Reconstructing Social Enterprise 2: Refusing the Market

This post is the second in a series of four posts about the Reconstructing Social Enterprise seminar series. The first post in the series focused on a paper exploring a range of different critical approaches to social enterprise research.

The post looks at Angela Eikenberry’s paper Refusing the Market: A Democratic Discourse for Voluntary and Nonprofit Organisations‘, which formed the basis for her presentation at the 3rd Reconstructing Social Enterprise seminar in Birmingham in April, takes aim at “the increasing marketization of nonprofit and voluntary organisations” and “argues that one way to resist colonization by the market is for academics and practitioners of voluntary and nonprofit organizations to create and apply a democratic counterdiscourse”.

Taking a normative approach, the paper seeks to challenge assumptions about and discuss the implications of, the marketization of the nonprofit or voluntary sector. Eikenberry is based in the US but the trends she discusses are also prevalent in the UK (or certainly in England).

Eikenberry regards marketization – primarily characterised by the suggestion or demand that nonprofit and voluntary groups should generate a greater proportion of their funds through ‘earned income’ – as a threat to democracy and civic values. She also regards this shift as part of a wider trend encompassing consumerism and lifestyles focused around brands and logos.

She explains: “If one is concerned with the development and maintenance of participatory and deliberative democracy, this colonization of everyday life by the market is problematic.

This is a problem because “The ideology of the market is essentially anti-social, based on self-interest rather than disinterest or the public good.

Eikenberry situates the marketization of the nonprofit and voluntary sectors within both the wider US culture of support for business and entrepreneurialism, and the dominant neo-liberal economic model which demands a smaller role of the state with an increasing role for the voluntary sector in social service provision.

As well as an increase in contractual trading relationships between the voluntary sector and the state, Eikenberry also sees dangers in the growth of cause-related marketing which has: “grown rapidly in recent years as corporations look for ways to make philanthropic activities more strategic and profitable“.

The result is that “traditional notions of philanthropy, such as concern with mankind, creation of social capital, and responsibility to give back are colonized by a market discourse that promotes consumption as a practically effective way to solve social ills, thereby marginalizing other forms of civic and philanthropic means to effect change.

Eikenberry warns that “a market discourse appears to compromise contributions nonprofit and voluntary organizations might make to democracy“. She cites a 1999 survey which found that: “market orientated organizations have shifted their focus from public goods such as research, teaching, advocacy, and serving the poor to, to meeting individual client demands.

This is followed up with reference to a claim that “social enterprise ‘may well end up addressing symptoms rather than root causes’ because of its focus on the most entrepreneurial way to address a social problem rather than on why the problem exists at all.

Whilst the claim that entrepreneurial approaches to tackling social need don’t necessarily tackle the root causes of social problems, Eikenberry doesn’t offer a clear illustration as to why they’re inherently less likely to do so than less entrepreneurial (democratic?) approaches.

For example, a social enterprise that provides sustainable, reasonably well paid employment in a disadvantaged area might come closer to tackling the route causes of chronic hunger in that area than a donor-funded food bank. If you view the root cause of hunger as the underlying economic structure of society as a whole as the root cause of hunger then neither of them make a decisive difference – although the sustainable employment should have a greater effect – but this seems to be more of an argument about practical action vs. campaigning rather than an argument about different funding models for practical action.

Eikenberry is on solid ground with her secondary critique of the shift towards entrepreneurialism and earned-income generation that, in many cases, it doesn’t work. After raising the issues that donors might stop donating to organisations that appear to be operating as commercial businesses, she notes that: “New research has shown that social enterprises tend to be more complicated and less lucrative than they might first appear.”

Her anecdotal references may mean more to US readers: “For instance, The Delancey Street Foundation, which is generally seen as a successful social enterprise, still relies heavily on private donations for support (Seedco Policy Center, 2007)” but UK readers are likely to be able to insert a social enterprise posted child of their own into that sentence with same effect.

Beyond anecdotes, the evidence of a 2005 survey that reported: “nonprofits that had received philanthropic funding for an earned-income venture during 2000 and 2001 found that 71% of the nonprofits said that they were in fact unprofitable, 24% believed they were profitable, and 5% stated they were breaking even” is telling.

This evidence, or similar evidence of the non-profitability of social enterprises in the UK, is not necessarily a convincing arguments against social enterprise as an activity but it’s a major challenge to the idea that it’s an activity that can replace grants and donations as a source of funding for social change.

Where the paper is less successful is in its apparent primary purpose, to explain the need for and practical implications of a democratic counterdiscourse to marketization in the nonprofit and voluntary sectors.

