Why have social enterprises developed…(part 4)

Professionalism and Commercialism

The changes in the structures of society and with regard to the provision of services by the public sector have forced 2 major phenomena to manifest themselves in the sector. First, the sector has become more professional. Instead of vocations (priests, nuns etc) and volunteers running and delivering community-based services, the norm now is to have professional managers and funded staff. Much of this funding is, in many cases, still provided by the state, philanthropic sources and donations. However, the need to meet the extra costs incurred by professionalism and the increased need of service users has resulted in the second phenomenon, commercialisation.

Commercialism covers a wide range of activities from traditional institutions, like museums, having gift shops and coffee shops down to the establishment of stand alone commercial business established to meet identified social objectives (social enterprises). A range of ‘earned-income strategies’ have evolved over the years and it is worth looking at these strategies in more depth.

Why have social enterprises developed…(Part 3)

The Third Sector or community and voluntary sector is different in every country. The following gives the experience in the Irish case as an example of the changes that occurred over the past thirty years or so. Although many scholars refer to the ‘community and voluntary sector’, there appeared to be a dichotomy between these two distinct groupings and even a ‘fracture’ between the two. Collins (2002, 96) noted that on one side of this fracture are the traditional voluntary organisations, with a strong rural base with a traditional Catholic social-policy ethos and originating mainly in the first half of the twentieth century. On the other side are the ‘community’ sector groups. These have a strongly urban or suburban base, have emerged over the past thirty years and were ‘inspired by European anti-poverty programmes and by radical social analysis’ (ibid, 97). Community development organisations, especially in urban areas, developed since the 1970s (Acheson, Harvey, Kearney and Williamson, 2004, 93-95), although Lee (2003, 50) has asserted that prior to 1987 and social partnership, community development was at best only ‘tolerated’.

Community development covers a wide range of issues and, citing the United Nations definition, was reviewed by Henderson and Thomas (1981):

‘…the term ‘community development’ has come into international usage to connote the process by which the efforts of the people themselves are united with those of governmental authorities to improve the economic, social and cultural conditions of communities, to integrate these communities into the life of the nation and to enable them to contribute fully to national progress…the complex of processes is thus made up of two essential elements, the participation of the people themselves in efforts to improve their level of living with as much reliance as possible on their own initiative, and the provision of technical and other services in ways which encourage initiative, self-help and mutual help and make them more effective. It is expressed in a variety of programmes designed to achieve a wide variety of specific improvements’.
(Henderson and Thomas, 1981, 7)

Collins (2002, 97) has asserted that the newer community sub-sector had demonstrated an ability to engage with highly disadvantaged groups and had as a result successfully ‘inserted itself into the State machinery’ especially in policies relating to ‘social inclusion, community development and participatory democracy’. One reason for the greater penetration of the community sub-sector related to a shift in the view of poverty at a policy level from being an ‘objective condition’ to a view of ‘exclusion’ and ‘marginalisation’. The community groups within this sub-group were at the fore in the analysis of countering disadvantage and creating the conditions for social integration (ibid, 94-95). The context for community development in the twenty-first century in Ireland was ‘generally supportive, but was nevertheless fraught with difficulty’. Community development had moved from the margins and has become a central player in anti-poverty and social-inclusion policy (Lee, 2003, 51) . As full partners in social partnership, expectations within the ‘target groups’ had been raised and these had to be met.

Why have social enterprises developed… (Part 2)

Some authors have noted that the restructuring of the welfare state was not a negative phenomenon. Lewis (2004, 179) concluded ‘that welfare state restructuring in Europe over the past decade has been undertaken in order to promote social cohesion and to defend the European social model. The policy intent has been to bolster social solidarity’. She continued to assert that ‘European states have not withdrawn from the field of social welfare, but rather they have adopted new patterns of regulation and service delivery’ (ibid, 183) and continued by noting that these strategies were ‘Third Way’ in nature and the importance of community and voluntary sector organisations to these strategies.

