Faith, hope and charity (and social enterprise)

The issue also lies with some charities themselves, those that are not currently enterprising – though of course many are. There seems to be a complacency and passivity about seizing social enterprise, of people ‘maybe thinking about trying some of that social enterprise’. This is a dangerous way of thinking.

So says Duncan Thorp, parliamentary, policy and communications officer for Social Enterprise Scotland, writing for The Guardian‘s Social Enterprise Network. In terms of the basic arguments, it’s fairly standard stuff from the social enterprise lobby but, as always, it’s not entirely clear what specifically charities are being asked to do and why.

If the position of the social enterprise movement (or the social enterprise lobby, at least)  is really that it’s all over for the old-style charitable model, then even those charity trustees who are sympathetic to socially enterprising approaches in principle might quite reasonably ask to see the numbers.

Thorp doesn’t offers numbers but he does link the idea that a shift towards social enterprise is both inevitable and right with the current economic situation noting that: “Our society is not going through an economic blip, when things will go ‘back to normal’ in ten years, when we can start relying on state hand-outs again. Society has fundamentally changed. It’s better not to deny it and attempt to operate outside of capitalism – but instead to exploit and change the market to do good business – the core of what social enterprise is and does.

It’s hard to disagree with the suggestion that few charities will be able to base future their long-term sustainability on operating outside of capitalism but that isn’t what traditional charities do – they seek the most effective ways to generate income (and non-financial resources) to achieve their social goals. Grants and donations are no less a part of capitalism than trading activities. In fact, free market libertarians are generally keener on (private) grants and donations than they are on state contracts.

While it’s true that the UK economy is doing badly and there’s less money around to be spent on delivering social goods, there’s no logical reason why that means it will be easier or more sustainable for most charities to generate income through trading than through other means.  It depends what you do, who you do it for and who you think is going to pay for it.

Public money carved up in different ways

There clearly is an area of activity where charities are – whether they like it or not – are moving from traditional grant-funded models to trading models. That’s in the area of delivering publicly-funded services. This shift has nothing whatsoever to do with charities choosing to adopt social enterprise models. It’s based on public sector agencies decided to move from grant-funded models to contract models. Charities have the option of falling in line or not (having a chance of) getting the money.

The latest NCVO Civil Society Almanac reports that while voluntary sector income from public sector grants dropped from £4.4Billion in 2000/01 to £3Billion in 2009/10, income from public sector contracts increased from £4.3Billion in 2000/01 to £10.9Billion in 2009/10. It’s, at best, optimistic to suggest that charities and social enterprises delivering public contracts are in a position ‘to exploit and change the market’ – either to do good business or to do anything else.

Public sector agencies dictate public service markets. Multi-£billion private oursourcing companies – having been enabled by government to build that economic clout – may now be well placed to apply pressure in terms of how these markets develop but even the largest trading charities and social enterprises aren’t. There are pros and cons in terms of the shift from (direct state provision) and grants to contracts – there’s plenty of situations where block provision hasn’t always delivered the goods for people who use services, either in terms of quality or choice – but this trend is not about socialising markets, it’s about marketising exist social sectors of the economy.

When it comes to markets beyond those controlled by the state, the voluntary sector’s trading income is not actually increasing in percentage terms, it’s dropping. The Civil Society Almanac reports that earned income from indviduals was 20% of voluntary sector income in 2000/2001 (£4.2Billion of a total income of £20.7Billion) but had dropped to 18% (£6.6Billion out of a total £36.7Billion) in 2009/10.

That drop isn’t because earned income individuals is decreasing – even adjusted for inflation, it’s increasing – but it’s nowhere near keeping pace with the increase in earned income from the state and it’s less than 0.5% of GDP.

Ultimately, though these percentage figures aren’t the most important issue that charities considering more socially enterprising approaches have to consider. The most important is how and whether they can either continue to deliver the social outcomes they were set up, deliver more and better social outcomes and/or deliver different social outcomes.

Markets and market failure

Social enterprising models that involve selling the goods or services to people who use those services (customers) have the clear advantage that they either succeed or fail based on whether or not they continue to useful (and affordable) to those customers. But that’s not the starting point for most charities (or most social enterprises) and, unsurprisingly, there’s no evidence that the ability or inclination of people in the UK to pay for goods or services that they previously didn’t pay for is increasing significantly in the current economic climate.