That’s partly because Eikenberry doesn’t manage to communicate the negative effects of marketization in a way that would mean anything much to anyone who doesn’t regard consumerism as a great evil and is broadly unconcerned about the possibility that a nonprofit or voluntary organisation might engage with them as a customer rather member or donor.

More tellingly though, the democratic alternative discourse is apparently based primarily on getting more donations from individuals: “One possibility is for nonprofit practitioners to cultivate more meaningful and diverse relationships with individuals rather than focusing mainly on raising funds through market approaches. In the United States, more than 80% of private contributions come from individuals, and there is substantial capacity for greater charitable giving by individuals.

The idea that donations are fundamentally more (or less) democratic way of funding nonprofit than trading is one that needs some explanation but it’s not immediately obvious that donations are (necessarily) even a less marketized way of funding social action than selling products and services. Certainly in the UK, fundraising charities through everything from chugging, to branding, to celebrity driven stunts, compete aggressively in a cut throat market for donations.

Eikenberry does add that: “The important goal here is to build social relationships and social networks, in line with Grace and Wendroff’s (2001) suggestion that fundraisers shift from a transactional to transformational giving model that engages individuals more regularly and more deeply in the work of the organization.”

That makes sense but it’s unclear why the existence of a transactional relationship would necessarily prevent a nonprofit or voluntary organisation from moving beyond a purely transactional relationship. It’s an argument that provokes the tautological statement that surely the best measure of how democratic an organisation is, is the extent to which it operates democratically – not whether or not it generates its income by selling things or asking for money.

Further suggestions for the democratic counterdiscourse include that: “nonprofit and voluntary leaders could look for ways to diversify their boards of directors so they are more representative of clients and the community (Guo, 2007). They might also put as much effort into encouraging deliberation among board members on substantive social policy issues as they put into ensuring resource support and efficient outcomes.

The paper makes a valuable contribution towards opening up the debate about marketization of the nonprofit and voluntary sectors. While the arguments for an alternative ‘democratic discourse’ seem under-developed, they do offer a starting point for discussion about what a democratic social economy might look like.

 

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7 responses to “Reconstructing Social Enterprise 2: Refusing the Market

  1. Interesting. Although approaching it from this direction misses the point that social enterprise may also be influencing the overall business market (socialising the private sector as well as marketising the charity sector?). But the democratic piece is interesting: does that take you down co-operative and employee-owned routes? Is it about community involvement in governance in a broader sense? It may also be about transparency and how that can demonstrate ethics and operational approaches to all audiences (or not). Lots to consider. Although interesting to consider that, for al the governance flaws in the #socent world, leadership teams are far more representative and diverse than their business counterparts.

    The grants / donations stuff is less convincing to me – certainly we know that many social enterprises apply for grants (89% in our latest report), but we also know that it is still a minority part of the income mix for a vast majority. I spoke to a member yesterday who has raised seven figures of social investment for operational expansion, but was applying for a very small grant to fund on R&D. And we also know that private businesses access grants and free support too, which always seems to be forgotten in research like this. And as you point out above, I’m not sure donations are inherently more democratic than other income. How will a crowd funded social enterprise be less democratic than an individual donation funded charity? (Arguably it would be more so?)

    Thanks for posting.

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    • Beanbags admin

      Hi Nick,

      Thanks for you comment. I agree with your point about social enterprise influencing the overall business market. That said, from reading the full paper (which unfortunately I haven’t been able to upload for copyright reasons), it’s quite possible that Angela Eikenberry might agree that social enterprises operating in the mainstream economy could do more social good that conventional businesses – it’s just that her focus is on the effect of marketisation on nonprofit and voluntary sectors.

      The (more effective) point about grants vs. trading isn’t that social enterprises are necessarily grant dependent (or that all social enterprises that receive some grants are necessarily dependent on them) but that the narrative that nonprofit and voluntary organisations (charities in the UK) can and should attempt to move away from grants and donations, and attempt to fund the same activities through trading is one that needs questioning.

      I take a pragmatic line on this stuff. I’m very supportive of charities looking at the ways they can increase both income and social impact by using social enterprise models. In some instances, LEYF being a good example, it is possible to flip the business model from primarily grant-funded to commercial and use this as a basis to do more, in a more sustainable way.

      In many cases, charities (or social enterprises) need to find the right mix of funding streams to enable them to meet social need while remaining in businesses, and that mix will vary based on the sector they operate in and the people (animals, cause) they exist to serve.

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  2. Overlooking the irony, that to read it, there’s a transaction fee, what this argument overlooks as presented here is that it is not so much about the way in which funds are raised, but deployed which makes the case for a “for purpose” business model as an alternative to the nonprofit model:.