These strategies can be described as an outcome of the phenomenon of entrepreneurial governance, a concept which encompasses the effect of governmental redefinition of their roles with regard to the welfare state and the creation of a new mixed economy with public, private and third sector elements. Entrepreneurial governance can be summarised as a move from ‘government’ to ‘governance’; instead of the government seeing its role to identify and deliver services it now saw its role to support and fund initiatives of the private and of the community and voluntary sector. The community and voluntary sector would play an important part of this new mixed economy. Third-way concepts such as ‘partnership’ and ‘civic engagement’ have become central to political debate. Sátre Ahlander (2001, 414) noted that partnership was increasingly used by policy makers across the European Union to involve users and stakeholders in policy formulation. Lewis (2004, 183) commented on the importance in Europe of state/community and voluntary sector partnership and noted that ‘it is a far cry from the business philanthropy of the USA’.

The internal effects on the community and voluntary sector can be described as three fold; the development of the ‘community’ sector since the 1960’s, professionalism and commercialisation.

Why have social enterprises developed…(Part 1)

Why do we have social enterprises, where have they come from and what was the reason for the heightened interest in them since the mid-1990’s? The last three decades have fashioned significant external challenges to the community and voluntary sector. These challenges can be summarised as the effects of significant economic change, political reactions to these changes, the retrenchment of the state from direct public service provision and the effects of globalisation.

‘A substantial transformation has been taking place in the world economic order’ (Ben-Ner, 2002, 6) and this has resulted in rapid change in both the public and community and voluntary sectors (Kearns, 2000, 3). The economic growth levels of the post-war era began to reduce after the 1960’s and from the early 1970’s the economic and political debate changed to address new issues. Defourney (2001) outlined the new issues:

‘The persistence of structural unemployment in many countries, the need to reduce state budget deficits and to keep them at a low level, the difficulties of traditional social policies and the need for more active integration policies have naturally raised the question of how far the third sector can help to meet these challenges and perhaps take over from public authorities in some areas’
(Defourney, 2001, 1)

The European financial crisis of the early 1990’s resulted in demands for structural changes and a reduction in the public sector, characterized by privatisation and liberalisation (Sátre Áhlander, 2001, 416; Kerlin, 2006, 252). Borzaga and Defourney (2001, 352) commented that ‘there is a clear and generalised coincidence between the emergence of the first experiences of social enterprises, at the end of the 1970’s, on the one hand, and the decline in the rates of economic growth and the rise in unemployment that occurred in the same decade, on the other’. The challenges were also faced in Ireland. By 1986, the Irish debt to GNP ratio had risen to 129% (Reeves and Palcic, 2004, p530). As a result, the state disengaged from sectors where there was no obvious political reason for continued state involvement (ibid 535). Reeves and Palcic (2004, 529) however noted that in the early 1980’s Irish policy to State Owned Enterprises (SOE) emphasised ‘commercialisation’ rather than liberalisation and privatization as in other industrialised countries.

Thus, at least in Europe, the financial crises from the 1970’s resulted in the community and voluntary sector being forced to address critical issues, including its own role in society, increased scope of activity to address the retrenchment of the welfare state and the issues of financing these activities.

How many defintions…(Part 6)

Some reasons why we do not have a common set of definitions

I will apologise up front but this quote was one of the most important findings of the ECOTEC Economic Consultants evaluation of the European Union’s ‘Third System & Employment Pilot’ from the late 1990’s.

‘One perhaps disappointing aspect of the Pilot Action is that there are few examples where production models originated in one project show much likelihood of being adopted by other organisations or by other sectors…the contextual specificity of projects, combined with the lack of clear focus on the input and output equation has in practice undermined the wider replicability of the individual models which were put into operation.’
(ECOTEC, 2001, 71)

So why can we not replicate good social enterprise models from one country to another. The answer relates to institutional, social, historical and cultural ‘embeddedness’. Lots of big words but based on a simple reality. Social enterprises operate in their national, regional and local environs. Thus, social enterprises or the local social economy has developed within these frameworks. As the cultural, social, historical and institutional frameworks in different countries are, by definition, different then the local social enterprise models have evolved within these local legal frameworks, social norms and historical underpinnings.

Thus, in Western Europe social enterprises have developed within the framework of the changing social welfare systems in different countries, in Central and Eastern Europe social enterprises, especially the co-operate movements, have evolved from the collapse of the old Soviet system and in the United States social enterprises have evolved from the free market ethos of that society and the lack of a comprehensive social welfare system.

Thus, the sad outcome of this discourse so far has been that we cannot define a common definition of the third sector, far less, a commonly acceptable definition of a social enterprise or even the social economy. The lesson may be that you must develop working definitions within the national political, economic and academic frameworks for each country. The problem being that getting a common definition at a national level between practitioners, policy makers and academics has proven to be easier said then done. Each is trying to define the social enterprise phenomenon from different perspectives and at heart this is the definitional problem for social enterprises.

