The Need For Social Entrepreneurship Commerce Essay


Over three hundred years ago with the arrival of modern capitalism a new era dawned, promising economic prosperity and material progress beyond any anticipations. After the fall of the Soviet Union and dominance of free markets throughout the world, the notion of commercial development and wealth was high in the air. Technological innovations, scientific breakthroughs, social and educational progress, are all without a doubt product of those changes. However more than two decades later the demise of the Soviet Union and communism the perception of all-encompassing change and fortune is waning.

It is true that businesses are growing, technological change is gaining momentum, corporations are increasing their hold all over the globe, and even though due to the financial crises the economy isn't booming at the present time, capitalism is doing pretty well. Conversely not everyone is getting to enjoy its remunerations. If we look at the global distribution of wealth, we can observe another story: More than sixty percent of people must survive on less than four percent of world income, while the other forty something percent enjoy on ninety six percent of world proceeds. Some regions of the world are worse than others, namely the southern part of Africa, South America and Southern Asia. The gap between the rich and the poor is getting wider, not only regionally but nationally as well. If we look at the United States, one of the biggest and richest economies in the world, social progress and justice is lacking. For example more than forty million people in the USA don't have medical insurance and have issues receiving the basic medical care (Obama medical care reform, PPACA is a step in right direction but the actual results are to be seen).

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These problems have not been overlooked. In 2000, United Nations have created a Millennium Goal, promising to reduce the world poverty by half in 2015. Today in 2012 we can discern that they still have a long way to go and that their promise might not be fulfilled. Indeed some targets have been met, primarily access to safe drinking water and reduction of extreme poverty (population that lives on less than one US dollar per day), but then again the results in venerable unemployment and lack of food (more than 15% of the world population lives in hunger) are worrying. [1] 

In the words of Muhammad Yunus:

"What is wrong? In a world where the ideology of free enterprise has no real challenger, why have free markets failed so many people? As some nations march toward ever greater prosperity, why has so much of the world been left behind?

The reason is simple. Unfettered markets in their current form are not meant to solve social problems and instead may actually exacerbate poverty, disease, pollution, corruption, crime and inequality." [2] (Muhammad Yunus, 2008, p. 5)

So what or who can solve these problems?

Some may argue that the government is the solution. If free markets suffer from inefficiencies and problems, governments can use rules and regulations to make things right. Moreover governments are supposed to represent the interest of the nation and all the people within it, so it's only logical that governments must play a determining role. Furthermore there are social and other issues that can't be tangled by private corporations or individuals and must fall in to the jurisdiction of the government (for example: financial regulation and monitoring through the central bank, the educational and medical system, etc.). Governments have in their power, the authority to make and enforce rules, laws and policies. They can use a wide variety of measures, including taxes to gain significant resources to address various topics of interest. Yet we can observe that problems are present in social, economic and other spheres. In other words, governments alone can't be given all the responsibility to solve underlying problems of our society. As any other big and powerful system, they are slow and inflexible, inefficient and can suffer from bureaucracy and corruption. Politics can also play a role in inhibiting the efficiency and effectiveness of a government.

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If the government can't be the universal cure for the society's social problems, could the non-government nonprofit agencies be the answer? Looking at the Bill and Melinda Gates foundation, a charitable organization that has given more than 26 billion US dollars to global development, education, health and other areas we begin to wonder how big the impact of NGOs is. [3] Furthermore charity and giving to the less fortunate has been a part of our society as long as we can remember. We could even say that charity, or aiding one in need is native to our core as humans. However charities, non-government agencies, non-profit social enterprises and philanthropic foundations all suffer from a major flaw. They rely on the continual influx of donations and sponsorships from governments, private corporations or individuals. If for some reason (economic crises, natural disasters, environmental catastrophes, etc.) that influx is interrupted, NGOs fall short (they are usually not sustainable). It is only reasonable to conclude that they can't be held accountable for solving all the social problems due to their naturally set boundaries in efficiency and effectiveness, as well as their limited reach.

