Social enterprises on the riseWednesday, March 04, 2015
A prudent man holds on to the old as long as it is good, and grabs hold of the new as soon as it is better; so goes an old adage. It's time to let go of the old and discredited handout and hand-me-down charity approach, and take hold instead of the hand-up approach to community and nation-building practised by social entrepreneurs and social enterprises. There are two outstanding men among us who are at the forefront of grabbing hold of this new paradigm; one from the public sector and the other from the private sector.
Minister of Industry, Investment and Commerce (MIIC) Anthony Hylton is leading a quiet revolution through policies and programmes directed at persons and enterprises at the base of the social and economic pyramid, wrongly regarded by some to be too small and inconsequential to contribute economically. With this enlightened approach, MIIC, although often outmuscled for public attention by ministerial peers, is fast making itself indispensable to the work of every other ministry having a mandate to transform the society and the economy. Managing director of the Jamaica National (JN) Building Society and chairman of the JN Foundation Earl Jarrett is of a similar ilk; building a leading financial enterprise on the premise that there is profit in solving social problems and serving society's underclass.
Both men shared their philosophy in presentations made at the inaugural Social Enterprise Boost Initiative (SEBI) Summit, sponsored by Jamaica National and the United States Agency for International Development (USAID), and held over two days January 2015, at the Jamaica Pegasus hotel. Hylton, who gave the opening address, had this to say: "Social enterprises can play critical roles and fulfil a number of functions, such as maintaining community buildings or open spaces, or providing services for the community. Some businesses might also be able to generate profits from selling products created from community assets." In his turn at bat, Earl Jarrett said the following: "It is important to determine the contribution made by social enterprises to the nation's Gross Domestic Product (GDP) so that these entities can be encouraged to grow and to thrive through directed public policy. Collectively, we can create greater opportunities for the social economy and help to influence policies that will support the growth of the social enterprise sector."
What, then, are these social enterprises that are capable of making such a positive impact on individual well-being, the transformation of our communities and the economy of the nation? We should start by discussing the three sectors that almost everybody knows about. These are the public sector, comprised mainly of government and its agencies; the private sector, comprised of businesses and private commercial or profit-making interests; and the non-government sector, comprised of community-based organisations and civil society groups, what we typically refer to as the not-for-profit or voluntary sector.
Increasingly, profit-making enterprises in the private sector are tackling social and environmental issues as their main line of business. Similarly, there is a trend with not-for-profits developing sustainable business models, ie they are finding that profitability is the best form of sustainability. With the blurring of the line between profit and not-for-profit, we get an enterprise which, strictly speaking, is neither of the forms which give rise to them. These hybrid enterprises have been given the name social enterprises by entrepreneurs, and are said to belong to a fourth and emerging sector -- the for-benefit sector. The enterprises belonging to this new and fast-growing sector remain fiercely loyal to their social and environmental mandates but, in many ways, behave like the typical entrepreneurial business and generate earned income. The people who run them have come to be known as social entrepreneurs.
Jamaica is still struggling with a recently passed Charities Act, which in many ways is a disincentive to voluntary effort generally, and in no way encourages entrepreneurial effort that produces social benefits. Meanwhile, many other places in the world have moved ahead to define social enterprises in law and to provide incentives to cause them to flourish. A couple of examples will suffice. Enacted by the Vermont Legislature in May 2008, the L3-C Low Profit Limited Liability Company has the limited liability protection and flexibility of a corporation. Although L3-Cs are not tax exempt, there are provisions in the legislation helpful to capital formation by enterprises formed to further a socially beneficial mission. The Flexible Corporation in California and Community Interest Corporation introduced by the United Kingdom government in 2005, under the 2004 Companies Act, for the purpose of bringing this new dynamism in private social enterprise out from the shadows into the mainstream of the economy, are two more examples.
The benefits of social enterprises are measureable as they are clear. Speaking at the SEBI Summit Denise Herbol echoed sentiments that were reinforced time and time again by local and international presenters. "Social enterprises," she said, "are making a positive impact on the growth of our communities and economies". Herbol, one of the most unassuming but effective diplomats to serve Jamaica as USAID mission director, provided data showing that social enterprises generated more than US$2 trillion in revenues in 2012 and that the number of these enterprises is growing at a rate of 15 per cent annually.
Call it enlightened capitalism if you will. One thing is for sure: we have come a long way from the days when Milton Friedman, the reputed father of capitalism, said something to the effect that the only social responsibility a company has is to make a profit. Will Jamaica take a slice out of this ever-growing pie or will our policymakers continue to pay lip service to the need for economic growth while maintaining the stranglehold of more regulation and taxes on the traditional productive sector, and on the new emerging class of social entrepreneurs and the social enterprises they lead, who seek to build communities and the nation from the bottom up using business processes?
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