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Is ‘Social Enterprise’ A Stealth Tax?

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Where does a social enterprise get its start up capital from?

Ultimately? 

I understand that they may get it from a wide range of sources – but in essence where is that value created before it is made available to a social enterprise?

If I am right then it comes from:

  • involuntary or voluntary taxation on ‘for profits’ (which may or may not themselves already be providing positive social outcomes)  
  • gifts or
  • other forms of voluntary taxation such as the national lottery, foundations etc

But ultimately the source of nearly all of this cash is the ‘for profit’ sector*.  In essence money is taken from, or given by, those who have created profits to invest in ‘social enterprise’, including public services, that have little realistic potential for generating sufficient profit to make the risk of private investment worthwhile.

The extent of the ‘stealth’ in the ‘taxation’ varies widely in different contexts.  For example if I buy fairtrade chocolate I know that I am paying a premium to provide a social good.  The chocolate bar is clearly labelled and I can easily find out more about how my premium is used to derive social gain. 

However if I rent an office in a managed workspace provided by a ‘Community Interest Company’ am I equally clear on the premium that I will be paying to enable them to generate a profit in order to re-invest back into the community? 

Is the product clearly labelled in the same way that my fairtrade chocolate bar is? 

Are the mechanisms for re-investing my taxation clear and transparent? 

I can see lots of salaries that need to be covered from my rental.  I can see additional overheads (atria, gyms, cafes, sexy furniture, light fittings etc) that need to be paid for before any profit is created for re-investment.  And I can see prices that are significantly higher then the local market rate.   I can’t clearly see how my premium will be used to benefit the local community.  It feels like a stealth tax!

Even if the labelling is transparent and the mechanisms for re-investment are clear then I still have a problem with this model.  While both service provider and service user are engaged in a fair exchange from which both gain, I am not sure about what drives excellence in the service provider in the long term.  It feels a little like any other subsidised public service – and these have been notoriously difficult to manage efficiently and effectively.   As much energy goes into maintaining the subsidy as into generating value.  The ‘taxation’ gets locked in.

So is social enterprise just another stealth tax?  Well that would explain the massive extent of political interest.  But social enterprise can and must be so much more than this.  It can be the genuine organisation of a community around the concept of using enterprise to create social value.  It is this vision of a genuinely ‘social’ approach to enterprise that I believe we are at risk of losing. 

*I believe that there is a tiny venture capital movement developing to invest in social enterprise – but I am not sure what the return on investment is that these venture capitalists seek.  If it is a true VC model then it will be a substantial profit on their risk capital.  If they just want to see social good then it is not venture capitalism as I understand it – but just another form of giving.

The Snapping Dog of Recession Is Good News for Mentors

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Over the last three months, searches for mentoring, support and advice have increased by 116%, according to business directory Yell.com.  (Source)

The worrying thing about this is that so many people leave it until the snapping dog of recession is snapping at their heels to seek support.  Often by then it is just too late to do much about it.

However many entrepreneurs feel that tough times give them the licence to make tough decisions that they have avoided making in better times.  This too is a worrying pattern.

The surge is perhaps counter intuitive.  You would think that people would be pulling in their horns and investing less in external support.  So perhaps what they are accessing is free mentoring and support.

Economic Gardening or Economic Hunting?

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Economic Gardening and Economic Hunting are two very different approaches to developing an enterprise culture.

An economic gardening approach sets out to create jobs and entrepreneurial activity by investing in local people and their talents, cultures, passions and skills.  It is an endogenous “arising from within” approach to community and economic development.  The starting point for economic gardening says that ‘in this community we have all that we need to build a vibrant and sustainable future’.  It may need careful nurturing to help it thrive but the seeds of our future success are already sown.

The key tools of economic gardening include:

  • building open and accessible networks for potential and current entrepreneurs that foster the exchange of ides and collaboration
  • signposting to existing and continually improving support  services that help local people on their enterprise journey
  • locally available, convivial and very low (preferably no) cost coaching support to help local people to nurture their dreams and aspirations and to believe in their ability to develop them
  • access to commercial finance for local people with investment ready business ideas
  • support services that recognise that everyone has the potential to become more enterprising and don’t just work with those that are already entrepreneurial.

This contrasts with economic hunting which sets to create jobs and entrepreneurial activity by attracting investment and employment into a community from outside.  The starting point here is one that says ‘our community is deficient.  We lack the entrepreneurs to create employment so we have to attract them from elsewhere.  Then perhaps some of the entrepreneurial pixie dust will rub of onto local people.  And if it doesn’t, well at least we will have attracted entrepreneurs who will provide them with jobs.’  This is an exogeneous approach to community and economic development.

The key tools of economic hunting include:

  • the creation of facilities and resources to attract companies or ‘creative class’ members to set up their homes and businesses in our community (NB usually these resources are beyond the means of many local people to access).  If you are in a facility that serves a ‘much better cup of coffee at a higher price’ than anywhere else in the neighbourhood, or if many local people are priced out of your facility, then there is a strong chance that it is the product of economic hunting rather than gardening.
  • the development of inward investment teams and budgets to enable local authorities and regional development agencies to negotiate ‘sweetened’ deals for employers to locate in their communities
  • support services that focus almost exclusively on the ‘already entrepreneurial’ as those who have the potential to create wealth and employment for the rest of us.

Historically most of the investment has gone into economic hunting strategies.

There has been a rise in interest (if not yet investment) in economic gardening.  I see no fundamental reason why the two can’t co-exist in the same community, but they are not always comfortable bed fellows.  Economic hunting usually means changing things to make them convivial to outsiders (better coffee, better carpets and sexy furniture).  Economic gardening means making things really convivial to local people, affordable, local and accessible.

Often community based enterprise development programmes struggle to help local people to access the business support infrastructure that was designed as an economic hunting tool.  It is not designed to be convivial to local people, but to that special breed of entrepreneur from out of town who will pay £3.40 for a posh coffee and £20 an hour to hire a meeting room.  More often than not such facilities fail to win in either of these two market places.

So which tribe do you belong to?  The hunters or the gardeners?

Busy Times!

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Apologies for the lack of blog posts just lately!  So much has been happening:

  • a new mediation training package designed to help you decide whether mediation is right for your organisation
  • a major piece of in-house management development with the Leeds College of Music
  • developing a new programme for Rodney Housing Association in Liverpool
  • providing training to managers in Harrogate Borough Council on effective delegation

as well as several other pieces of work around management, enterprise and entrepreneurship.