Three Worlds ofSocial Enterprise

byStephen W K CHIU

Director of Public Policy Research Centre and Professor, Department of SociologyChinese University of Hong Kong

Social enterprise in the context of welfare reform

Esping-Andersen’s Three World of Welfare Capitalism as the starting point– Liberal Regime – US; UK– Conservative Regime – Italy– Social Democratic Regime – Sweden

Social enterprise as an institutional innovation in response to welfare reform in almost all advanced countries

Social enterprise in the context of welfare reform

Social Enterprise emerges as a common response to many common problems in advanced countries, – structural unemployment– government budget deficits– inadequacy of traditional social policies– need for more active social integration measures

Yet, different countries have different patterns of social enterprise development because of differences in the pre-existing welfare system and the subsequent welfare reform

PRAMS – Five Key Questions for

Social Enterprise Development We analyze overseas experience in social

enterprise development within the PRAMS framework– P (Problems)– R (Resources)– A (Agents) – M (Market Niche) – S (Scale and Scope)

P (Problem) What is the pressing problem in the welfare

reform under tightening government budget–Re-commodification (the need to push people

back into the labour market; to channel people back to private source of welfare services)

–Updating (the need to adjust to new needs and demands amid socio-demographic changes)

–Rationalization (the need to be cost-effective in delivering high-quality welfare services)

R (Resources)

How to mobilize resources for social enterprise initiatives?– Market (sales of goods and services)– State (public subsidies, e.g. contracting,

seed money)– Society (community support, e.g.

volunteer work, donations, training, consultancy)

A (Agents)

Who are the primary agents for social enterprises?– Newly established – Existing organizations (e.g. non-profit

organizations venturing into business activities, or private business embracing social goals)

M (Market Niche)

Where are the market niches for social enterprises?– Newly emerged or Existing, underserved

areas– Demand for goods and services not yet

fulfilled by private firms– Community needs unmet by government

provisions

S (Scale and Scope)

What is the scale and scope of the social enterprise sector as a whole?– Scale: whether the sector performs a

significant role– Scope: whether the sector occupies a

well-defined position

Overseas Experience: Pathways to social enterprise development

Different societies show different patterns in the development of social enterprises

Pre-existing welfare model and the subsequent welfare reform interact with the local social context pave different pathways to social enterprise development

Social Enterprise in the USA The social enterprise sector gained momentum

from the mid-1990s onwards as a result of private-public cooperation, with the third sector spearheaded the development

The major pattern is that nonprofit organizations venture into revenue generating activities in order to support social mission

The pre-existing liberal welfare system is such that the government plays a relatively passive role in income redistribution and social service provisions

PRAMS in the US Case

Problem – Re-commodification– Welfare reform in 1996: the Personal

Responsibility and Work Opportunity Reconciliation Act

– Amid state retrenchment from welfare provision, the nonprofit sector also sees the urge to look beyond traditional funding sources for their social missions

PRAMS in the US Case

Resource– Government support relatively small– Revenues are generated from the market

through sales of goods and services; and – A community-wide support, including

grants by foundations, capital investment by social venture capitalist/venture philanthropist

PRAMS in the US CaseAgent

– Existing non-profit organizations venture into income-earning activities, sometimes through establishing a subsidiary

– A social enterprise community in the making, with major players including

Academic and university faculty Independent consultants and consulting firms Management Assistance Centres Foundations Venture philanthropists

PRAMS in the US Case

Market Niches– New market niches emerged by social

movements including corporate social responsibility, ethical consumption, and social returns on investment

– social enterprises can appeal to end users and corporate sponsors with their social purposes

PRAMS in the US Case

Scale and Scope– The social enterprise sector in the US is significant

because it helps generating additional revenues for social goals by creating a private-public cooperation

– Though many of their activities may overlap with private organizations, they carve out a niche by mobilizing community support for their social purposes

Social Enterprises in USA

With nonprofit organizations venturing into revenue generating activities, the phenomenon of social enterprise is exploding. There are about 175,000 economically active nonprofit organizations in the US as of 2002.

As of 2002, the estimated aggregate employment is 8,780,300 people, or 8.2% of the country’s total private employment.

But the current pool of self-identified social enterprises is small, fragmented. According to the social enterprise database maintained by the Social Enterprise Alliance, there are about 5,000 enterprises

Social Enterprises in the USA In 2000, services-related ventures are the major

type of earned-income ventures, with 31% in human services

A wide acceptance of nonprofit organizations venturing into income-generating activities, with 65% already doing or being interested in doing so

On average, operating ventures generated 12% of annual net revenue

35% say they are making money; 19% say breaking even, and 35% say in need of subsidies

Social Enterprises in the UK

The social enterprise sector emerged as a result of private-public cooperation, with the government taking a major coordinating role

The government believes social enterprise can play a greater role in the delivery and reform of public services

The major pattern of social enterprise development is newly-formed small organizations providing community-based services

PRAMS in the UK Case

Problem– Re-commodification– The New Deal in 1997: from welfare to work– The welfare state restructuring means that the

government needs new social agents for the delivery of existing and new welfare services

