In recent years, the idea of social enterprise has been promoted in many international contexts. The origins are well entrenched in the global movement to advance civil society and Third Sector across the globe as an alternative to old configurations of power. The growth of this sector has been influenced by changes in the political environment, for example changes in the Welfare State and divergence from New Public Management, and the demand for increased economic and social cooperation in addressing poverty and social exclusion (OECD, 1999). One element of social economy is the use of social enterprise as a bridging phenomenon between capitalist and social initiatives. The concept of social enterprise is very often discussed concurrently with the concept of social entrepreneurship; the exact definitions of the terms are very rarely agreed on in the academic literature, however.
This paper is an attempt to discuss social enterprises in two different contexts: Canadian and Polish, and to define the concept in those distinct legislative and social frameworks. The former is a long-developed country where the current economic and political system has reigned for over 150 years. The latter has been relearning democracy and capitalism in the last 20 years after departing from the communist setup. This paper will attempt at characterize different legislative and financial environments in both countries and discuss current issues and future development.
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Social enterprise is one of the underlying concepts of a social economy. It evolved from a merger of two largely separate models of business management and traditional non-profit governance. The phenomenon springs mainly from the need for innovation in the social sector, and can be characterized by the attempt to achieve "double bottom line" (Emerson and Twersky, 1996 cited in Dart, 2004), which includes revenue generation and emphasis on social value creation. Therefore, social enterprises are mission driven organizations, both: non-profit which use business models and profit-driven companies that main focus is serving a social purpose.
On February 4, 2004, in the Speech from the Throne, Prime Minister Paul Martin announced the introduction of new approaches to community development, and the desire to support entrepreneurial social movement (Martin, Speech from the Throne to Open the Third Session Thirty-Seventh Parliament of Canada, 2004). The Government of Canada started a social economy initiative to popularize the concept of social economy and its potential impact on socio-economic development. The social economy pilot that was commenced in 2005 involved $132M in funds to develop social economy and emphasized social enterprise. It included dialogue and cooperation of many organizations including research support of Social Science and Humanities Research Council (LeBlanc & Halliwell, 2006). When in 2006, Paul Martin was superseded by Stephen Harper the social economy initiative lost the interest of the governing party. Many programs and projects were dropped when the Conservative government rejected the dialogue around social economy (Tremblay, 2009).
Since 2006, social economy discussions appear mostly within context of Community Economic Development which has been defined by Canadian Centre for Community Renewal as "the process by which local people build organizations and partnerships that interconnect profitable business with other interests and values - for example, skills and education, health, housing, and the environment" (Canadian Centre for Community Renewal). This term has attracted most interest in English Canada while the Quebec counterpart tends to use enterprise de l'économie sociale (enterprise of the social economy). Due to lack of institutionalized social economy in Canada, it is especially hard to quantify the amount of social enterprises. Estimates of the number are also not readily available (Painter, 2006). It is also quite important to mention that the evolution of social economy has been much more eloquent in Quebec than in any other Canadian which will be examined in following paragraphs.
Due to the political climate and changing discourses, to this day, "social enterprise" is not a legal expression in Canada while there is no separate act that defines the concept and gives it a regulatory framework (Bridge & Corriveau, 2009). In comparison, many countries designed special treatment for social enterprise initiative. As HRSDC (2006) explains, those countries:
"â€¦have put legal frameworks in place for these enterprises, instituted financial supports, provided tax incentives for investment, established departmental units dedicated to social enterprise or community-based organizations, and specified that consideration be given to social enterprises in government procurement strategies, etc" (HRSDC, 2006; p.5 cited in Tremblay, 2009, p.12)
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For example, the British government incorporated a specific definition for social enterprises and it created several organizational frameworks for these organizations. Specifically, Community Interest Company (CIC) was created for the purposes of social enterprises (Davies, 2004).
