The Players and Practice: The Making of a FieldThe Players and Practice: The Making of a Field
Since it is not possible to detail a comprehensive history of social entrepreneurship movement and all those that have made contributions to its evolution in this report, this section provides a brief historical overview of some key players and events that have contributed to shaping the field of social entrepreneurship.
Perhaps the roots of entrepreneurial activities in the social sector context can be drawn to cooperatives which have functioned as a means to fund socioeconomic agendas as early as the mid-1800s. Robert Owen (1771-1858) fathered the cooperative movement. A Welshman who made his fortune in the cotton trade, Owen believed in putting his workers in a good environment with access to education for themselves and their children. These ideas were put into effect successfully in the cotton mills of New Lanark, Scotland. It was here that the first cooperative store was opened. Spurred on by the success of this, he had the idea of forming "villages of cooperation" where workers would help themselves out of poverty by growing their own food, making their own clothes and ultimately becoming self-governing.1
Cooperative is defined by the International Cooperative Alliance (ICA) as "an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise".2 They "are based on the values of self-help, self-responsibility, democracy, equality, equity and solidarity. In the tradition of their founders, cooperative members believe in the ethical values of honesty, openness, social responsibility and caring for others".3 Noticeably, the cooperative definition and characteristics are those embraced by social entrepreneurship.
Since their inception over one hundred years ago, cooperatives have become widespread throughout the world, and continue to play an important function in promoting international economic development and social justice for the poor. Cooperatives are a common form of social enterprise found in developing countries. Examples include agricultural marketing cooperatives, which market and distribute its members' products, while agricultural supply cooperatives, provide inputs into the agricultural process; both are examples of social enterprises promoted in value chain development and Making Markets Work for the Poor (M4M). Self-Help Groups (SHGs) comprised of low income-women, and popular in South Asia, are frequently organized into cooperatives to support a variety of their members' interests related to commerce, health and education. Credit Unions are another example of a cooperative found tied to economic development micro-financial service programs, particularly across West Africa, Latin America, and countries of the former Yugoslavia. In the UK a slight variation on the cooperative, called mutual organizations or "societies" are commonly associated with social enterprise. Unlike a true cooperative, mutual members usually do not contribute to the capital of the social enterprise company by direct investment, instead mutuals are frequently funded by philanthropic sources or the government.
Fair TradeFair Trade
Fair Trade is another predecessor to the contemporary social entrepreneurship field. Early attempts to commercialize fair trade goods in Northern markets were initiated in the 1940s and 1950s by religious groups and various politically oriented NGOs. Mennonite Central Committee (MCC) and SERRV International were the first, in 1946 and 1949 respectively, to develop fair trade supply chains in developing countries.1 The products, almost exclusively handicrafts, were mostly sold in retail outlet called "Worldshops." MCC's historic Worldshop, Ten Thousand Villages, is well-known today and has numerous locations throughout the US. Ten Thousand Villages operates as nonprofit subsidiary social enterprise of MCC.
The current fair trade movement was shaped in Europe in the 1960s. Fair trade during that period was often seen as a political gesture against neo-imperialism: radical student movements began targeting multinational corporations and concerns that traditional business models were fundamentally flawed started to emerge. The slogan at the time, "Trade not Aid", gained international recognition in 1968 when it was adopted by the United Nations Conference on Trade and Development to put the emphasis on the establishment of fair trade relations with the developing world.2 Nineteen sixty-five saw the creation of the first Alternative Trading Organization (ATO) and that same year, British Oxfam launched "Helping-by-Selling", a program which sold imported handicrafts in Oxfam stores in the UK and from mail-order catalogues.3 Worldshops for fair trade goods spread to the Netherlands in 1969 and expanding throughout Europe in the 1970s. In the early 1980s, to offset a decline market for handicrafts, Alternative Trading Organizations began broadening the scope of fair trade from handicrafts to include agricultural products, particularly commodities, whose spiraling prices had a dire impact on poor producers.
