Fair traders

11 Jun 09
There can be no going back to the business practices that have plunged the world into chaos and required huge government bail-outs.
By George Leahy

3 April 2009

There can be no going back to the business practices that have plunged the world into chaos and required huge government bail-outs. Ministers need now to support social enterprises, politically and financially

In the midst of a crisis, it can be difficult to take a measured and thoughtful view. Rather, there is a tendency to rush to fix what has gone wrong and get things back to where they were before everything got turned upside down. However, before we set out to fix the complex global economic crisis, we need to reflect on what got us here in the first place so we can decide where we want to go next.

The case can be made that the current upheaval is an indictment of unacceptable business standards prevalent in the corporate and financial worlds. We should not, and cannot, return to that way of doing business. US President Barack Obama, British Prime Minister Gordon Brown and other global leaders addressing this crisis need to rethink the relationship between global and local economies, businesses and wealth creation.

We need an economy that is transparent, accountable and built on trust, and is embedded with values that reflect the needs of people and the planet. A market economy, but a fair trade one that reinvests profits in its communities and citizens. The kind of economy that can grow and sustain itself without sacrificing itself to unnecessary greed. Sounds good, but how do we get there? One thing we can do is promote social enterprise, a sustainable, socially productive and environmentally aware business model.

Social enterprises are businesses that are run for social and/or environmental purposes and that put these and ethical values at the heart of their business practices and ahead of profit for profit’s sake.

The government estimates that there are 55,000 social enterprises in the UK with a combined turnover of £27bn, contributing £8.4bn to the UK economy. This is a sector comparable in size to agriculture. Some of the best known examples are Fairtrade coffee company Cafédirect and Jamie Oliver’s restaurant training scheme Fifteen. But there are many more operating in a variety of fields including vital parts of the public sector such as employment, education, health, social care and transport.

What separates social enterprises from other kinds of business is that they reinvest their profits back into the business or the community they serve. Many people find it hard to believe that ‘good’ business is good for economies – but these organisations can operate to the highest standards and create financial wealth, as well as other kinds of value. Social enterprises are driven by their aims of social justice and environmental sustainability. But they achieve these through transparent decision-making and clarity on the purpose and distribution of profit, as well as accountability to communities and stakeholders, rather than to owners and shareholders.

That at least is the theory – but how does it work in practice? HCT Group is an example of a financially successful social enterprise providing good public services as well as achieving its declared social objective. This bus company, based in London and Yorkshire, provides more than 10 million passenger journeys each year. Some 97% of its income is generated from contracts won through competitive tenders in the open market, mostly against the private sector.

The company runs mainstream bus routes and is consistently rated among the best in reliability by Transport for London. Turnover has grown substantially in recent years and is now approaching £20m. HCT ploughs back the profits from these commercial transport services into the communities it serves. For example, it provides transport for children and adults with physical and learning disabilities. It also invests in projects that offer training in new skills to its employees and people in the communities it operates in.

Chief executive Dai Powell says: ‘You have to be an enterprise first, because if you don’t make a profit, you can’t fulfil that social mission.’

Like HCT, social enterprises across the board generate and anchor wealth in communities. Sunlight Development Trust is a community-owned and managed organisation based in Kent that operates six social enterprises to effect positive change in the community. One example is High Hopes Community Gardeners, which provides opportunities for learning and development and includes many people with learning disabilities. This and other enterprises, which include a design company, a catering company and a recording studio, have grown three-fold in the past 12 months despite the economic downturn.

Chief executive Peter Holbrook says: ‘I think the world is slowly waking up to the failures associated with a profit-maximisation model. At Sunlight, our business is continuing to grow because, as well as the fact that we are providing good value and great products, people are genuinely responding to the idea that their consumer choices can support social justice and environmental protection.’

It is important to remember that communities served by social enterprises do not necessarily mean they are local, or bound by geography. Divine Chocolate is a Fairtrade chocolate company based in the UK that is distinctive for being partly owned by the Ghanaian farmers who supply the cocoa. And, of course, many others – such as The Big Issue organisation, which deals with homelessness and employment – are national and serve communities that span across the UK.

So if the sector creates wealth and employment along with other social and environmental benefits, it follows that it should be supported and encouraged.

One immediate move the government should make is to create a Social Investment Wholesaler as part of its economic stimulus plan. This body would raise and hold capital for social lenders, such as community development finance institutions, which supply loans and business support to individuals and organisations that do not have access to mainstream finance. This would help give social enterprises more of the investment they need to survive and to grow.

The Social Enterprise Coalition has been pressing the government to set up the wholesaler with an advance of £500m of funds, a mere 1% of the £50bn used for the first bail-out of the banks. And it would not entail spending money we do not have. It could be funded by the estimated £5bn of unclaimed assets lying dormant in banks. The Treasury and the banking sector agreed last year that this could legitimately be removed from the banks after 15 years and used by the government for social purposes. The Dormant Bank and Building Society Account Act 2008 laid out a legislative framework for such a wholesaler to operate, so no new institutions would need to be formed to make this happen.

Secondly, we need to harness the energy and urgency around ‘thinking green’ to create jobs. Kick-starting the economy and protecting natural resources do not have to be mutually exclusive. If the government creates a programme of investment in green jobs and technologies, we could begin to address the environmental crisis we are facing, as well as opening up fresh employment opportunities and giving a new generation cutting-edge skills.

Hill Holt Wood is a social enterprise in Lincolnshire that educates young people excluded from schools and also trains them in green construction, forestry and conservation. Chief executive Karen Lowthrop says: ‘Every day, we see the positive impact that training young people in environmental skills has on their lives. They feel a sense of purpose, a sense that they are making a difference. These kinds of skills need never become obsolete and, in fact, should only get more valuable and sophisticated with time.

‘We have a huge opportunity, not only to invest in our environment by creating more green jobs, but to invest in the young people who care about the planet and want to work to save it, and who right now are facing a serious lack of options.’

As leaders across the world debate what needs to be done, we must also urgently address the humanitarian effects of the recession, such as unemployment, homelessness, loss of skills, depression and poor health.

Here in the UK, social enterprises have an important role to play in mitigating the worst effects of the downturn. Many provide relevant services, such as training, employment for those disadvantaged in the labour market and social lending. The expertise and trust they have built are assets to the nation. They also show how businesses in the future could operate to secure long-term sustainability for local, national and global economies as well as the environment.

If social enterprise is an integral part of the government’s recovery plan, we have a real chance to start to create a sustainable economy that is committed at its very core to the wellbeing of its citizens and the environment.

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