In Canada, due to lack of institutionalized definitions, "social enterprise" is seen as an evolving term. For example, Ontario Trillium Foundation defines it very generally, as applying "an entrepreneurial approach to addressing social issues and creating positive community change" (Trillium Foundation, 2008). Many organizations employ a similar general definition that includes many different types of activities, for example: co-operatives, community economic development movements, or preferred in Quebec enterprise de l'économie sociale (enterprise of the social economy) (OECD, 1999). Theoretically, this lack of regulatory framework can potentially be stimulating for innovation, but in practice, it causes a plethora of risk and issues while the limited legal forms and business models that are presently available, do not suit the needs of certain social enterprises.
Sid Gould (2006) examines existing business models in terms of their applicability for social enterprise operations. For instance, the cooperative is generally seen as a suitable form of business registration for certain kinds of social enterprises. Nonetheless, this regulatory framework lacks ability of raising capital and restricts debt financing. Other, traditional forms of incorporation and/or registration can be excluded on the basis of inadequate liability measures. For example, partnerships involve a degree of liability and responsibility relative to the share that each partner is taking on. Finally, a corporation is probably the most applicable, however; the biggest concern with employing such a legal form is the lack of tax relief or deductions available that will meet the needs of social enterprises. Gould (2006) examines the idea of "hybrid social enterprise" which incorporates ownership of different types of organizations under one umbrella organization, for example, a charity under "related business". This includes: volunteer-run and linked to a charity's purpose and subordinate to that purpose (Canada Revenue Agency, 2003). Nonetheless, the major risk of such a construct is the hazard of undermining the character of parent organization by operating an enterprise that adheres to market principles of profit-making. Additionally, the company risks losing public support as people might not trust a private company to have primarily altruistic goals. Another problem that needs to be addressed through applicable legislative framework is that social enterprises under the auspices of a charity have limited opportunities to grow and expand their financial portfolio. The profits of a social enterprise might be a cross-subsidy for a different part of the organization, but a different use of these funds might be constricted by the current regulatory framework.
The legal structure governing nonprofits and charities is embedded in Canadian Corporations Act which according to Bridge and Corriveau (2009), has been little changed since 1917. There were attempts at updating the Act, however; most of the prepared bills died on the table through election or prorogation, while the others were simply not passed (Bridge & Corriveau, 2009). Traditionally, division of powers left charities and non-profits within provincial jurisdiction. Even though provincial legislation offers some variety in terms of different legal forms, they generally oscillate around charities and non-profit organizations because these specific organizational forms are under auspices of provincial powers.
Prime Minister Paul Martin in the lecture entitled "Unleashing the Power of Social Enterprise" (2007) addressed the problem of inapplicable regulatory framework in Canada. Specifically, he blamed the division between charities and private sector institutionalized in the Income Tax Act that in a large degree separates corporations and individuals, non-profits, and charities. Martin (2007) claims: "there is now a problem with the historic boundaries they set out, in that they have not kept pace with the evolution of the social domain they seek to serve" (4). There is simply no place in Canadian legislative framework for the specific type of operations that social enterprises engage in. This standpoint has been shared by many organizations and research centres that focus their research on social economy and community economic development in Canada. Therefore, the most important issue is the need for adequate regulation and legislative framework to facilitate the development of social enterprises in Canada.
Canadian social enterprises are characterized by a number of common features: 1) The explicit priority of social goals; 2) Mutual support, solidarity, and commonality in building social enterprise; 3) Collective ownership as a means to addressing community development; and 4) The reinvested of wealth, profits, and assets back into the community (Canadian Centre for Community Renewal, 2008).
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Brouard, Hebb, and Madil (2008) present a different view on the main characteristics of social enterprise in Canadian context. While social enterprises are most often characterized in literature on the basis of legal form, governance structure, revenue generating activities, innovation, social change and transformation, the authors conclude that most of them are irrelevant in Canadian context. Especially in Canada, where there is no specific legislative framework that is deemed adequate for social enterprises, using legal form in analysis is quite arbitrary and not particularly informative. Due to the fact that legal forms and governance type are related, the authors claim that "the governance dimension is not an essential characteristic of social enterprise" (Brouard, Hebb, & Madil, 2008, p. 5). The authors propose that the main characteristics in which Canadian social enterprises differ in are the degree of financial self-sufficiency, the degree of innovation, and the degree of social transformation.