How many definitions…(Part 5)

The Irish Definition

According to O’Hara (2001, 150) the term ‘community and voluntary sector’ was the most common concept used to refer to nonprofit organisations with social aims in Ireland. The concept was a relatively new one as the first reference to a community and voluntary ‘sector’ was made in the early 1980’s (Donnelly-Cox, Donoghue and Hayes, 2001, 195). However, the background to the Irish community and voluntary sector casts a long shadow, underpinned notably by the role of religious orders, the role of philanthropic citizens and the tradition of ‘self help’. Several authors noted the role of religious orders, especially Catholic orders in the provision of services to the disadvantaged and in the provision of health and education services in Ireland (Donoghue, Anheier and Salamon, 1999, 7-8; Donnelly-Cox, Donoghue and Hayes, 2001, 196; O’Hara, 2001, 150-151; Acheson, Harvey, Kearney and Williamson, 2004, 11-16; Teague, 2007, 91). From the repeal of the Penal Laws through to the formation of the Irish state and the post-war period, the Roman Catholic church played the dominant role in the Irish voluntary sector within a philosophy and process referred to as ‘Catholic corporatism’ (Birrell and Hayes, 2004, 41). The evolution of a ‘community sector’ only emerged after the 1970’s.

However, there were other strands to the development of the community and voluntary sector. Several authors have referred to the role of philanthropic citizens (Donnelly-Cox, Donoghue and Hayes, 2001, 196; Acheson, Harvey, Kearney and Williamson, 2004, 9-11). The most prominent of these were identified as the individuals who initiated the formation of several large, often medical, institutions; Dr. Mercer’s Hospital, Patrick Dunne’s Hospital and the Adelaide Hospital for example. Many of these individuals were protestant middle-class philanthropists and their actions were motivated to relieve the suffering and poverty of the working class, especially in urban areas. The other strand cited for the development of the community and voluntary sector was ‘self-help’ activities, many of which were rurally based. Several scholars have referred to the ‘meitheal’ system, where the small rural and mainly farming communities would assist each other every year to harvest crops in a co-operative effort (Donoghue, Anheier and Salamon, 1999, 8; Donnelly-Cox, Donoghue and Hayes, 2001, 196; O’Shaugnessy, 2005, 94; Teague, 2007, 91). It was not until the 1950’s that the state played a more significant role in the provision of community care, health and education services, thus placing significant reliance on the social contribution of philanthropy and self help.

It has been argued that Ireland did not follow other north European countries in developing an extensive social welfare state (Teague, 2007). According to Teague (2007, 91), in so far as Ireland did develop a welfare state ‘it focused on creating a high-calibre education system and a sufficient stock of affordable public housing. To a great extent, the state was content to allow the voluntary sector to provide the other social care services needed. Donnelly-Cox, Donoghue and Hayes (2001, 198) have noted that historically ‘the relationship between the state and the third sector was characterized by the principle of subsidiarity. The state operated a “hands-off” stance in relation to the provision of social services which were mainly supplied through the third sector but often funded, at least in part, by the state’.

How many definitions…(Part 4)

The continental European definition

The concept of the ‘économie sociale’ originated in France and was well known within the Latin countries, although less known in the northern part of the European Union and the former Soviet bloc (Satre Ahlander, 2001, 416). The continental European definition was a broad definition which constituted the economie sociale as part of civil society. Thus, the economie sociale constitutes organisations like co-operatives, mutual societies and associations. Thus the ‘non-distributive constraint’ is not an issue for many of these organisations but rather concepts like solidarity and mutual support are more important within the continental European definition.

Another large distinction between the European and American community and voluntary sectors was the level of engagement between the sector and the public authorities in the delivery of public services through the welfare state. Borzaga and Santuari (2003, 37-38) noted that the European community and voluntary sector was more directly involved with the state in the delivery of public services than the American sector. In America, there was a limited welfare provision whereas in Europe there was a far more developed and comprehensive welfare mix, or mixed welfare economy (Defourney, 2001, 2; Evers and Laville, 2004; 20, Lewis, 2004, 163). In Europe, much of the discussion on the community and voluntary sector in the past three decades had centred on the restructuring of the welfare state and the role of the sector within this restructuring, which had been identified as a ‘central and recurring theme’ (OECD, 2003, 15).

