Beyond market failure

With the looming cuts in public budgets and the dawning of The Big Society, the social enterprise movement is facing plenty of challenges. One of the biggest is the challenge of definition – not just in terms of the important but increasingly tedious debate over ‘what is a social enterprise?’ but also in terms of the more interesting question of what social enterprise and social enterprises do.

I don’t agree with all the ideas put forward in the Social Enterprise Coalition’s recent report, Time for Social Enterprise, but where it does succeed is in questioning assumption that social enterprise’s primary (or only) role should be to correct market failures. That is, the idea that social enterprise is about more efficient and enlightened management of public services (or regulated former public services), or that a social enterprise is the model for providing a shop in a village that has no shop.

Both these functions of social enterprise are positive ones that I either fully support (in the case of village shops) or often support (in the case of public services) but neither of them involve a fundamental challenge to the existing economic models that many social entrepreneurs and many people regard as having failed both people and the planet over recent years.

That leads us to the question of what, if anything, social enterprise can offer in situations where – at least superficially – the market is working. Luckily this question is being examined, though not necessarily in exactly those terms, by chef Arthur Potts Dawson and the members of The People’s Supermarket(TPS), which is currently featuring in a documentary series on Channel 4.

TPS is a co-operative, with members working in the shop for four hours per month in exchange for a 10% discount on their groceries. It’s broadly based on the model operated by the successful Park Slope Food Co-Op in New York.

As the Channel 4 documentary makes clear, it’s a project motivated by delivering social change rather than – as with a village shop – meeting an immediate need. Potts Dawson and co. didn’t come up with the idea for TPS because the residents of the London Borough of Camden have nowhere to buy food for their dinners – their shop is an explicit challenge to the what they regard as the negative social impact of the options that are currently available.

Episode three of the documentary focuses on one of the biggest issues for Potts Dawson: food waste. The big supermarkets fill their shelves with a huge range of stock and throw lots of it away when it isn’t sold, and the proliferation of enticing two-for-one offers means that often much of the food that is bought by customers is ultimately chucked in our bins without being used. Then there’s vegetables – such as slightly bent cucumbers – that are perfectly nutritious but aren’t stocked (and therefore get thrown away) because supermarket stock has to look right (in the case of cucumbers, they have to be straight).

When it comes unusually shaped veg, Potts Dawson has a solution that works for everyone – buy the veg cheap (the farmers can’t sell it to big supermarkets so any price is better than nothing) and sell it cheap to customers.

The challenge of overstocking is a more complicated one. The problem is that big supermarkets overstock so that the things we want are always (or, at least, usually) available. The TPS approach involves stocking fewer products, in terms of both range and volume. That means that if members (and other customers) are going to buy their weekly shop from TPS, they have to be content with buying a selection of what the shop has, rather than all the products they’d ideally like to buy.

The documentary shows Potts Dawson coming up with a number of creative ideas to tackle the problem – from setting up a kitchen in the shop to cook ready meals using food that’s about to go out of date, to going round to a potential customer’s home to cook a dinner for her family using TPS produce  – but none of them really solve the problem that, even with a 10% discount, shopping at TPS is not as convenient (and may not be as cheap) as shopping at a conventional supermarket.

That reality means that for TPS to work, it needs to attract a viable number of members and customers who buy into its social goals enough to spend enough, regularly enough to make it work.

Not everyone will agree entirely with Arthur Potts Dawson’s criticisms of big supermarkets but TPS is definitely a social enterprise started with the clear aim of driving social change within a competitive market place. That’s the ultimate challenge if social enterprise really is going to be a movement that can change the world.

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2 responses to “Beyond market failure

  1. David, As you’ll see from my response today to Rod Schwartz in the Guardian SE network, we had a vision for social change rather congruent with what’s being suggested now, both in social enterprise and mainstream business.

    That perhaps was a little radical for its time, so our focus redirected elsewhere, where needs were greater.

    I read among other things today, the article featuring Jonathan Porrit on sustainable economics. That’s one dimension of our own social enterprise, in the work we do with the international Economics for Ecology conferences, in Sumy.

    Are we so radical that we can’t be understood or is it more a case of social innovation being a dog eat dog world, where one prefers another not to be heard?

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  2. I thought it interesting that David Cameron chose to visit TPS in an effort to boost his “Big Society” concept. I’m pretty certain that most of the contracts in his model of a commissioning-state will go to for-profit firms – as is currently the case, because they are best placed to win contracts on a cost basis.

    Arguably, the big supermarket chains, like all corporations are an example of market failure – they have a legal structure in which the state limits the liability to investors. This right for investors to avoid liability for activities from which they benefit doesn’t come with a corresponding responsibility – for example, to accept a cap on the percentage return to capital, as has been traditional in the co-operative movement. It’s this pressure for accumulation – what David Harvey calls the “surplus capital absorption problem” – has driven national supermarkets to become multi-national supermarkets and for states to create new markets through privatisation and the contracting-out of services…

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