that have come to be classified under social enterprises cannot perfectly balance the need to remain competitive with societal interests (Boschee, 2006). If such paradigm were to be followed, these organizations would certainly succumb to insolvency, mortality, or dispute among the stakeholders. Thus, the only correct way seems to agree with the Department of Trade and Industry’s definition, which Pirson(2011), says is not meaningfully manageable. Actually, this notion brings a question about the real objective behind the surface purpose of current social enterprises. The reason many organizations engage in activities that create social impacts is purely to develop their public profile, and enhance their cordial relationship with community members, at the interest of creating customer loyalty and goodwill (Domenico, Haugh& Tracey, 2010). For this reason, hybrid organizations have been labeled as social enterprises, but are they? There would be a very sharp division of ideas over this question, as critics would argue that such corporations are not in any case social enterprises, while non-skeptics would agree that so long as an organization minds the welfare of the community around it, it is a social enterprise (Bosma&Levie, 2010). The blueprint is that the definition of the word appears strict and curt, but it fails to define the principle boundaries that should demarcate the extent of the activities carried out by a social enterprise.

Further the definition dictates that a social enterprise must have its “surpluses principally reinvested in achieving social objectives…..” (Great Britain, 2002). A critical distinction between an enterprise and a charitable organization, which has since lost touch with the current classification of social enterprises, is its ability to sustain their value proposition. The principle of sustainability is key to the continual existence of an enterprise (Porter& Kramer, 2006). Therefore, just as a for-profit organization would want to generate profit, so does a social enterprise. To most people, an organization is represented by the value of its brand, and it is what carries its image across vast geographical market segments (Freireich& Fulton, 2009). However, enterprises that entirely invest and reinvest all their resources in the interest of the society cannot achieve this desired level of quality. Unless they are fully funded by the government or a philanthropist, an organization cannot meet and adequately address the demands of the society as the above definition envisages. As derived from its wordings, social enterprises require constant update of innovation, unrelenting pursuit for new methods and ways of solving things, and being at the top of the market to ensure satisfaction of society members (Dey&Steyaert, 2010). This level of innovativeness cannot be achieved by reinvesting surpluses for the primary purpose for which the enterprise was set, but shifts in interests and allegiance must be employed in order to balance economic demands with community service.

An illustration offered by Mohammad Yunus, a social entrepreneurship guru, brings a clear understanding of why the rigid definition above cannot hold much weight any more in the current world. In his social work, Yunus decided to lend $27 from his own savings to 42 women residing in the village of Jobra (Bacq& Janssen, 2011). He saw an opportunity especially in the system of borrowing, where unsalaried people (who incidentally are the neediest) do not have easy access to credits unless they consent to being charged exorbitant interests. From his meager lending, Yunus realized that the women could use the small amount of money to invest in small business which in turn could finance their daily meals, pay school fees, and still have enough to pay back. Through this initiative, the Grameen Bank was founded, primarily as a non-profit organization that principally served the interest of the community. Later as the rate of lending and demand from clients rose, Yunus realized that the low interest rates he was charging could not sustain the business, hence raised them and transformed the bank into a for-profit organization, at the interest of sustainability(Bacq& Janssen, 2011). With this kind of restructuring, the bank was able to spread its wings to various parts of the world, and has been able to advance its services to many individuals and societies across the globe. Through this bold adventure, Yunus proved the possibility of courage, inspiration, fortitude, direct action, and viability of the social enterprise field.

Drawing from Yunus’ adventure, it is clear that for an entity to advance its social impacts to the society effectively, it must be profitable. Yunus himself is renowned globally as the father of microcredit, and was one of the wealthiest entrepreneurs of his age. Without changing his objectives to include profit-making, it could not have been possible for him to expand the coverage of the bank to other parts of the world. This logic defies the straightforwardness of the above definition, which has a very clear stance on reinvestment of surpluses. Without breaking the definitive sphere, the capabilities of a social enterprise would be constrained and confined to a small group of people, thereby limiting its scope (Dacin, Daci&Matear, 2010). In a nutshell, if the definition put forward by the Department of Trade and Industry is anything to go by, then social enterprises would be the worst performing organizations in today’s economy, attracting little attention even from the unfortunate members of the community, who constitute their primary targets.

Conclusion

The current definition of social enterprise has defied original meanings and the economy has made necessary adjustments which give room to other forms of co-operations to be classified as such. In this regard, any organization that includes among its core objectives, service to the society, is amenably a social enterprise. The concept of sustainability and competitiveness does not allow any entity to exclusively offer its services to the society without compromising its validity and value. The definition put forth, therefore, reflects an unstained aspect of the field, but fails to give solid constructs of achieving such divine objectives.

List of References

Alter, S. K., 2006, “Social Enterprise Models and Their Mission and Money Relationships”, in A. Nicholls (Ed.), Social Entrepreneurship. New Models of Sustainable Social Change, Oxford University Press, Oxford, 205-232.

Alvord, S., Brown, L. & Letts, C. 2004, “Social Entrepreneurship and Societal Transformation: an Exploratory Study”, Journal of Applied Behavioral Science, 40:3, 260-283.

Austin, J., Leonard, H. B., Reficco, E. & Wei-Skillern, J. 2006, “Social Entrepreneurship: It Is For Corporations, Too”, in A. Nicholls (Ed.), Social Entrepreneurship. New Models of Sustainable Social Change, Oxford University Press, Oxford, 169-204.

Bacq, S. & Janssen, F. 2011, “The multiple faces of social entrepreneurship: A review of definitional issues based on geographical and thematic criteria”, Entrepreneurship & Regional Development: An International Journal, 23:5, 373-403.

Boschee, J. 2006, “Social Entrepreneurship: The Promise and the Perils”, in A. Nicholls (Ed.), Social Entrepreneurship. New Models of Sustainable Social Change, Oxford University Press, Oxford, 356-390.

Bosma, N. & Levie, J. 2010, “A Global Comparison of Social Entrepreneurship”, in GEM (Ed.), Global Entrepreneurship Monitor 2009 Executive Report, GERA, London, 44-51.

Dacin, P. A., Dacin, M. T. & Matear, M. 2010, “Social Entrepreneurship: Why We Don’t Need a New Theory and How We Move Forward From Here”, Academy of Management Perspectives, 24:3, 37-57.

Dey, P. & Steyaert, C. 2010, “The politics of narrating social entrepreneurship”, Journal of Enterprising Communities: People and Places in the Global Economy, 4:1, 85-108.

Di Domenico, M., Haugh, H. & Tracey, P. 2010, “Social Bricolage: Theorizing Social Value Creation in Social Enterprises”, Entrepreneurship: Theory & Practice, 34:4, 681-703.

Freireich, J. & Fulton, K. 2009, Investing For Social and Environmental Impact: A Design for Catalyzing an Emerging Industry, Monitor Group, New York.

Great Britain, 2002.Social enterprise: A strategy for success: An introduction. Department of Trade and Industry.

Pirson, M. 2011. Social Entrepreneurs as the paragons of Shared Value creation?A critical perspective. Massachussets: Fordham University Schools of Business; Harvard University.

Porter, M. E., & Kramer, M. R. 2002.The Competitive Advanatge of Corporate Philanthropy.Harvard Business Review , pp. 5-16.

Porter, M. E., & Kramer, M. R., 2006. Strategy and Society: Between Competitive Advantage and Corporate Social Responsibility. Harvard Business Review , pp. 78-94.

Say J. B., 2001. “The Meaning of ‘Social Entrepreneurship,’” reformatted and revised, http://www.fuqua.duke.edu/centers/case/documents/Dees_SEdef.pdf.

 

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