Social enterprise: Profit for Purpose not profiting from a purpose

Going way back to 2006, there was a conversation on Skoll Social Edge on Profit for a Purpose  One of the other contributors, Sutia Kim Alter, would be cited a few weeks later in our 'Marshall Plan' strategy for Ukraine,

"For years, many nonprofit directors, social activists, and academic theoreticians have looked askance at social enterprise. It appears that money – in particular the pursuit of money – is the object of their discontent. Some fear that “business” efforts will supersede social mission strategies. Others believe a focus on making money (especially worrisome when it is successful) will detract from creating social change. Still others are wary lest nonprofit revenue-generating activities cause a breach in public trust.

Each of these concerns is valid if one views social enterprise from the perspective that its only purpose is to generate revenue."

To the best of my knowledge, the concept of "profit for purpose" business was introduced to the UK in 2004. As we say in the About page :

"P-CED is now based in UK as a profit-for-purpose company, since 2004.  We conduct small business for profit in UK, and invest profits for social purpose under UK rules.  This is somewhat similar to non-profit in the US, except we can conduct any business we see fit according to normal business rules without restrictions that bind non-profits or charities.  We pay company and personal taxes according to usual business rules.  Profits are not shielded in any way from normal taxation that any for-profit business has to pay.  Whatever is left over is invested in the social purpose or purposes of our own choosing.  That way we can do business in the normal, traditional way, changing only one thing: the output, what happens with profit."

Ths reflects what was argued in our 1996 paper and the business plan which was shared with the social enterprise community in 2004:

Profits can be set aside in part to address social needs, and often have been by way of small percentages of annual profits set aside for charitable and philanthropic causes by corporations. This need not necessarily be a small percentage. In fact, there is no reason why an enterprise cannot exist for the primary purpose of generating profit for social needs — i.e., a P-CED, or social, enterprise. This was seen to be the potential solution toward correcting the traditional model of capitalism, even if only in small-scale enterprises on an experimental basis.

Enterprise for the primary objective of poverty relief, localized community economic development, and social support became the business model which guided P-CED’s efforts and development at a time in the US when terms such as ‘social enterprise’ and ‘social capitalism’ had not yet been coined.

Traditional capitalism is an insufficient economic model allowing monetary outcomes as the bottom line with little regard to social needs. Bottom line must be taken one step further by at least some companies, past profit, to people. How profits are used is equally as important as creation of profits. Where profits can be brought to bear by willing individuals and companies to social benefit, so much the better. Moreover, this activity must be recognized and supported at government policy level as a badly needed, essential, and entirely legitimate enterprise activity.”

Interviewed in 2004, about our work in Russia and Crimea, we described how we came to this conclusion:

"The problem is that profit and money still tend to accumulate in the hands of comparatively few people. Money, symbolically representing wealth and ownership of material assets, is not an infinite resource. When it accumulates in enormous quantities in the hands of a few people, that means other people are going to be denied. If everyone in the world has enough to live a decent life and not in poverty, then there is no great problem with some people having far more than they need. But, that's not the case, and there are no rules in the previous capitalist system to fix that. Profit and numbers have no conscience, and anything done in their name has been accepted as an unavoidable aspect of capitalism.

I disagree. In 1996, I simply set up a hypothetical 'what if' proposition. What if some businesses decided to change their practices, or institute themselves as new enterprises completely, for the sole purpose of generating massive profits as usual and then using those profits to help people who have little or nothing? That's the way to correct and improve classic capitalism for the broadest benefit worldwide. It's now called social capitalism, or, social enterprise. I still call it the same as I did in 1996: people-centered economic development, and that remains the name of my organization and my web site.

At first, the idea seemed heresy - but not for long, simply because it made sense and it didn't step on the toes of any existing enterprises that were in business to enrich relatively few people. None of them were asked to change anything, but it left open the possibility of more forward-thinking people to step in and do business differently."

In 2011, Michael Porter gained a lot of publicity describing the concept of Creating Shared Value. It was embraced even by those in the social enterprise community who were unable to offer us support. Creating Shared Value argued that business could be applied to resolve soical problems, as had we.

In 2009, with our work at Sumy State University on Economics for Ecology we'd identified corporations as the fundamental  cause of social and environmental problems, saying 

"The prevailing economics systems in the twentieth century were capitalism and communism.  Both systems were hypothetically aimed at creating a means of providing people with comfortable, safe and secure life.

Along the way, in the process of attempting different forms of economics from capitalism to communism, we have managed to pollute and contaminate our own environment to the extent of causing environmental change to the point of quite possible catastrophe for people around the world.  Neither the capitalist system nor the communist system – nor the various fascist systems attempted in such as Germany, Spain and Italy – lived up to their promises.  Communist and fascist systems became infamous for mass murder.  The Western capitalist was less murderous. Overall, capitalism was able to produce a much larger middle class of people between rich and poor, and has gained precedence due to making safe and secure life possible for more people.   But, it's various methods over the past 100 years left millions of people to suffer and die more indirectly than outright murder.  Those people were dismissed as relatively unimportant, mostly left to die from deprivation rather than outright execution.  In all systems, some rationale was created to either dismiss people and leave them to die, or, kill people outright.  In the end, for the victims, the result was identical.

