The performance of Liverpool City Region’s social enterprises is encouraging people take the third sector more seriously but often they are still not seen as ‘proper’ businesses.
Speaking exclusively to FSB, Alan Southern (pictured) from Liverpool University’s Heseltine Institute argues that the social economy should be made central to economic growth plans.
“We have some great social enterprise in this City Region, real exemplars of how a business model can be used to address a social problem, or how people can value the efforts of their counterparts addressing all manner of social challenges using many different models to sustain their work,” said Alan.
“The people of this City Region have two clear attributes that lend themselves to the social economy and the work of social enterprise. First is the radical character that follows them around; every community in every borough can probably point to something along these lines.
"It might be the cultural mix, the waterfront influence, the resilience to some quite threatening experiences - all sorts of things but there certainly is something that provides a radical edge. This is why we have so many housing initiatives for instance, so many radical reformers, a certain stereotype.
“The second thing is that, despite being told time and again we are not entrepreneurial enough, I think the opposite is true. What tends to happen is the statistic about there being less businesses per head of population is interpreted as the people here not being enterprising. Policymakers and economists mistake market demand with enterprising behaviour and intent.”
The Heseltine Institute identifies 1,400 social organisations in Liverpool City Region. They have a collective asset base of £4.4 billion, generating an income of just under £3 billion and directly employing 45,000 people. To put this into context, Liverpool City Region’s visitor economy has an estimated impact of £4 billion, supports over 50,000 jobs and is rightly seen as a major local industry.
“Locally, the Metro Mayor, the Combined Authority and the LEP have to recognise that the social economy is a substantive part of the economy,” said Alan. “They should also see it plays a substantive role in addressing social problems. When they do this then they will involve the social economy in the decision making about the City Region. Of course this can translate into all manner of policies around finance, procurement, education and training and so on. The key thing is giving social enterprise a chance to shape the City Region.”
Alan, who argued more should also be done nationally to allow social enterprises to access public sector contracts and the right forms of finance, believes a major factor behind the social economy’s recent growth is the fall-out of the financial crisis of 2007, with austerity-driven public spending cuts and reduced budgets leading to greater reliance on the voluntary sector and different forms of social enterprise to provide services.
In light of a new emerging business ethics, particularly among the young, he believes a rethink of their role in relation to other businesses, and the public sector, is required.
“What we need is a debate on what the market should provide, what the public sector should provide and what can be provided by the social sector,” said Alan. “We shouldn’t simply assume market good, public bad or that the social sector is always progressive.
“Related to this I believe, is that as a reaction to austerity - and in my view the model of austerity has failed across so many of its intended measures - and to the growth in wealth and income inequality, many people experienced or beginning to think about starting up a business have done so from a more ethically conscious base. There are reports that young people are more socially aware when it comes to business and I see this with our students and in some of the research we have carried out.”
The evidence suggests that social enterprises are doing rather well, in fact, and playing an increasingly important role in economic growth.
However, the UK is playing catch-up. UK cities lag behind some of their international counterparts, not least in terms of employment in social enterprises, and there are fewer organisations with alternative governance models, such as co-operatives, or employee-owned businesses.
Over-centralisation of UK political decision making, as well as fragmentation and lack of collaboration within the social economy, are cited as likely contributory factors - yet the devolution of economic and social policy to cities opens up new opportunities for the social economy and for more mainstream engagement and collaboration at city level.
Social enterprise investors appear to agree. Founded in 2013 as a national initiative, the Social Stock Exchange provides access to the world’s first regulated exchange dedicated to businesses and funders who are seeking to achieve a positive social and environmental impact.
A city-region pilot, the Liverpool and Wirral Social Stock Exchange, was launched at the International Festival for Business 2016. Local businesses, charities and investors surveyed indicated overwhelming support, with an average of 92% believing it will benefit the economy. Yet the image problem persists, in some quarters at least.
“The idea of social enterprise being a drag on growth is way off the mark,” said Alan. Some social enterprise may use grants as part of their model for sustainability, but probably no more than many private business - and often some very large businesses depend on grants. Mariana Mazzacato shows us how leading technologies and innovation brought to market by private business such as Apple, are historically dependent on huge public subsidies.”
“The reality is that we should expect to see diversity in the social economy. Social enterprises who can work successfully in commercial markets and social enterprises that rely on for instance, public sector contracts, grants and in some instances, volunteer labour. This wouldn’t be too different from what we would see in whole sections of the small business sector really.”
He said the developing apprenticeships initiative could be one area of considerable benefit to social enterprises, and that universities could play their part with better social entrepreneurship education, providing advanced skills for those working in the sector and in identifying which governance models work best in different sectors and communities.
Much will depend on how the social economy is understood, legitimised by national and local policymaking and championed by influential figures such as the new ‘Metro’ Mayors.
Speaking to FSB, Liverpool City Region Mayor Steve Rotheram said: “Social enterprise is delivering social improvement alongside sustainable and inclusive growth so it clearly has a vital role to play in delivering my vision for a prosperous and fair City Region.
"At the same time devolution provides a model of place-based leadership with the potential to mainstream the social economy. We already have a particularly vibrant social economy but by nurturing an ecosystem that provides peer, together with public and private sector support, we can become a national and indeed international beacon for collaboration with the social economy.”