Another year over and is social enterprise really the answer?

As 2015 draws to a close in a haze of turkey and prosecco, it’s a good time to revisit some of the social enterprise world’s oldest chestnuts and see what they’ve been pickled in this year.

Old Chestnut One – Now that grants (and grant-style block contracts) really are disappearing, is social enterprise really the answer?

Those of us old enough to have been around in the glory days* of New Labour will remember that social enterprise was once the answer to the end of grant-funding. Fortunately, in the 2001-2011 that was a fairly easy role to fill because grant funding wasn’t actually ending.

According to NCVO, grant funding by government to the voluntary sector peaked at £6 billion in 2003/4 before falling to £2.2 billion by 2012/13 – but in many local areas the end of grants just meant a switch to models of commissioning that, though more bureaucratic, were ultimately broadly similar to grants.

Now public funding for local organisations to do some good stuff in their local area – however labelled – is disappearing fast. Contract income reached a high of £12.1 billion in 2009/10 and but was already down £11.1 billion in 2012/13.

At a local level in Waltham Forest (where my social enterprise, Social Spider CIC, is based) local charities (excluding housing providers) saw a 34% drop in income between 2010-11 and 2014-15. And with remaining council contracts coming up for renewal in December 2015 and March 2016, that picture is about to get much worse.

The grim reality is that the story that copiously grant-funded social enterprise advisers spent the 2005-2012 period telling charity leaders about grant funding is finally true. State support for the voluntary sector is on the same trajectory as Dunwich but (with apologies to both present and former residents of Dunwich) leaving a slightly bigger social and economic absence in its wake. So this should be the point where social enterprise steps in to fill the gap with some ‘sustainable’ revenue streams.

According to Social Enterprise UK’s 2015 State of Social Enterprise report, Leading the World in Social Enterprise: “27% of social enterprises have the public sector as their main source of income, an increase on 2013 and 2011” – but are social enterprise doing something different and more viable than what conventional charities are doing, or is just that the ones that are keeping going are taking a bigger percentage of an ever smaller pot?

As public sector outsourcing collapses, is social enterprise really the answer?

The decline in government contract income for the voluntary sector outlined above is just one relatively minor act of violence perpetrated against the deeply unwell horse of public service reform in the UK.

Left-wing critics of public service outsourcing have spent much of the past 20 years tugging at their beards and scuffing their sandals in despair at the thought of private companies generating huge profits at the expense of the poor. Unfortunately, if you’re one of those who thought that was bad, you might not be much keener on the new, updated version – private companies failing to generate huge profits at the expense of the poor.

A quick case study is offered by Serco: everything was going swimmingly in 2010, the seas of surplus were becoming choppier by 2012, and by 2015 that whole, humoungous contract-guzzling oil tanker of privatisation was seemingly headed for disaster. Tune in this year for the next hilarious episode.

Some might regard the news that Serco along with outsourcers A4e (amongst others) are handing back contracts as good news but is it really? Serco, A4e and colleagues are really good at slashing costs to a minimum to deliver contracts while making a profit. If they’ve slashed everything in sight and the numbers still don’t add up, what does that mean for those of us who want to deliver added value?

In some sectors, such as social care, the problems are particularly stark, even with some extra money on the horizon.

The winners of Big Society Capital’s Business Impact Challenge – charity, Catch 22, in partnership with construction company, Interserve and investment managers, Club Finance – will receive up £5 million worth of investment to:  “create an independent vehicle that enables community organisations, charities and social enterprises to deliver public services at scale.”

Will what could be tagged a ‘social Serco’ succeed where Serco is now struggling? Good luck!

As social investors continue to ask ‘what can we spend all this government money on?’, is social enterprise really the answer?

The run up to Christmas saw afore-mentioned social investment wholesaler, Big Society Capital, publish its first set of ‘deal-level data’ – that is information about where their money’s gone (along with deals made or arranged by two organisations – Charity Bank and Clearly So – that they’ve invested in directly).

Elsewhere, Pioneers Post‘s Quarterly Dealflow Update, does what that title suggests for the wider social investment market (or those bits of it willing and able to report the flow of the deals).

2015 also saw Engaged X publish The Social Investment Market Through a Data Lens before being forced to pivot away from overall analysis of the social investment market, apparently because no one would pay them to continue to do it.

The social investment market is, for better or worse (or possibly mixture of both), finally making the leap from rhetoric to reality. The headline news is that – even leaving aside social impact bonds – there’s now lots going on in the social investment market. As the Access Growth Fund starts to invest its fabled ‘blended capital’ next year, even more will start happening.