In that context of disposing of people, by all economic systems, and with capitalism having become predominant, financial profit came to rule the day.  Profit, the bottom line, was master of all else.  People and the environment we live in were secondary considerations.  The vehicle of Western capitalism was, and is, corporations."

There was however something fundamentally different in their intepretation and it came up the following year when Mark Kramer declared that corporations could profit from solving social problems. :

Responding with a comment,  I’d asked him if rather than an opportunity to profit in financial terms, we might see this another way. quoting the argument we’d made for placing Ukraine’s institutionalised children in family homes. My  suggestion was soon deleted and I was blocked from further comment on The Guardian:

Within days of our first presentation at Sumy, there was a conference at Oxford Social Enterprise Forum on 'A New Form of Capitalism'. The "leading names" shaping this new economy were to be under one roof. The comment about business opportunity by Walmart's CEO is indicative of where this was heading.. 

The global focus of business is changing and a new economy is emerging. Indeed Wal-Mart's CEO Lee Scott claims that sustainability is 'the single biggest business opportunity of the twenty-first century'.

Writing more recently for Mixmarket, my article on the New Bottom Line has proven to be popular.  

An inherent assumption about capitalism is that profit is defined only in terms of monetary gain. This assumption is virtually unquestioned in most of the world. However, it is not a valid assumption. Business enterprise, capitalism, must be measured in terms of monetary profit. That rule is not arguable. A business enterprise must make monetary profit, or it will merely cease to exist. That is an absolute requirement. But it does not follow that this must necessarily be the final bottom line and the sole aim of the enterprise. How this profit is used is another question. It is commonly assumed that profit will enrich enterprise owners and investors, which in turn gives them incentive to participate financially in the enterprise to start with.

That, however, is not the only possible outcome for use of profits. Profits can be directly applied to help resolve a broad range of social problems: poverty relief, improving childcare, seeding scientific research for nationwide economic advancement, improving communications infrastructure and accessibility, for examples – the target objectives of this particular project plan. The same financial discipline required of any conventional for-profit business can be applied to projects with the primary aim of improving socioeconomic conditions. Profitability provides money needed to be self-sustaining for the purpose of achieving social and economic objectives such as benefit of a nation’s poorest, neediest people. In which case, the enterprise is a social enterprise.'

 

The only difference I can see between this and several other approaches is that ours is based on practical application.  They talk what we walk   .

Now let me get back to the primary focus of our efforts in Ukraine, transitioning children from institutions to loving family homes. In the 'Marshall Plan' we'd described how investing in such a transition could reduce costs to the state, freeing up finanacial resources to be applied for further sociak benefit. The main points are featured in my MixMarket article E very Child Deserves a Loving Family.

In 2010, I petitioned newly elected PM David Cameron for support in this approach. Just months later we would hear for the first time of Social Impact Bonds, another way of making a profit from social problems. I now ask David Cameron - Are Children a Market Opprtunity?   l

Last week in the Guardian, where such criticism had been so unwelcome, Polly Toynbee has come on board, saying 'Now Troubled Children Are An Investment Opportunity '   

Over the last decade I've communicated this people over profit concept to many, including those like Sir Richard Branson    

Among those leas willing to engage have been social enterprise support agencies like Senscot, who operate on a broadcase only basis. Now  they are also speaking out about the focus on private dividends in social enterprise. They see a Scottish Social Enterprise Code as the solution 

It looks remarkably like the model of People-Centered Economic Development

As I was writing today I mistyped 'Social Enterprose', perhaps coining a new expression for social enterprise to be more about conferences and definitions. It certainly doesn't translate into support for practioners or attribution of IP.. Reputation and financial support is acquired by keeping others out of the dialogue, as was so well demonstrated by the Guardian. But building reputation can come at the exoense of other lives.

It's too,late of course, for the children I refer to and for the colleague whose lives were lost. He said it clearly in 2010 to Axiom News:

"People-Centered Economic Development (P-CED),  issues no shares and has no dividends to distribute, yet does have the option of setting up various for-profit ventures and offering investors a percentage of financial ROI, according to Hallman.

For instance, if financial investment produces 10 per cent ROI, the investor can contract to receive half of that, yielding five per cent ROI. The social business uses the other half, leaving the principal amount untouched. Ten million dollars at 10 per cent ROI per year yields $500K to the investor and $500K for social business operations.

Hallman is currently investigating the setup of a multi-million dollar fund offering split financial ROI if needed, that is, a portion to investor(s) and the remainder to P-CED.

The funds will be directed to concluding a project in the Ukraine which involves funding the training of residents to develop social businesses. Included in this work is supporting children who have disabilities, many of whom have been left to die in secretive locations. P-CED is helping to move these children to safety and give them access to modern healthcare."