Businesses With A Heart

The Cooperative Society Newsletter
January 2018, Issue 7
E.G. Nadeau

The Cooperative SocietyThe underlying theme of the first Cooperative Society newsletter article of 2018 is that private-sector organizations can do good and do well at the same time. Companies in the Forbes Global 2000 can create social and environmental benefits as well as provide financial returns to their investors. Small businesses can play a positive role in their local communities and thrive economically. And social enterprises – businesses that put service before profit – have become far more numerous and visible in the past three decades.

A growing number of cooperatives and mutual insurance companies as well as non-profit and for-profit businesses meet the definition of social enterprises. Foundations, that are not engaged directly in business activities, can also have huge positive impacts.

For the purposes of this article, let’s call these varied private-sector approaches to doing good “the social economy.”[1]

Why is the rapid increase in the social and environmental commitments of these organizations during the past two or three decades such a big deal? Because they can be a means for improving the quality of life for billions of people around the world and for addressing a wide variety of community and environmental problems. Rather than analyze the broad socio-economic movement, the purpose of this brief essay is to provide an introduction to the fastest-growing part of this phenomenon – social enterprises – and to their contribution to the development of a more cooperative society. The article also raises some concerns about this expanding business form, and makes a few recommendations for improvements.

Let’s start with a few examples.

Goodwill Industries International
Goodwill, a nonprofit organization operating in the United States and Canada, is an example of a social enterprise that has been around for 115 years. It receives free donations of used clothing, furniture and other items, refurbishes them, and sells them through retail and wholesale outlets (and, more recently, online). The company also employs and trains people who have had difficulties in finding regular employment due to disabilities, a lack of skills and other factors. For many, the organization serves as a steppingstone into or back into the workforce.

Goodwill was founded in 1902 in Boston, Massachusetts, with the mission of “enhancing the dignity and quality of life of individuals and families by strengthening communities, eliminating barriers to opportunity, and helping people in need reach their full potential through learning and the power of work.” In 2016, Goodwill had more than 3,200 retail stores, generated $5.7 billion in revenue and assisted more than 300,000 people to find jobs.[2] Goodwill has come under criticism in recent years, in particular for overpaying its top executives and underpaying some of its rank-and-file employees.[3]

Italian social cooperatives
The earliest social co-ops in Italy were formed in the late 1970s. In 1991, the Italian government established an official status for these cooperatives, divided into two main categories: “Co-ops that carry out activities in the area of health, social or educational services; and co-ops that act as agencies for integrating disadvantaged people in the labor market.”[4]

In 2017, there were an estimated 60,000 cooperatives in these two categories. In many communities, these co-ops are an important part of the service network. For example, the city of Bologna contracts for about 85% of its social services through these co-ops, including childcare, eldercare and a wide range of other services.[5]

Social enterprises in other European countries
Since the official recognition of the Italian social cooperatives, six other European countries – Belgium, France, Ireland, Poland, Slovakia and Spain – have established statutes for social enterprises. There are approximately 230,000 social enterprises in these six countries with an estimated 1.5 million employees.[6]

Microfinance institutions around the world
Access to small-scale loans, savings accounts and insurance programs for low- income people has increased dramatically since Mohammad Yunus formed the Grameen Bank in Bangladesh in 1983. According to Convergence, an international organization that researches and facilitates microfinance institutions, “Global figures testify to significant levels of development, with a portfolio of USD87 billion and 111 million clients in 2014, and an estimated growth of 10% in outstanding portfolio and 15.8% in borrowers in 2015.”[7]

 It is important to keep in mind a couple of things about microfinance institutions. Not all meet the definition of social enterprises – putting social services before profit. Some have come under criticism during the past decade for charging exorbitant rates, for corrupt or greedy practices by lenders, and for ineffectiveness at assisting people out of poverty. If well organized and managed, however, they have proven to be a very useful means to provide loans, savings accounts and insurance for the poor.

co2online
co2online is a German nonprofit enterprise that assists private households to decrease their consumption of energy and to lower their CO2 emissions. Their service provides a double win – for the environment and for consumers who lower their energy costs.[8] There are not yet many social enterprises addressing environmental goals, but their potential for solving problems related to climate change and other environmental issues is significant.

The five examples of social enterprises, cited above, have greatly expanded a business model that puts social, community and environmental services above profits.

Growing pains
Despite the rapid growth of social enterprises in the past couple of decades, we are still at an early stage in the development of this business model. For example:

  • There is not yet one agreed-upon definition of “social enterprise.”
  • There has been very limited analysis of the effectiveness of various approaches within the model.
  • There is no consistent certification system identifying which enterprises are truly putting social and environmental services before profits, and how effectively they are doing so.

Three of the most important steps in furthering this model will be: to define what is, and what is not, a social enterprise; to establish clear, consistent legislation for social enterprises in developing and developed countries; and to create transparent means to measure and report on their performance in achieving social, community and environmental objectives.

Despite these growing pains and the need for greater consistency and accountability, there is a tremendous upside for the growth and diversification of social enterprises.

 

[1] For further reading on this topic, see, for example: European Commission, Directorate-General for Employment, Social Affairs and Inclusion (2016): Social Enterprises and their Eco-systems: Developments in Europe. Authors: Carlo Borzaga and Giulia Galera.

[2] http://www.goodwill.org/about-us/

[3] https://www.huffingtonpost.com/john-hrabe/the-worst-corporation-in-_b_1876905.html

[4] Borzaga, Carlo and Jacques Defourny (eds., 2004), The Emergence of Social Enterprise, p. 171.

[5] http://www.yesmagazine.org/new-economy/the-italian-place-where-co-ops-drive-the-economy-and-most-people-are-members-20160705

[6] Estimates derived from Social Enterprises and their Eco-systems (op. cit.), p. 41.

[7] http://www.convergences.org/wp-content/uploads/2016/09/BMF-EN-FINAL-2016-Version-web.pdf

[8] http://www.seforis.eu/news/2015/12/27/discover-17-social-enterprises-that-fight-climate-change

 

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