One might argue that perhaps multilateral institutions (International institution with governmental membership/funding, spanning several regions) like the World Bank, the IMF or the UN could be the force that will get in the ring with social problems and eliminate poverty, promote economic development and convey the necessary changes. Then again multilateral institutions suffer from similar issues like governments and NGOs: sluggishness, bureaucracy, lack of flexibility and slow adaptation. Moreover the politic influence in these organizations could mean that their goals significantly differ from the social needs of the regions in question (for example World Bank is mostly interested in increase of GDP, no matter the position of poor or people in need).

If we focus more narrowly on the problem and try to reach closer to the communities itself, we can wonder if putting a part of the responsibility for global poverty and other social issues on the shoulders of businesses in the form of Corporate Social Responsibility can provide results. Being more aware of the impact of enterprises on our society and environment while keeping them in line will yield certain benefits. Unfortunately their effect is limited and sometimes even distorted (prime concern for companies is profit and sometimes profit alone), as the companies can use the image of Corporate Social Responsibility for their selfish gains and do more harm than good.

Finally we can look at the individual. It is our belief that an individual or better said enterprising individual, with the support of the government can become a driving force in making social changes and advancing the economy. A social entrepreneur backed by the community and government (in form of government policies and support) can be more efficient, more aware and more dedicated then any government, NGO, multilateral institution, or enterprise by itself. Of course this approach in our opinion would require a dedicated entrepreneur, suitable entrepreneurial setting and responsible government ready to assist as well as a number of other factors.

To summarize we are confident that social entrepreneurship (nurtured and reinforced through government polices) can be a bridge that could link the development of economy and social wellbeing for all, by utilizing entrepreneurial skills and approach for generating not only financial profit but also a much needed social value.

Definition of Social Entrepreneurship

The term "social entrepreneur", was first presented and coined in 1972 by J. Banks, who noticed that social issues could be resolved using managerial skills and practices. Social entrepreneurship gained relevance during the 1970s and 1980s and in the beginning of the 1990s it enticed interest of academics, governments and businesses. One of the people who can be considered responsible for the rise of the term "social entrepreneur" is Bill Drayton (founder of Ashoka: Innovators for the Public, a nonprofit organization dedicated to finding and fostering social entrepreneurs worldwide) [4] .

Even though social entrepreneurship has grown in importance and brought forth the rise of different theories of social entrepreneurship there is no actual agreement on what social entrepreneurship actually is and what it is not. We could say it is a multi-interpretable concept, which is frequently used in a wide variety of things. [5] It is perhaps of importance to mention that there are several schools of social entrepreneurship: the Social Innovation School, EMES, the Enterprise School and the UK approach school.

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We could try to define social entrepreneurship as follows:

"Social entrepreneurship can be defined as the development of innovative, mission-supporting, earned income, job creating or licensing, ventures undertaken by individual social entrepreneurs, nonprofit organizations, or nonprofits in association with for profits." [6] (Pomerantz, 2003)

In other words social entrepreneurship could be seen as a recognition of a social problem and the use of entrepreneurial skills to start and govern a social venture with the goal to generate a wanted social change. Traditional entrepreneurship theory measures performance in profit and return on investment while social entrepreneurship adds a positive return to society (it adds creating social value to the mix) to this. Social entrepreneurship is usually connected to the voluntary and non-profit field but social entrepreneurship can be for-profit as well. In other words a business that dedicates a part of its efforts to a social mission and reinvests profits in the cause can be considered social entrepreneurship. [7] 

Furthermore we could say that Social Entrepreneurship stresses social change instead of profit. Traditional businesses adopt a strategy to pursue short-term profit at the high cost in long-term benefits to society; Social entrepreneurship emerges as a counter measure.

History of Social Entrepreneurship:

The terms social entrepreneur and social entrepreneurship although relatively new have appeared in one form or another throughout the history. As mentioned before, the first use in literature was in the 1960s and J. Bank and Bill Drayton are perhaps most responsible for their emergence. Nonetheless we should mention Michael Young (social activist and politician who coined the term "meritocracy") as a leading promoter of social enterprises. [8] If we put aside the term social entrepreneurship, we can actually find that the very concept of social entrepreneurship was present for centuries.