PRAMS in the UK Case

Resource – 82 percent of the revenue are generated

through provision of goods and services– 12 percent of the revenue through grants

and donations

PRAMS in the UK Case

Agent– Mainly newly formed organizations– At one end are the voluntary and community

sector– At the other are ethical and socially responsible

businesses

PRAMS in the UK Case

Market Niche– Market niches are opened up both by

privatization of welfare services and by decentralization of administration

– Social enterprises are encouraged as public good providers

PRAMS in the UK Case

Scale and Scope – The social enterprise sector is significant in that

it occupies a society-wide strategic role in urban renewal, community development and public service delivery

– The sector has a relatively clear position, with principal areas including health and social care, together with other community and social/personal services

Social Enterprises in the UK

In 2005, around 15,000 social enterprises in the UK, about 1.2 % of all enterprises in the UK

The typical social enterprise employs 10 people, with the median turnover of 285,000 pounds

The majority (71%) has one particular target beneficiary group

25% of all social enterprises aim to help people through employment

Major activities: Health & Social Care (33%), Community or Social Services (21%)

Social Enterprise in Italy

Social Enterprise emerged as a bottom-up community-based development

The pre-existing welfare system is such that the government plays a relatively significant role in income redistribution, but a relatively small role in social service delivery

The major pattern of social enterprise development is that community-based co-operatives emerged as new social agents to capitalize on an under-explored market demand for social services

PRAMS in the Case of Italy

Problem– Updating (the need to adjust to new needs and

demands amid socio-demographic changes)– Italian welfare model is primary about monetary

transfer and the supply of public education and medical services

– The undersupply of social services became an acute problem starting from the late 1970s

PRAMS in the Case of Italy

Resource– Government support relatively insignificant in

at the beginning, but later became the primary client through contract-out services

– The majority of the revenues are generated through the provision of community-based services

– A community-wide support including volunteers

PRAMS in the Case of Italy

Agent– Throughout the 1970s to 1990s, newly formed social

co-operatives acted as primary agents for the provision of social services to the local community

– Two types of social co-operatives as recognized by legislation in 1991:

Type A – delivering social, health and educational services Type B – producing goods and services for private customers

or public agencies, with at least 30% of the workforce being disadvantaged or hardly employable workers

PRAMS in the Case of Italy

Market Niches– Market niches emerged first in those under-

supply areas such as home care and residential care for the elderly, juniors and handicapped

– Market niches emerged later as public authorities reserve up to 20% of the public demand for goods and services for enterprises who employ at least 30% of total workforce as disadvantaged persons.

PRAMS in the Case of Italy

Scale and Scope – The social enterprise sector is significant in its

role in social service delivery and employment integration

– The sector also enjoys nation wide recognition, as evidenced by legislation in 1991.

Social Enterprises in Italy

In 1991, when the Act was passed, social co-ops numbered just under 2,000

In 1998, around 4,500 social co-ops Rough 70% are supplying social services, and

30% are work integration The average size is 40-50 members and 25 paid

workers.

Social Enterprises in Italy

It is estimated that there is a total of 100,000 members of social co-ops, of which about 9,000 are volunteers and 75,000 are paid workers.

The total number of users served by social co-ops are about 400,000.

The users are mainly elderly, juniors, and handicapped.

The principal form of service was day care.

Social Enterprises in Sweden

A top-down model of social enterprise development that the government transfers part of its existing services to new social agents

The Swedish welfare state provides both monetary transfer and full-range of social services.

The development of social enterprise is comparatively limited because the state plays a dominant role in social service provision

PRAMS in Sweden

Problem– Rationalization (the need to be cost-effective in

delivering high-quality welfare services) – The major problem is that both the government

and citizens question whether some areas of those services are cost-effective and/or providing citizens with enough choices.

PRAMS in Sweden

Resource – Resources are generated in the process of

privatization, through which part of the welfare services are transferred from the government to other social agents

PRAMS in Sweden

Agent– Newly formed non-government organizations

are given opportunities to provide welfare services.

– CDA (co-operative development agency) acts as the primary promoter for new organizational models

PRAMS in Sweden

Market Niches– Through privatization, the Swedish government

created quasi-markets in which the government transformed to the role of “service purchaser” from a variety of competing providers”

PRAMS in Sweden

Scale and Scope– The social enterprise sector is small and

relatively insignificant, acting as a new policy tool for the government

– The scale is relatively small even for the two most dynamic cluster of social enterprises, namely “social work co-operatives” and “community development enterprises”.

Social Enterprises in Sweden

In 2002, there were about 90 social work co-operatives providing work to approximately 1,400 persons

Only 9 community businesses were in operation in 2002, with an aggregate turnover being 1 million euros.

Cross Country ComparisonUSA UK Italy Sweden

P Recommodify Recommodify

Update Rationalize

R Market State Society State

A Existing New New New

M New New Existing New

S Vibrant, Diversified

Vibrant,Well-defined

Vibrant,Well-defined

Moderate, well-defined

Lessons for Hong Kong

The Enterprise Side: – Social enterprises are most likely to succeed in

responding to unmet community needs– The development of social enterprise as a

whole depends on how large the room is left behind by the market and the state in that regard

Lessons for Hong Kong

The Social Side: – Social enterprise development requires

consensus building in order to achieve the followings

decide which social agents are to take up those new social roles

to form a private-public partnership so as to form a viable resource pool

To generate community support, e.g. corporate sponsor, professional training, volunteer, etc.