One way or another, by this time next year we’ll have a clearer (if still not fully developed) picture of the extent to which a ‘social investment market’ is an idea with a long term future and, if it is, what that means for social enterprises. And both social enterprises and social investors will have better idea of where they fit into a landscape where, in the vast majority of cases, the government money is not coming back.

 

*delete the word ‘glory’ or not according to preference

 

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4 Comments

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4 responses to “Another year over and is social enterprise really the answer?

  1. I was raised just a few miles down the coast from Dunwich and recognise that there, the city fathers wisely accepted the inevitable fate of their community and adapted or moved on.

    As you suggest, there’s a lesson there for the social enterprise community who could be more alive to the inevitable consequence of depending on public sector contracts to survive.

    Then there’s the fact that corporates are fast waking up to the fact that positive social impact can boost shareholder return. Likewise, charities are quickly learning the importance of being businesslike and even commercial.

    Social enterprise as we know it, could too easily be squeezed out of the middle ground, with the same speed as the LibDems in the last election.

    In my youth, I used to walk the beach at Dunwich after a storm & see leg bones sticking out from the cliff where the graveyard used to be. I don’t want to spend my remaining years seeing relics of today’s social enterprises similarly exposed by the storms of change.

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  2. Pingback: Have I Got A Social Enterprise Year in Review For You | SSE

  3. I don’t know who claimed social enterprise is the answer but it did spark a memory of something our founder wrote: “Substitute personal greed with compassion, and the balance sheets will still work out just fine. Profit/loss statements take on a whole new dimension and meaning. Greed and capitalism are not one and the same thing. “Social” capitalism, social enterprise, is perfectly doable. This is the most effective sustainable strategy available for alleviating widespread human suffering stemming from poverty and all that comes with it — up to and including terrorism.”

    Social enterprise to us meant an autonomous business model in which the company charter was modified to reflect that the direction of profit was for community benefit rather than private profit, was the entire point of the business.

    There have been several variations on this theme since. Recently Jay Coen Gilbert, of of the B Corp founders, mused over the matter as if entirely new thinking:

    “We are beginning to see an evolution in capitalism, from a 20th century view that the purpose of business is to maximize value for shareholders to a shared view that the purpose of business is to maximize value for society. Significantly, this transition is being driven, not by government regulation, institutional blame, or partisanship, but by market-based activism and personal responsibility. We are witnessing an historical moment when, rather than simply debating the role of government in the economy or the role of business in society, people are taking action to harness the power of business to solve society’s greatest challenges. ”

    Just today, I learn the Big Society Capital has produced a report suggesting that a potential vehicle for social investment is a business in which a “golden share” protects the social mission. That takes us back 20 years, to where we began.

    We have Richard Branson following our every move, even following us into Ukraine.

    Of all these “new” ideas, the most interesting is perhaps the concept of postcapitalism, which has much the same roots as our own work.

    https://www.linkedin.com/pulse/end-capitalism-jeff-mowatt

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  4. It’s not the ‘form’ of any entreprise, but the function, that will be the lodestar for its prospects this year.

    As usual from David, this blog is nuanced, thought-provoking, well-referenced and suitably sanguine for the context. But it feels impossible to map ‘the future’ for voluntary, community, charity, social entreprise OR private sector organisations like Serco/Capita, without reference to what their business actually is! If your business is to deliver personal help, free at point of access, to people in need/chaos and without the funds to pay for it themselves, then your prospects are bleak – whatever your organisational form.

    There are plenty of social entreprises for whom this is not the case, whose core business is trading in products and services for which there is genuine commercial demand. It would be wrong to attach analysis of their prospects to the precipitous plummetting government appetite for funding services to poor people and communities.

    There are very few charities or voluntary/community groups for whom this bleak funding scenario is not the case, because of the very nature of what they are set up to do and for whom, not because of how they are formed, or what funding mechanism they have historically been funded by.

    As for Serco and Capita et al, recent history, and my instincts, suggest they are realising the lack of resource or margin available in public service delivery contracts, and backing away from them rapidly. They are seeing far more security and lucrative positioning in the takeover of big chunks of adminstrative functions ‘within’ the state…and get much less public scrutiny or reputational risk for it. I suspect they’ll focus on that from here on out – and as a function, that’s something that no charity (and I suspect no social entreprise either) is likely to touch with a bargepole!

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