Interestingly, Quebec and the English Canada see social enterprises relationship with government in a different light. The history of social enterprises is very much defined by Quebec history. After the Quiet Revolution, the province saw an emergence of a very active and engaged citizenship. In that setting, new pride of being a Quebecer influenced a number of policy developments, increased feelings of separatism, and contributed to the development of civil economy which became quite present in the discourse of 1990s and 2000s. As Elson, Gouldsborough, and Jones (2009) claim:
"The social economy has been institutionalized in the province of Quebec; an institutionalization process which is as much a result of its capacity to create employment and produce social goods, as it is the product of a rich history of social and economic emancipation which was led by women and later supported in a sense of solidarity by governments, unions, and corporations" (p. 8).
The main impact of this historically influenced Quebecois environment on the definition of social enterprise is that they are seen as independent from the state. In comparison, English Canada allows for some interdependency and partnership (Favreau, 2006).
Social enterprises in Canada are most often erected in order to fulfill a specific goal. The most common forms of social enterprise in Canada include employment development enterprises, mission-based enterprises, and ancillary/asset-based enterprises (Trillium Foundation, 2008). Employment development enterprises are set to create training sites that are not offered in the market place to create employment for people who have difficulty finding a job in the traditional job market. Mission-based enterprises are designed to generate income from activities or sale of products and/or services that are directly related to the core goal of organization (a good example is a paid doula services provided by Mothercraft). Ancillary/asset based enterprises focus on supporting non-profits financial stability (Canadian Centre for Community Renewal, 2008; Trillium Foundation, 2008). In many cases, social enterprises are initiated by existing non-profits, who attempt at filling the gaps of the existing structure whether it is revenue collection due to funding volatility, offering products or services that the market does not offer, or to advance the mission to bigger group in the community. In many cases, social enterprises are unable to finance fully their own endeavours, and turn into external funding from the government or other agencies. Nonetheless, previously mentioned difficulty in terms of legislative framework, in many cases, constricts the availability of funding to social enterprises.
As the typology of social enterprises have presented, some of the initiatives might be quite self reliant, and some of them continually need funding from outside sources depending on the character and the goal of the social enterprise. Appendix 2 presents the summary of different kinds of social enterprises, their long-term viability and the financing needed. Due to the amount of different financing available, a detailed analysis of types of funding is not possible for the extent of this paper. Nonetheless, different examples will be presented in three provinces: British Columbia, Ontario, and Quebec.
Not all social enterprises need long-funding. Some of them are actually self-sufficient companies operating on normal market arrangements. For example, Mountain Equipment Coop is an example of such an enterprise (Handford, 2005). Another group of social enterprises provide financial resources to the nonprofits and became one of their sources of funding. Regardless whether social enterprises are open by non-profits or any other types of organizations, adequate financing will be necessary to cover at least start-up costs. There are different kinds of funding programs available. For example, in Ontario, funding is available from:
Micro-finance and Enterprise Funds (for example Access Community Capital Fund, Ottawa Community Loan Fund, Social Capital Partners)
Social Enterprise Funds (Enterprising Non-profits Toronto, Canadian Alternative Investment Cooperative, Social Venture Partners Toronto)
State Finance (Ontario Trillium Foundation, Easter Ontario Development Fund, etc.) (Elson, Gouldsborough, & Jones, 2009)
The system in Ontario is quite unorganized and, in a large degree, overlaps with nonprofits funding which is very different in its character. Similar to Ontario, funding in British Columbia is not designed to specifically address social enterprise needs (Handford, 2005). It includes State Financing (Western Economic Diversification), social enterprise funds (BC Technology Social Venture Partners), community debt financing (Community Futures Development Corporations, Vancity Community Foundation), etc.
