Monday, 29 September 2014

Social Enterprise - to boldly go... where...?

"Social Enterprise" is trendy.

I am reminded of this as I passed the site of a "Social Enterprise".  I know it is a "Social Enterprise" because it says so on the signboard above the gate.

So, what is a social enterprise?

Pop Quiz!

Which of these are social enterprises?

1) A seasonal store (opens at most once a month) that sells donated goods at or near market prices. This is not a thrift store. The goods are not used, and the operators are picky about what donations they accept. But funds raised go towards a charity. Social Enterprise, or not?

 2) A church-affiliated charity operating from church property which was provided to them by the church at near zero rent does not have much use for the rest of the site. To raise money for their cause, they have sublet parts of the premises to other charities and non-governmental organisation at less than market rate.  It is a win-win situation. The tenants get badly needed premises for their work at a concessionary rate, and the charity gets funds for their cause. So. Social Enterprise or not?

3) A charity helping "differently able" persons have taught their clients to make arts and crafts - specifically picture frames made from recycled items like CDs, DVD covers, PET bottles, etc. These are then catalogued and put on their blogshop and sold online. Orders are processed by volunteers (a group of students), and the major customers are corporate buyers who buy these picture frames as corporate gifts for their clients. One of the buyers had surveyed their clients and realised that past corporate gifts were often simply discarded or misplaced. Their clients had little recall of the corporate gifts and there was very little impact on the clients. Purchasing the picture frames was a corporate social responsibility (CSR) initiative, and channelling the goods purchased to corporate gifts was a way of saving money (cut the corporate gift budget, or added part of it to the CSR budget) and at way of impressing (hopefully) their clients with their CSR. It was a win-win for the corporate buyers. And the charity made money which would help their clients. Social Enterprise or not?

So what is a social enterprise?

In brief, it is a business with a social mission, or objective.

So which of the above would "qualify" as a social enterprise?

Is the seasonal, non-thrift store a social enterprise. Is it a business? Not really.

Businesses selling products either have to make the product or buy the product (wholesale) and re-sell it to their customers. They have suppliers and customers. In this example, they have no suppliers. Only donors.

Is the church-affiliated charity a business? Again no. The "business" is based on selling (or renting, in this case) donated goods (in this case premises). Now  the church may well have intended the charity to do so in order to fund their programmes, but this is a fund-raising method, not a social enterprise.

Finally, what about the Arts and Craft business? They make stuff, and they sell stuff, and they sell stuff at a profit. So it is a business right?

I took pains to explain the thought processes behind the customer's decision to purchase the arts and crafts. Yes it is on the face of it a business. But in actual fact it is disguised begging. Well-disguised, but still begging.

If that is a social enterprise, then the old lady selling you tissue paper packs, 3 for $1, is a social enterprise.

So if you said any of the above were social enterprise, do ask yourself why did you think so, and read on.

A social enterprise is first of all, a viable business with a social mission or objective. These are some models or missions of social enterprises.

a) It is a business set up to employ the target group (e.g. disabled).

b) it is a business set up to provide goods or services to the target group.

c) it is a business owned by, or funds the target group

So if you set up a restaurant to hire say disabled persons, that would be a social enterprise - with the following caveats or conditions. The restaurant must be a viable business with no hidden subsidies or concessions. For example, operating from a church premises with concessionary rental (less than market rate rental) would mean that the church is providing an implied subsidy (or funding) to your "enterprise" that would give your restaurant an advantage in the market. The second condition is that your prices must be market competitive and not at a "pity premium". What I mean is that your business must succeed as a business and not as a charity. If your customers are patronising your restaurant not because of the value for money your business offers, but because they want to give to a charity, that's disguised begging. It is like buying a fun fair ticket from a fund-raising event (fun fair). You pay $10 for fun fair coupons, and you find out a plain plate of bee hoon costs $8 (it's for charity), and a cup of diluted ice tea cost $2 (it's for charity). If your business is run along fun fair fund-raising prices, it's disguised begging.

Another example of a social enterprise might be running a bicycle and wheelchair shop. The business was set up because (for example/illustration) there were no dedicated wheelchair importers, builders, or repairers. However, as a pure wheelchair business, it could not survive, so it also sells and repairs bicycles. Wheelchair-using customers (the target clientele) get affordable products (wheelchairs) and services (repairs or modifications).