There were several pioneers of social entrepreneurship in the 19th century: Florence Nightingale (famous social entrepreneur that started the world's first nursing school and was a strong influence on contemporary nursing practices), Robert Owen (a mill owner who pioneered better working conditions in factories and founder of infant child care in Britain, know as well as a founder of the cooperative movement), Henry Durant (French businessman that petitioned for national voluntary relief organizations to help nurse wounded soldiers during the war; his determination induced the establishment of international Red Cross) and William Booth (founder of the Salvation Army).

Social entrepreneurship in the early 20th century was a natural continuum. Some of the notable social entrepreneurs: Dr. Maria Montessori (known for the Montessori Method and her Children's House in Rome), John Muir (Naturalist, writer and inventor who founded the Sierra Club) and Franklin Roosevelt (US President, who can be considered a social entrepreneur for the Tennessee Valley Authority during the Great Depression).

More modern and recent examples of social entrepreneurs could be found in: the Oxford Committee for Famine Relief (led by a group of Oxford professors and social activists in 1942), Michael Young (a pioneer of Corporate Social Entrepreneurship and a "father" of schools for social entrepreneurs), Muhammad Yunus (founder of the Grameen Bank in Bangladesh providing micro-financing for the socially endangered) and Jeff Skoll (first president of eBay and philanthropist, known for the Skoll Foundation). [9] 

Seeing these examples and feats of social entrepreneurs throughout the history, it becomes apparent how social entrepreneurship has filled the gaps in society, needs overlooked by the government and how it cooperates with public organizations for mutual good. From their accomplishments we can start to see how business ethics combined with social goals can help deliver substantial social and economic value to a society.

Current Practice

We can observe that in today's world NGOs, nonprofits organizations, philanthropic foundations, governments, and individuals alike play an important role in promoting, funding, and counseling social entrepreneurs. At the same time social as well as sustainable entrepreneurship is becoming a hot topic and a focus of interest to a growing number of parties. On universities and educational institutions worldwide, we can see a number of programs focused on instructing and preparing social entrepreneurs.

Contemporary social entrepreneur and winner of the Nobel Peace Prize in 2006 Muhammad Yunus played an important part in conveying the message of social entrepreneurships importance. Muhammad Yunus is a founder and manager of the Grameen Bank. Grameen Banks humble beginning was in 1976 when Muhammad Yunus, then a head of the Rural Economics Program at the University of Chittagong, initiated a research project to examine the possibility of designing a credit delivery system to provide banking services targeted at the rural poor (as the poor were unable to qualify for the loans of traditional banks, due to lack of collateral, high risks, etc. they were left to fend for themselves and endure the low quality of life). The Grameen Bank Project (in Bangla language - Village Bank) started up with the following objectives: offer banking services to poor women and man, eliminate the abuse of local money lenders, create work opportunities in the form of self-employment for a vast majority of the unemployed, educate the deprived women so they can be able to run their own business and most importantly reverse the circle of "low income, low saving & low investment" into "low income, injection of credit, investment, more income, more savings, more investment, more income". [10] The project was tested in Jobra (a small village next to professor Yunus' University) and several neighboring villages, in the period of 1976 to 1979. The Grameen Bank Project soon received the sponsorship and support from the national bank and extended its reach to a wider area. At the end of the year 1983 the Grameen Bank was converted into an independent bank through government legislation. An extraordinary feat is that today the Bank is owned by the rural poor whom it serves (10% of the shares is owned by the government and 90% by borrowers themselves).

Comparable for-profit projects have also been setup in India. A recent example is billionaire Vikram Akula, the founder of SKS Microfinance, who initiated a micro lending scheme in villages of Andhra Pradesh. Even though SKS Microfinance is for profit, it has initiated a sharp social change amid poor women from the villages. Yet some might argue, since this social venture is for profit, that SKS is trying to capitalize on the large number of poor around the world (as the interest rate is 27% compared to Grameen Banks 20%, 8% and 5% respectively, depending on what the loan is used for).