A completely dissimilar scenario is present in Quebec where the development of social economy in Quebec was much more dynamic and the term was much more often present in the discourse of provincial government. Quebec was much more proactive in terms of social enterprise financing that any of the provinces of the country. For example, as early as in 1997, Fonds de development des enterprises d'économie social, was created to help setting up social enterprises. Later on, in 2006, The Chantier de l'économie social Trust was created for provision of long term capital as a quasi-equity fund (Elson, Gouldsborough, & Jones, 2009). In general, Quebec financial and policy infrastructure has been described as much more supportive for social enterprises. As well, Quebec has an organized financial funding framework that addresses different organization at different stages of development (start up, growth, maturation, and long-term) which is seldom present in other provinces.
Social enterprises can also tap in more traditional sources of funding from normal financial market arrangements. This might be a more viable option for businesses that are self-sufficient in their operations. The acquisition of such a type of financing might be difficult in case of social enterprise due to its triple bottom line. First of all, social enterprises must be not only self-sufficient, but also profitable enough or posses assets to obtain a loan. Besides traditional banking, debt financing might be secured by Socially Responsibly Investments as in case of offered by Vancity Savings Credit Union, Shared Growth Deposit (Handford, 2005). Second, social enterprises need to fulfill certain legal requirements that might be quite constrictive as previously discussed.
Finally, financing might be obtained through grants from governments, private organizations, and non-profit organizations (regardless of whether it is a parent organization or an external agent). There are also possibilities of agreements between organizations or government departments that social enterprises might develop similar to public-private partnerships. These agreements include services or resources that those actors share. For example, HRSDC might offer job training of the employees in a given enterprise for free. Other organizations might offer physical space or any other resources a social enterprise might need.
In conclusion, due to the lack of institutionalized social economy and community economic development, Canadian social enterprises need to deal with a complicated network of resources available to them. As well, the lack of legislative framework causes much confusion and inability for long term planning. The myriad of possible legal forms constricts the ability of organizations and individuals who would like to open social enterprises in terms of the available funding and operational structures. Therefore, the biggest issue in the future will be the need of a Social Enterprise Act that will address these problems.
Social enterprises are virtually nonexistent in Poland. Available studies on social economy and social enterprises claim that the prevalence of this type of organization in the economy is negligent and, therefore, the analysis of them is challenging. The historical context of social economy is very interesting while, at one point, it was flourishing, and influenced the Polish identity. From 1795-1918, when Poland was under occupation of Prussia, Russia, and Austro-Hungarian Empire, social economy was the instrument of the maintenance of patriotic emancipation and national motivation. When in Western countries industrialization was taking place, in occupied Poland, the process was conjoined with emergence of patriotic social economy organizations. After the First World War, Poland regained its place on the map. Unsurprisingly, the biggest part of interwar economy was the continuing flourishing social economy organizations. Nonetheless, the post-WWII developments of communist regime terminated the evolution of a historically prominent civil society (Dudzik, Hausner, Izdebski, Kucharski, & Laurisz, 2008).
Unfortunately, history did not repeat. After 1989, Polish civil society was simply apathetic and social economy almost nonexistent. Magner (2005) observes that the popular view that civil society was particularly strong in post communist countries is challenged by this reality. Free market and democracy that was instilled post-1989 changed Polish society in a large degree. Its impact on development of civil society was less visible, however. Leszek KoÅ‚akowski coined the expression "kac porewolucyjny" (post-revolutionary hangover) in describing the demobilization of social movements after 1989 (Magner, 2005). Even those existing in communist conditions, mass organizations lost their prominence and funding, which was to be expected in a transition country, building its economic system from scratch.