A third example of a social enterprise is more difficult to see as a social enterprise. But imagine a group of parents of developmentally delayed children, coming together and buying a business. They hire a manager and staff and get the manager to run the business for a salary and perhaps some shares. As owners of the business, the parents channel some of the profits to a trust fund for their children, while part of the profits are re-invested in the business to keep it viable and competitive.

So these are three models of social enterprise I can think of. And here are the criteria for "viable businesses": It should be commercially viable - costs should all be market rate (no concession or subsidy), it should charge prices that are competitive (no pity premium).

Q & A
Q1: Why can't there be concessions or subsidy? For example, for rent. Singapore's land costs are so high, it is very difficult for a business to succeed without some rental subsidy or concession. A rental subsidy could help Social Enterprise become viable.

A: Say a "Social Enterprise" has concessionary rent. They make $100,000 in a year. However, the rental concession is $120,000. Would it make more sense to rent out the premises at full market rent and donate $100,000 or even $120,000 to the cause? But sure, if the concession is just for the start-up phase to help the Social Enterprise get on it's feet. Even some commercial operations get start-up grant or seed funding to get started. That is not a problem. But as long as there is rental subsidy, it is not yet a viable business, and so if the subsidy is supposed to help in the start up period, then it should be phased out and after that, it is a social enterprise.

Q2: Yes, the above answer of renting out the premises at full market rate and donating $100k to $120k makes more financial sense, but what if the point is to provide meaningful jobs to the disabled? What about the value of giving these disabled persons a chance to participate fully in life?

A: Of course. There is merit in helping the disadvantaged participate fully in life. However, I do not think a job that exists only because of hidden subsidies is a "meaningful job". It is an artificially created and sustained job. Is that meaningful? "Meaning" is a personal perspective.

Subsidies also distort markets. Say the disadvantaged is running a subsidised business. Because of their subsidy (and their "meaningful" jobs), they are able to survive. However they are in competition with a commercial business who is unable to compete as they do not have subsidised rent. And someone has invested in this business. But because of the unequal playing field, this commercial business closes down. And the owner becomes bankrupt. I could for example say that the owner then goes on public assistance and his children are unable to attend higher education, but that's all manipulative and unnecessary. We'll just say that a business owner who might have succeeded if he did not have to compete against a "social enterprise" with concessionary rental. And that is unfair enough.

Q3: "Pity Premium" is pejorative and imflammatory. Some Social Enterprise charge a "Charity Premium" to reflect their greater challenges and difficulty. What's wrong with that?

A: Disguised begging.

Q4: So what? So what if it is disguised begging? So what if rental (or other) subsidies distort markets and is unfair to some business owners? So what if because of subsidies there is some unfairness in the market? The target beneficiaries of these social enterprise are usually disadvantaged people. They may be disabled, or developmentally delayed, or otherwise challenged. It's not fair that they are they way they are. Isn't some unfairness imposed on others on their behalf simply a way to balance up the unfairness fate has imposed on them?

A: Short answer 1: Two wrongs don't make a right.

Short answer 2: Life isn't fair. But Life is not deliberately creating unfairness, life is not malevolent. Life (or Fate) does not have any evil intent. But any unfairness created by us, would be deliberate, and if not malevolent, would be negligent or reckless.

Long answer: First you need to make a case that it is our responsibility to reverse the unfairness that Life/Fate has dealt to every individual. Or if not every individual, then where do we draw the line and why that should be the line.

Second, you can charge a "charity premium" if you like and "disguised begging" is hard to stop. And you can call it "social enterprise" if you like. Lots of such disguised begging are. And you can delude yourself that it is a social enterprise, and you can tell the beneficiaries that they are leading meaningful lives. Lots of people (non-disadvantaged)  think they are doing so. [Like me and this blog.] No reason why only the non-disadvantaged should be allowed to delude themselves. Come, join in the fun.

But for the disadvantaged, such delusions are a little more seductive, or more dangerous.

Third, allowing your "Social Enterprise" to charge a "charity premium" and getting subsidies ultimately weakens your "social enterprise", weakens your beneficiaries, weakens your cause. It is similar to the Bumiputera policy in Malaysia. It provides short-term "gains" at the expense of real growth and real gains in the long term.

Fourthly, what is the message your beneficiaries are internalising? "We have the right to be pitied"? "We are victims and we are just trying to even things up"? Are those messages empowering, or crippling to their self-esteem and their efforts to lead meaningful lives?

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