Taking a turn from microfinance we can take a look at youth social entrepreneurship. Youth social entrepreneurship presents an approach to attract and involve young people all over the world to help solve social problems. Youth organizations and programs around the world stimulate efforts of young people to become involved in the social entrepreneurship. One of those organizations is Young Social Pioneers in Australia. The Young Social Pioneers program presents a one year platform of investment, education, skill development and networking for a small group of motivated young people under 29 years old. The idea behind it is to empower young minds to help and drive the change in the society and help make a difference. [11] 

There are many organizations that play a pivotal role in fostering, promoting and developing social entrepreneurship. For example organizations like Ashoka: Innovators for the Public (an organization that supports the development of social entrepreneurship), the Skoll Foundation, Schwab Foundation for Social Entrepreneurship, Athgo (Alliance Toward Harnessing Global Opportunities), Root Cause (nonprofit research and consulting firm that partners with different nonprofits, philanthropy, government and businesses in order to find solutions for current social issues), Canadian Social Entrepreneurship Foundation, New Profit Inc. (a venture philanthropy fund based in Cambridge), National Social Entrepreneurship Forum (a non-profit organization supporting youth-driven social innovations and entrepreneurship in India) and Echoing Green (a New York City non-profit organization operating in the area of early-stage social sector investing, providing seed capital and advice), etc. [12] 

Internet and social networking sites have proven to be a valuable resources for the success and collaboration of social entrepreneurs. Internet allow ideas to travel faster and further, which made them reach a wide variety of interested parties, help networks and investors to advance to global level and achieve their set objectives with virtually no start-up capital. For example we can look at the USA based nonprofit organization Zidisha that utilizes the internet and mobile technology in developing a specific online micro lending platform where destitute individuals in developing countries can interact directly with potential lenders worldwide and find small business loans at a significantly lower cost than otherwise possible (for example Zidisha has so far financed more than 600 businesses and provided financial aid in forms of low interest loans worth of almost 300 thousand US dollars) [13] . Moreover internet permits for the sharing of design resources using open source ideology (open source can be a catalyst for sustainable development as it enables people to collaborate globally on solving various local problems).

We can notice that there is a wide variety of current practices of social entrepreneurship. Some are actualized in the non-profit area, some in profit and some somewhere in between. What is apparent is the trend and practice of Social Entrepreneurship is on the rise and we can expect further developments in years to come.

To summarize social entrepreneurship is a consequence to numerous factors worldwide as well as individual preferences and beliefs. Its importance has been acknowledged by the governments worldwide who are initiating diverse programs to aid its development. Social entrepreneurship is needed as there is inequality in world wealth distribution, government inefficiency and limited funding, calls for social responsibility, increasing awareness (that something needs to be done to better this world) and the rise of post-materialist values.

Organizational models of Social Entrepreneurship

Social entrepreneurship can take different forms and organizational models. The main concern is if a business can be considered social if it generates a profit. There was a long rooted belief that social entrepreneurship should lay in the field of NFP organizations, since the idea is to find new means -ends relations to generate, deliver and sustain social value. Yet from many examples we can see that social entrepreneurship can simultaneously create social value and generate profits, while the social goals are not being compromised. Some might argue that social entrepreneurship can never reach its true potential without including generation of profit and return on investment, adding that revenue must be incorporated in its core(as this factor is crucial for sustainability). Even so in a recent survey ''social entrepreneurship'' seems to be linked in over 80% of the cases with not for profit sector. [14] 

Based on a Schwab Foundation framework for social entrepreneurship and the utilization of profit in social entrepreneurship we can differ among three different organizational styles: [15] 

Leveraged non-profit ventures

The entrepreneur creates a NFP organization with an ambition (using a social innovation) to solve a market or government shortcoming. In the process the entrepreneur involves a section of society, including private and public organizations, to help drive forward the innovation creating synergetic effect. Leveraged non-profit ventures critically depend on outside funding (usually philanthropic in nature), but the long term sustainability is often enhanced given that the partners have a vast interest in the persistence of the venture.

Hybrid non-profit ventures

The entrepreneur creates a non-profit organization but the model includes some degree of cost-recovery managed through the sale of goods and services to a cross section of institutions (either public or private), as well as to a targeted group in population. Frequently, the entrepreneur forms several legal entities to accommodate the earning of an income and the charitable expenditures in an optimal structure. To be able to sustain the conversion process in full and address the needs of customers, who are often deprived or marginalized in society, a number of different sources of funding are mobilized from the public or philanthropic sectors (funds appear in the form of grants or loans, and sometimes quasi-equity).