The cuts impacted also church, youth, and social groups that were flourishing during communist era as hubs of dissidence. Nonetheless, Magner (2005) mentions that a small number of organizations were able to adapt to the new market environment. The main reason for their preservation was the widely present social trust and a large number of volunteers. Some of them found a niche in the developing countries where their services and products remained competitive to entering Western corporations. Notwithstanding, Magner (2005) underlines: "It must be remembered that in 1989 people in post-communist countries won not only the right to participate in associational life but also the right not to participate" (Magner, 2005, p. 51).
In the new democratic setting, three specific acts that were enacted in the 2000s incited the development of voluntary organizations, social cooperatives, and a small number of social enterprises: Act on Social Employment (2003), Act on Employment Promotion and Institution (2004), and the law on social cooperatives (2006). These laws recognized social enterprises from political and legal point of view. The specific legal forms tailored to social enterprises were not enacted, however. It is also quite important to underline that Polish cooperatives are slightly different from Canadian counterparts and focus on reintroduction of socially excluded groups into the job market (Gumkowska, Herbst, & Wygnanski, 2008). Socially excluded groups consist of ex-homeless, -addicts, -prisoners, and, among others, the mentally challenged and disabled. In the eyes of the law, only these groups can be employed in social cooperatives.
Regardless of these developments, Ewa LeÅ› (2008) paints quite a dim picture of Polish social economy and policy
"Poland, though somehow awkwardly, is trying to find such new model of social economy â€¦ What is lacking most acutely is an honest debate on social policy. The instruments used in public policy are often political 'gifts' to potential or actual voters. There is no sound intellectual and analytical background for social policy as a whole" (LeÅ›, 2008, p. 53).
As previously mentioned, apart from cooperatives and association, social entrepreneurship is virtually nonexistant in Poland. Nonetheless, their popularity gradually grows. One of the issues that social economy organizations have to face is the fact that sale of services by social organization is viewed as unsuitable by most of the organizations themselves (Herbst, 2008).
Additionally, many researchers of Polish social economy underline that the main problem in developing social enterprises is lack of strength of civil society (Dudzik, Hausner, Izdebski, Kucharski, & Laurisz, 2008; Gumkowska, Herbst, & Wygnanski, 2008; Herbst, 2008; LeÅ›, 2008). Nonetheless, on the level of academia, the interest in social enterprise is quite substantial. A number of research centres and organization actively research social economy and enterprise. Jerzy Hausner, the former Minister of Labour and Social Policy and a Deputy Minister, is one of the main propagator of a bill on Social Enterprises that has not been accepted to this date. The bill is based on the UK model of Community Interest Companies (Hausner & Izdebski, 2008) and the EMES (the Emergence of Social Enterprises in Europe Research Network) criteria of social enterprise. These criteria are the most generally accepted by Polish researchers in terms of definition of social enterprise.
In both Canada and Poland, a lack of adequate legislative environment constricts the development of social enterprises in Poland. Gumkowska, Herbst and Wygnanski (2008) present an excellent analysis of the Polish market in form of SWOT analysis. From this analysis, a number of recommendations are developed which seem to be applicable to Canada as well. First, terminological chaos should be solved. In both English Canada and Poland, definitions of social enterprise are neither in agreement or short supply. A clear communication with decision makers and researchers will help develop an agreed on definition. Second, a specific identity of social economy should be defined as both of the countries lagged behind precursors in developing an adequate environment for its development. Finally and most importantly, regulatory issues should be settled in both countries. Lack of legal form and taxation regulations for specifically social enterprises constricts their development and ability for long-term planning.
The main differences between Canadian and Polish social enterprise environment is popularity of social economy as a movement among Canadians. Poles are quite sceptic and unfavourable towards social economy, and see social enterprises' charging for services and products as not applicable to their social character (Baczko & Ogrocka, 2008). Therefore, in Poland, the social economy should be recognized as a potential driver of growth by the whole society. Lack of endorsement by general population will contribute to a problem with long-term sustainability and general acceptance. This unfavourable attitude towards social enterprises might have been potentially caused by the former social services setup in communist environment where social services and benefits were omnipresent and available society-wide. As well, the most common type of social enterprise in Poland is social cooperatives. Other kinds, quite common in Canada, mission-based and ancillary/asset based enterprises are nonexistent in Poland.