There are companies – mainly co-ops – in the broader social enterprise movement who do compete and help to shape mainstream consumer markets but, far from offering clearly defined answers that traditional charities should be expected to follow, the social enterprise movement faces equally significant challenges in finding scaleable and replicable models for providing services in response to market failure beyond securing some of cash carved up by the state (whether or not they’re calling that cash a contract or a grant).

We are at a point where charities need to think carefully about the services (and products) they provide and how they generate the income to provide them (and hopefully a bit more). Grants and donations will continue to be part of that. Not doing some stuff that costs lots of money and isn’t widely valued is part of that. And developing effective, socially just, commercial models is part of that, too but most social enterprises – and the social enterprise lobby – are partners on the journey rather than the people with the all the answers.

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3 Comments

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3 responses to “Faith, hope and charity (and social enterprise)

  1. jeffmowatt

    The way Duncan Thorp thinks seems to be very much aligned with what we’ve been advocating , stimulating local economies to develop wealth rather than displace public services or charity, i.e.

    “This business model entails doing exactly the same things by which any business is set up and conducted in the free-market system of economics. The only difference is this: that at least fifty percent of profits go to stimulate a given local economy, instead of going to private hands. In effect, the business would operate in much the same manner as a charitable, non-profit organization whose proceeds go to local, national, and international charities. ”

    We could be of benefit to charity, . For example in our proposal for franchising the creation of family group homes in Ukraine, we approached and met up with Everychild at their office in Kyiv, the aim being to see if they were prepared to ramp up existing operations to a national scale. We’d done the research to demonstrate an overall reduction of costs, but to lobby for this was something Everychild couldn’t do, nor could they support us .since charity rules would prohibit them participating. Essentially we did it for them.and recommended them in the strategy plan.

    The paper also reasoned the case for using a combination of microfinance, affordable broadband and social enterprise education to build local economies, as had our 2004 plan for the UK.

    There was another component which it wasn’t possible to speak of at the time because it involved nuclear research. This was to argue the case for education in fundamental science and lead to a joint production agreement for medical isotopes.

    http://economics4humanity.wordpress.com/2012/05/22/peace-is-our-business/

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  2. Although it is true that many charities are being forced into bidding for public contracts, this is not the same as being enterprising, it is merely a different way of competing for income to do the same thing as before. That is how some charities see it, so it is more or less business as usual. Many other are genuinely choosing to be more enterprising, as they see an additional potential source of income that was not there before. These are the charities that are already enterprising in their approach to achieve their mission.

    I also see enterprise as not being linked to trading. Trading is something not many do, and I’d argue that bidding for contracts is the soft end of trading as opposed to the harder end of trying to get business from the private sector, and competing against other private sector companies to do so, or marketing a service to the general public in a truly commercial way. The difference in all of this is why the organisations are doing it. In a charity’s case all of this should be linked to their mission.

    I agree that many charities are not entering into what is termed as social enterprise, and some of that is a fear of the new, some of it is that they are not ready, and others because it is not appropriate. This is not a failing of the sector but a manifestation of its diversity. You will find the same mix of responses from any other sector, including the private sector.

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    • Beanbags admin

      Hi James,

      Lots of good points. And also that there’s a spectrum in terms of trading. I think you’re right that the ‘why’ is the most important thing – and it depends how the charity’s mission interacts with markets.

      An example of where a social enterprise model definitely works in a market is London Early Years Foundation (see previous post) who – having previously been a traditional charity – now run commercially sustainable nurseries in a market dominated by the private sector. That’s a situation where a social enterprise approach offers a sustainable social alternative, with a clear business model based primarily on direct paying customers.

      On the other hand, if your charity is a local mental health service users group, you’re not operating in a market. It’s a service that’s either happens or doesn’t – and the benefits of several competing versions being available are very limited. It clearly matters whether people want the service (at all) but, if they do, the challenge is finding enough cash to keep it going.

      There’s no trading products to be sold unless they’re created artificially by the public sector because they’ve read some policy documents about how contracts are better than grants.

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