Social business ventures

In this case the entrepreneur creates a for-profit legal entity or enterprise to deliver a social or ecological product or service. Although the profit is ideally generated, the main goal is not on maximizing monetary returns for shareholders but on growth of social venture, so that it can reach out to a bigger group of people in need. Capital accumulation does not present a high priority and the profits made are usually reinvested in the enterprise to induce growth. The entrepreneur of a social business venture pursues investors who are interested in creating social value and financial return (in other words combining profits and doing good).

Corporate Social Entrepreneurship

At the end of World War II, with the recovery of post war destruction and the hope of prosperity, joined with the development of the international corporations, many assumed that the corporation would become the new "community", in which individuals who share common interests and goals would undertake social tasks (for example education or health). Unfortunately this idea overlooked the fact that vast majority of social issues are located outside the boundaries of corporation. Nevertheless this notion presents the very core of the concept of Corporate Social Entrepreneurship.

The notion of the CSE was first mentioned in 2002 in a conceptual working paper which was published in the Hull University Business School. The paper claimed that Corporate Social Responsibility can be motivated by an altruistic desire compelled by managers' personal values, in addition to apparent economic and political aims for CSR. We could say that Corporate Social Entrepreneurship (CSE) presents a process aimed at supporting business to progress to more progressive and powerful forms of Corporate Social Responsibility (CSR). CSE presents a combination of three compatible frameworks: entrepreneurship, corporate entrepreneurship and social entrepreneurship. Key elements of CSR are: creating and enabling environment, fostering corporate social intrapreneurs, increasing corporate purpose and values, producing double value and building strategic alliances. [16] In other words it's a phenomenon where a corporation behaves entrepreneurially and socially responsible, keeping in mind the wellbeing of the community in general. There is no clear consensus on what exactly are the boundaries to Corporate Social Entrepreneurship, so consequently it's not easy to say what companies employ CSE. Therefore it would be possible to see a highly profitable companies like Ben & Jerry as a CSE enterprise (as they claim to be committed to profitability and social/environmental responsibility), Starbucks Coffee (that claims to hold CSR in high regards) as well as nonprofit organizations like Charity: water (non-profit organization bringing clean and safe drinking water to people in developing nations. 100% of public donations directly fund water projects) and Greenpeace (a world known independent global campaigning organization that acts to change attitudes and behavior, to protect and conserve the environment and to promote peace). [17] 

Social Enterprise

Taking in consideration everything we have stated above concerning social entrepreneurship, its practices and organizational models we can conclude that social enterprises find their place situated somewhere in between traditional private businesses and public organizations.

European Union definition for social enterprise is as follows: "Social enterprise means an enterprise whose primary objective is to achieve social impact rather than generate profit for owners and stakeholders. It operates in the market through the production of goods and services in an entrepreneurial and innovative way, and uses surpluses mainly to achieve social goals. It is managed in an accountable and transparent way, in particular by involving workers, customers and stakeholders affected by its business activity."

In other words we can see that social enterprises incorporate highly motivated social aims with entrepreneurial drive of private sector. Using that as a starting point we can create a short overview between social and economic dimensions of the social venture. The economic and entrepreneurial dimension encompass the following aspects: continual activity of producing goods or services, high degree of autonomy, economic risk and minimum amount of paid work. The social dimensions include: an active group of citizens, decision making authority not entirely based on capital ownership, participatory nature, limited profit distribution and clear goal to benefit the community.

In the European Union, or better said in its member states social enterprises have their own position. Due to unclear legal models for social enterprises, they are present in numerous forms: private companies, voluntary organizations, charity funds, associations, social cooperatives and even as unincorporated organizations.

Although their legal model might differ they are active primarily in the next three areas: Work Integration (in form of training and reintegration of unemployed persons), Personal services (for example, care of elderly, childcare services, help for disadvantaged people, etc.) and Local development of disadvantaged areas (in form of neighborhood development, social enterprises in remote rural areas and so on). [18]