On the other hand, many Canadian social enterprises have different characters and address various social issues. A number of them have been also quite financially sustainable.
The population generally supports this type of social economy. The biggest identified problem is lack of a regulatory framework. The Government of Canada has been quite irresponsive to the developing sector, and it might create a lot of risks and possible negative impact on the social economy. This regulatory lagging might be dangerous and have unaccounted consequences. The political environment and the current economic situation does not allow for the attention of the government on the issue.
In conclusion, social enterprise regulation is needed to reflect the social economy movement in many contexts. Many European countries have created the necessary framework of advancement of this development. There are a lot of beneficiary impacts that social enterprises might have on socio-economic development of communities and organizations in both countries, and the governments should be perceptive of the movement through adequate educational, legal, and financial support. Social enterprises are not modern developments while they have existed in the past. Nonetheless, in modern age, governments should be proactive in regulation that could positively influence social enterprises. They should implement necessary tools and regulation, while a lot is at stake. Especially in difficult economic times, new innovative forms of socio-economic development should be examined and supported.
Source: Gannitsos, I., Pearce, K., & Sawyer, S. The Legal Context. In E. non-profits, The Canadian Social Enterprise Guide (pp. 129-148). Vancouver
A Social Enterprise Continuum - Winnipeg Case
Source: Manitoba CED Network. (2009). Creating a Robust Social Enterprise Sector. Retrieved February 5, 2010, from Canadian CED Network: http://www.ccednet-rcdec.ca/en/node/6132Appendix 3
Typology of Social Economy Families in Quebec
Source: Favreau, L. (2006). Social Economy and Public Policy: The Quebec Experience. Horizons, Policy Research Initiative , 8 (2), 7-15.
EMES Criteria of Social Enterprise
Activity producing goods and/or selling services
Social enterprises are not engaged in advocacy activity or in the redistribution of financial flows as a major goal. They are involved in the production of goods or the provision of services on a continuous basis.
An explicit aim to benefit the community or specific group of people
One of the main goals of social enterprises is to serve the community or a specific group of people, not single individuals.
A degree of autonomy
Social enterprises are normally voluntarily created by a group of people and are governed bu them in the framework of an autonomous project. Accordingly, they may depend on public subsidies but are normally not managed - directly or indirectly - by public authorities or other organizations and they have both the right of 'voice and exit'.
A decision-making power not based on capital ownership
Voting power is not distributed according to capital shares on the governing body, which has ultimate decision-making rights. Decisions are shared and a high degree of stakeholder participation is favoured. Representation and participation of customers, stakeholder orientation and a democratic management style are important characteristics of social enterprise.
A trend toward paid work
The activity carried out does not necessarily require the involvement of paid workers, provided that there is an organizational commitment to job creation. Organizations sharing most of the characteristics specified, albeit relying on voluntary work, are considered as social enterprises in their initial stage of development.
Exclusion of profit-maximizing organizations
Social enterprises include not only organizations that are characterized by a total non-distribution constraint, but also organizations that may distribute profits to a certain extent. Organizations which can distribute without constraints all or a high percentage of profits (at least 50 to 60 percent) can be included; the key-criterion is the exclusion of organizations with a profit-maximizing goal.
Source: Adapted from: Borzaga, C., Galera, G., & Nogales, R. (2008). Social Enterprise: A New Model For Poverty Reduction and Employment Generation: An Examination of the Concept and Practice in Europe and the Commonwealth of Independent States. UNDP.
Poland - SWOT Analysis of social enterprise development
Source: Gumkowska, M., Herbst, J., & Wygnanski, K. (2008). Poland. In J. Borzaga, & B. Slay, Social Enterprise: A new model for poverty reduction and employment generation: An examination of the concept and practive in Europe and the Commonwealth of Independent States (pp. 72-103). UNDP Regional Bureau.