So strong was the link between the community and voluntary sector and the welfare state in Europe that Borzaga and Santuari (2003, 37-38) categorised the European sector until the 1970’s into three distinct sets of countries based upon the type of welfare system employed. The first set of countries was defined by having a ‘well-developed, universal welfare state’, which provided both public-sector provision of services and cash-payment of benefits (Sweden, Finland and Denmark were the examples cited). The second set of countries was defined as ‘having a developed and universal welfare state’. In these cases there was cash-payment of benefits but ‘limited commitment on the part of government to direct supply of social services’. Notably, Ireland was identified in this second category of countries. The third set of countries was defined as having ‘a less developed welfare state, especially until the early 1980’s’. Italy, Spain and Portugal being defined as part of this group.

How many definitions…(Part 3)

The American definition

The American approach to defining social enterprise, defined the sector by its ‘non-profit distribution constraint’ and defined the membership of the sector through their compliance with the US tax code (Weisbrod, 1998c; Defourney, 2001; Ben-Ner and Gui, 2003; Kerlin, 2006). The nonprofit sector in the United States had undergone change during the last thirty years. The connection between the welfare state and the American ‘nonprofit sector’ was never its defining characteristic as in Europe, partly due to the less structured welfare state provision there but primarily due to the ‘free market’ ethos in American culture. According to Young (2003, 63), the American nonprofits ‘have come to understand that they are embedded in a vigorous free market economy and must learn to survive and prosper in that environment. They also understand that in some ways they have become the new embodiment of social aspirations in an era that stresses non-governmental approaches to social problem-solving’. Thus market-oriented approaches were more central to the American culture and commercialisation within the community and voluntary sector seen as legitimate. According to Young (2003, 67), ‘no longer conceived as a primarily revenue generation strategy, these commercial ventures suggest that market engagement may often be the most effective way to address a non-profit organisation’s mission’.

One interesting definitional problem that has arisen from the ‘non distribution constraint’ relates to co-operatives, which are a legal form of organisation with a highly democratic corporate governance structure. However, profits generated are distributed to its membership and thus the American definition excludes co-operatives from the social enterprise sector in America. It is interesting that many Europeans instinctively think of co-operatives and, especially credit unions which are a form of co-operatives, as part of the social economy whereas the Americans do not.

Introduction:What role does governance play in creating sustainable third sector organisations?

Part 1: governance and the avenues of its development in the third sector.

 “Within the old economy, innovation was often generated through a series of discrete steps in research, development, and production. In the New Economy, innovation is increasingly generated in networks where value is generated through productive working relationships or collaboration. In fact, Peter Drucker has suggested that a main organizing principle of the New Economy is networks, partnerships, and collaborative ventures” (Atkinson & Fountain, 1998).

 Social and institutional innovation within society are based on the principles of the “New Economy”, they redefine roles and relationships across independent entities to accelerate and amplify learning and reduce risks (Hagel, 2007). Social innovation can be routed within the sphere of basic human needs encompassing autonomy or self determination of individuals who require education, health and good governance.  Institutional innovation seeks more productive ways to connect with talent wherever it resides and builds relationships that foster and focus learning. Moulaert et al. (2002) defines that social innovation within a local level emulates two avenues, “institutional innovation (innovation in social relations, innovations in governance including empowerment dynamics) and innovation in the sense of the social economy i.e. satisfaction of various needs in local communities”.  Thus as opposed to being defined as two separate entities it is seen that social innovation creates a platform for institutional innovation.

 From this view social innovation can be seen to emulate towards the creation of a platform for the development of the third sector. Hirst (1994) validates this “voluntarism allows for exit if associations are unresponsive to citizens’ needs and demands”.   Within the economy sub-systems at the community level belong to the production and allocation of clusters that are continuously or recurrently in search for innovation. Without these types of institutional innovation, new social production and allocation initiatives cannot be grounded in community dynamics and will be alienated from community needs; thus institutional innovation is connected to evolution and creativity in the creation of this sector. Social innovation and the creation of social innovation can be further identified in Hirst’s definition for self-governing and democratic associations, an alternative pattern to the governance of the existing welfare system. This is reflected within contemporary societies as the “New Economy”.

