A different use for profit

Glenys Thornton on why social enterprise needs help from <em>EastEnders</em> and <em>Coronation Stre

Robert Owen was one of the 19th century's great utopian socialists. On his death in 1858, it was said that he had "taught men to aspire to a higher social state by reconciling the interests of capital and labour" and that "He spent his life and a large fortune in seeking to improve his fellow men by giving them education, self-reliance and moral worth."

The spirit that animated Owen lives on today in the International Co-operative Alliance - whose affiliated organisations in 95 countries have almost a billion members - and numerous other businesses both in the UK and abroad: the Furniture Resource Centre, the Ethical Property Company, the Coin Street Community Builders, Recycle-IT!, Shepshed Carers, the Eden Project, and so on.

To describe all these concerns as "not for profit" is misleading. Surpluses are good things and social enterprises aim to make them. The important thing is what is done with the surplus. Social enterprise is not the voluntary sector calling itself something different. As Jerr Boschee, executive director of the US-based Institute for Social Entrepreneurs, put it recently: "Whenever an NGO starts a new programme, they refer to it as a social enterprise. It may be innovative, but unless it earns revenue it is not a social enterprise."

The government's definition, in its social enterprise strategy, published last year, is as good as any: "A social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners."

Should there be any no-go areas for social enterprise? No. It should not be ghettoised as the answer to social exclusion in the inner cities or rural areas - though it clearly has something special to offer in such cases. Nor should it be the last resort. In the 1970s, as secretary of state for industry, Tony Benn tried to rescue bankrupted companies by creating workers' co-operatives. None survived, and the whole project did enormous damage to the idea of worker-owned enterprises.

That is the biggest obstacle to the growth of the social enterprise sector: its lack of confidence. The world believes that Richard Branson is a rags-to-riches story - when in truth he is a nice, middle-class, well-educated chap who has done rather well for himself. But the image is a potent one, and social enterprise needs similarly heroic figures. I have set up both social enterprises and small businesses, and I can tell you that building a profitable business that is based on democratic principles and stakeholders from the community is more than twice as hard and takes twice as long. The risk may be shared, but that makes the failures even harder to bear. Setting up a business that you own, control and take the surplus (or loss) from is fairly straightforward. The only person you have to consult is yourself and if you fail, you just crawl into a corner on your own. The business world recognises you and what you are trying to do.

Social enterprises need a more recognisable brand. Perhaps we need to persuade EastEnders and Coronation Street to pick up a social enterprise storyline - a community-owned and -run nursery could be just the thing for Albert Square, and perhaps the factory owner in the Street could be bought out by his workers.

But there are other things to be done. First, as the Cabinet Office's strategy unit has suggested, we need a new legal form for the community-interest company, and we need modernisation of the industrial and provident societies legislation. It can take 24 hours to set up a company, and cost as little as £90. Each year, more than 5,000 companies limited by shares are set up, as well as roughly 6,000 charities. Under the expensive, complicated provident societies legislation, which dates from the 19th century, only about 200 companies are registered each year.

Second, we need a change - a Bank of England review is working on this - in how money is organised for the sector. Social enterprises are forced into either a business finance or a charitable model. Neither is suitable. But in order "to create the market" for the right kind of finance, we need greater public sector innovation. More honesty as to how public subsidy is used is of prime importance. Transaction costs are higher because of the nature of social enterprise lending (it is always going to be idiosyncratic). And the risks are more difficult to assess because of the "political" nature of these businesses - a social enterprise makes money to meet social and environmental objectives. Some specialist finance providers have learnt how to manage these risks and broken through the roadblocks to greater private sector investment because they are willing to absorb associated costs and work closely with the mainstream banking sector.

There has been plenty of talk about social enterprise. But it is time to match reality to rhetoric. I think of enterprises such as the Thames Gateway Co-operative. This worker-owned company bid for and failed to get on the tender list for the contract to run the Dartford river crossing this year - because the Highways Agency basically did not know what a worker-owned company is. I hope it will win the contract when it comes up again in three years' time - and I hope it will do so because its bid is the most competitive and most socially responsible one on the table.

Baroness Thornton is chair of the Social Enterprise Coalition UK. This article is based on a speech she gave at an event for the Social Enterprise Institute, Heriot-Watt University