    “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. Non-profits, however, are typically very restricted in the type of business they can conduct. In the United States, all non-profits must constantly pay heed that they are not violating those restrictions, lest they suffer the wrath of the Internal Revenue Service. For-profits, on the other hand, have a relatively free hand when it comes to doing business. The only restrictions are the normal terms and conditions of free-enterprise.”

    The charge that social enterprise will end up addressing symptoms rather than causes is valid, yet the same can be said of the palliative nature of many charities. The profit motive inherent to business and the need to re-align is long understood, .We’re not talking about the old way of doing business but one since endorsed by leaders like Sir Richard Branson, Paul Polman of Unilever and others.

    “Capitalism is the most powerful economic engine ever devised, yet it came up short with its classical, inherent profit-motive as being presumed to be the driving force. Under that presumption, all is good in the name of profit became the prevailing winds of international economies — thereby giving carte blanche to the notion that greed is good because it is what has driven capitalism. The 1996 paper merely took exception with the assumption that personal profit, greed, and the desire to amass as much money and property on a personal level as possible are inherent and therefore necessary aspects of any capitalist endeavour. While it is in fact very normal for that to be the case, it simply does not follow that it must be the case.”

    Capitalism can be made to be moral claimed veteran Marxist historian Eric Hobspawn and his thoughts seem to align well with a social capitalist, though perhaps not the way forward.

    http://www.p-ced.com/1/node/30
    .

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    • In the final analysis, whether shareholder or donor, it’s going to be the one who pays the piper who calls the tune, This is something Arundhati Roy brings to our attention when she says:

      “Armed with their billions, these NGOs have waded into the world, turning potential revolutionaries into salaried activists, funding artists, intellectuals and filmmakers, gently luring them away from radical confrontation, ushering them in the direction of multi-culturalism, gender, community development-the discourse couched in the language of identity politics and human rights.”

      As I know all too well from direct experience in human rights activism:

      “This is not a research activity where many, if any, other people dared to participate. UNICEF was willfully blind to the matter because it was just too dangerous to bother to intercede Powerful interests remained entrenched with enforcers to make it dangerous. Jurists were correct, in my view. It was more a mafia operation than anything else, aimed at misappropriation and laundering of large money. That was perfectly congruent with how Ukraine operated before the revolution. USAID wanted nothing to do with it, nor would they fund any organizations or activists who might try. “

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  3. Thanks for sharing this David. I recall seeing Angela present this paper and left with the feeling that this very much reflected an American perspective. Sure there are similarities with the UK in terms of fears regarding marketisation etc, but in the UK you don’t often get companies such as KFC promoting Breast Cancer Awareness on the side of a Bargain bucket. We’d be too quick to spot this inherent contradiction I think. Where this happens then it is reasonable to see why she worries social action is being reduced to a commodity transaction.

    The charge of not addressing the root causes of issues is a longstanding criticism of civil society organisations – way back Oscar Wilde argued that charity ‘does not cure the disease but rather simply prolongs it’. But you raise a good point about the value of sustainability in addressing some of these concerns.

    Although Angela didn’t refer directly to it in her paper, I think another key challenge with consumer-related marketing is that the double bottom line means it is in the interests of companies using this approach to encourage higher consumption rates of non-essential items, so they can continue to fund their social causes, But such consumption patterns are tied to a whole range of other social issues – in the case of a Bargain bucket this may include obesity and product waste, so the net effect may be minimal, or worse, negative: http://slowsocial.me/2013/05/29/say-cheese/

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  4. Beanbags admin

    Hi Stephen,

    Thanks for your comment. Useful to hear how the paper came across at the seminar (as I wasn’t able to make it).

    Definitely take your point on the American experience on cause-related marketed being different to our experience in the UK. That said, I think if the paper focused specifically on (what the author regards as) the negative effects of cause-related marketing then it would be more powerful.

    Where it really fails is in depositing all commercial activity with a social purpose into a KFC bucket of badness where ‘meeting individual client demands’ (what we’d call ‘selling goods and services’) is regarded as the opposite of ‘public good’.

    The root cause point is one that Eikenberry is quoting from elsewhere but the idea that commercial responses to social need are, by virtue of being commercial responses, less likely to tackle root causes of social problems than those funded by taxes, grants or donations is, as far as I know, an assertion rather than an argument backed by evidence.

    It would be an interesting (but quite difficult) bit of research for someone to do.

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  5. Pingback: Reconstructing Social Enterprise 1: The Critical Turn in Social Enterprise Research | Beanbags and Bullsh!t

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