 Within the New Economy, the third sector comprises of community /voluntary organisations, social economy organisations and social enterprises. There is evidence that the community and voluntary sector has grown in recent decades and become an increasingly important economic and political force.  According to the Organisation for Economic Co-operation and Development (OECD):‘The non-profit sector, often associated with concepts such as the “social economy”, “third sector” and “third system”, is a growing social and economic force all over the world and a key element in employment and social policies in most OECD countries’  (OECD, 2003, 10).

 The following definitions of the three tiered system are as detailed:-

• Community and Voluntary Organisation exist to meet social needs in a local community (community employment projects, community development projects, tenants associations or credit unions), at regional or national level (the Irish Farmers Association, ICMSA, or Foroige (Irish national youth movement ) or even at international level (Goal (Irish non-Governmental organisation which developed projects in third world communities), Concern (Irish non-Governmental organisation which works in the third world and especially works in areas of drought and hunger) or the Red Cross).  Community and voluntary organisations can be formal or informal (including local groups, associations or even anarchic or environmental groups) and use a wide range of resources including pure volunteerism, grant aid, fund-raising and donations, through to fund management, foundations and trading companies to achieve their appropriate objectives.  They are characterised as being socially driven, empowering, pragmatic and with some degree of community or member ownership.
• Social economy organisations like community and voluntary groups are built on foundations of social innovation.  However, the core difference is social economy organisations are more developed, the majority of them still predominately rely upon grants as part of their income stream although traded income is part of this collective. 
• Social Enterprises are sustainable social economy organisations.  Social enterprises have their core income as traded income with marginal or no reliance upon grant funding. These enterprises where priority that is given to man and the social purpose rather than to capital, they are people’s enterprises (except for foundations).  They allocate any resources not required by their social purpose to reinvestment or distribution in line with members’ wishes for job creation, activities, new enterprises, bonuses on capital invested, services to members, socio-cultural activities, etc.

 Hirst and Moulaert neglected to make citations with the third sector.  Hirst provided an overview of associational characteristics, they mirror the characteristics and criteria used by the International Centre of Research and Information on Public and Cooperative Economy (CIRIEC) to distinguish organisations within an entity within the third sector: “The object of providing services to members (common or mutual interest) or the community (general interest); The primacy of people over capital; Democratic functioning; and A management system which is independent of the public authorities” (CIRIEC 2000: 11).

How many definitions…(Part 2)

Definitional ambiguity has been a recognised problem within the community and voluntary sector. The following table provides a comparative analysis of the main terminology applying to the community and voluntary sector at societal and macroeconomic levels and social enterprises at a microeconomic level, as well as outlining the potential legal forms that applied to the different geographic areas/institutions examined: Ireland (we are an Irish consultancy), The European Union, Continental European countries and the United States of America.

Comparison of transnational terminology applicable to the community and voluntary sector/social enterprises

There are a number of definitional issues which needed clarification at this point. There is a central difference between the American and Continental European definition of the sector at a civil society level. The American definition is centred on the strict non-distribution of profit to individuals; ‘the non-distribution constraint’. In Europe, where the co-operative tradition is much stronger, the non-distribution constraint is less strict and the character of the sector is defined more by reference to the structure of the relevant welfare state. Thus, the use of the term ‘nonprofit’ is usually indicative of the American approach. The Continental European definition of the sector at civil society level is based on the French ‘l’économie sociale’.

This causes confusion, as it has been generally translated into English as ‘the social economy’. However, the Anglo-American usage of the ‘social economy’ is different and is related to the sum of products generated by all social enterprises (a national accounting definition approach if you prefer). Thus, the Anglo-American usage of the ‘social economy’ relates to the sectoral definition at the macroeconomic level, not societal level. To prevent confusion, the term ‘l’économie sociale’ will be used when referring to the continental civil society usage and ‘the social economy’ will relate to the Anglo-American macroeconomic usage. It should be noted that the Irish usage of the social economy is similar to the Anglo-American usage and the term ‘Community and Voluntary Sector’ is equivalent to l’économic sociale’.

Finally, the European Union introduced the term ‘Third System’ to equate to the macroeconomic level and this has caused further confusion. The third system therefore equates to the Irish usage of the social economy and the American ‘commercial nonprofit sector’. Confused? Well so are most people who work in the sector, so to help explain all this better the next few posts will look at each set of definitions separately.