In 1988 Fair Trade labeling initiative was launched to promote fair trade commodities and agricultural products, followed by International Fair Trade Certification Mark in 2002. There are now Fair Trade Certification Marks on dozens of different products, based on Fairtrade Labeling Organization's (FLO) certification for coffee, tea, rice, bananas, mangoes, cocoa, cotton, sugar, honey, fruit juices, nuts, fresh fruit, quinoa, spices, wince and footballs. In 2005 these sales amounted to approximately €1.1 billion worldwide, a 37 % year-to-year increase.4 As per October 2006, 586 producer organizations in 58 developing countries were FLO-CERT Fairtrade certified and over 150 were International Fair Trade Associations were registered.5
Community Development CorporationsCommunity Development Corporations
In the United States, Community Development Corporations (CDCs) made their appearance catalyzing economic growth by investing in job creation, business development, real estate and affordable housing in target communities. Prior to the 1970s, banks "redlined" against minority neighborhoods, even to credit-worthy residents. In 1973, ShoreBank founders, Ron Grzywinski, Mary Houghton, James Fletcher, and Milton Davis, with backgrounds in banking, social service and community activism, decided to buy a bank in a disinvested neighborhood, and create complementary affiliates, focusing all of the resources on one neighborhood.1
Today, Shorebank has several branches around the US including its "Environment Bank" in the Pacific Northwest that invests in sustainable development as well it has opened a myriad of nonprofit subsidiaries that provide support technical and financial services to complement Shorkbank's private sector efforts. For example, Shorebank International Ltd., supports international economic development activities by offering a broad range of advisory and financial services in its core market segments of small business finance, microfinance and housing finance. ShoreCap Exchange is a nonprofit capacity building company supporting financial institutions in the development finance field. It provides one-on-one capacity building to microfinance institutions and small business banks in Asia, Africa and Eastern Europe. 2
Today, CDCs and Community Development Finance Institutions (CDFIs) are prevalent business models found among economic development practitioners of social entrepreneurship in many Western countries, and are increasingly active in Eastern Europe and other emerging economies in an effort to build the global CDC/CDFI industry. 3
Social Firms or Affirmative BusinessesSocial Firms or Affirmative Businesses
In the 1960s to 1970s American and European nonprofits began experimenting with enterprises to employ disadvantaged populations. In the mid-1960s, John Durand, started working with 7 mentally retarded people and by 2005 Minnesota Diversified Industries had revenues of $40,000,000 and employed over a 1,000 physically and mentally disabled people.1 Similarly, in 1971 with $1,000 loan from a moneylender Mimi Sibert began a program for former felons and substance abusers. Since, Delancey Street has successfully mainstreamed 14,000 former clients entirely on self-generated resources through its 20 social enterprises run entirely by clients. 2
The first social firm (aka "affirmative business") model was created to employ people with psychiatric disabilities and is credited to the Italians. The social firm model was founded on, and continues to adhere to, the following principles: over a third of employees are people with a disability or labor market disadvantage, every worker is paid a fair-market wage, and the business operates without subsidy, and has gained prominence throughout North America, Japan and Europe. The growth of the social firm movement has been aided by legislation that supports the businesses, policies that favor employment of people with disabilities, and support entities that facilitate technology transfer.3 Such regulations as advantageous tax laws, preferential contracting terms, and government subsidies have created an enabling environment under which social firms have flourished.
In the mid 1990s, REDF (formerly The Roberts Enterprise Development Fund) popularized this notion of social firms by experimenting with business types, operating models and target populations. REDF merged social welfare and vocational rehab creating new enterprises to employ people with barriers to employment (including disabled, homeless, ex-offenders, youth at risk, etc.). REDF also began applying the tenets of venture capitalism to philanthropy ("venture philanthropy") to architect its funding and technical support approaches, as well as to begin measuring investor rates of return on social impact (social return on investment).
In doing so, REDF created a venture portfolio of 10 employment development social enterprises4 and published widely on tools and lessons drawn from its work with portfolio organizations. Indeed, REDF's contributions to social enterprise literature are the closest claim the social entrepreneurship field has to any one given methodology for social enterprise. The employment-model of social enterprise has been both replicated overseas by civil society organizations as well as adapted for an overseas application by practitioners of Making Markets Work for the Poor, who are creating employment or favorable conditions for employment for particular disenfranchised groups.
- 1MDI annual report 2005
- 2Delancey Street Website
- 3Warner, Richard, M.B., D.P.M. and James Mandiberg, Ph.D., An Update on Affirmative Businesses or Social Firms for People With Mental Illness, American Psychiatric Services, October 2006.
- 4REDF's literature refers to social enterprises as social-purpose enterprises.
Although presently few microenterprise organizations commune in the social entrepreneurship space, social entrepreneurship field views the microfinance institution (MFI) as a quintessential social enterprise and sees its leaders as some of the world's most formidable social entrepreneurs. From early on practitioners implemented MFIs as a mission-centric vehicle by which to achieve wide-scale sustainable social impact.
Today, leaders like Mohammed Yunus are working to build relationships between the parallel, yet separate, communities of microenteprise and social entrepreneurship. Significant gains made by the microfinance industry in developing methodologies; spurring innovation; achieving scale, replicating globally, and nurturing second and third generations of microfinance innovators and entrepreneurs, offer many valuable lessons to build the nascent field of social entrepreneurship.
International microenterprise organizations that have begun to participate in social entrepreneurship forums and practice include: MEDA, TechnoServe, Grameen Foundation, Freedom from Hunger, Pro Mujer, CARE, Unitus, Accion International, Mercy Corps, Aid to Artisans, and Conservation International, among others.
Civil Society OrganizationsCivil Society Organizations
Following the collapse of the Soviet Union, countries in this part of the world experienced rapid proliferation of civil society organizations (CSOs), their development aided in part by international development agencies. In the 1990s, previously well-funded NGOs and CSOs began to confront resource scarcity due to transitional economies and shifting funder priorities, coupled with the slower than expected private sector growth, thus creating a funding gap.
Market forces galvanized practitioners to explore alternative financing approaches, recognizing that their organizations' survival rested on the ability to augment or replace grants by other means. Development agencies in the region, as well as in other transitional economies such as Latin American countries, have supported this shift toward establishing an independent means of financing. NESsT, an early player in employing social enterprise as a means of self-financing social service organizations, adapted and replicated REDF's venture philanthropy approach and applied it to CBOs and NGOs in Latin America and Eastern Europe.
In addition to the establishment of income-earned ventures (social enterprise), CBO and NGO sustainability strategies include: the cultivation of local philanthropy; commercialization of NGO social services (fee-for-service); cultivation of local corporate social responsibility; and financial leveraging ensure that their organizations will be going concerns.
Base of the Pyramid (BoP)Base of the Pyramid (BoP)
Interest in the "base (or bottom) of the pyramid" was catalyzed by a paper written by two University of Michigan professors in 2002. In "The fortune at the bottom of the pyramid"1 , C.K. Prahalad and Stuart Hart highlight the untapped market potential of the four billion people at the base of the economic pyramid. In this article, the global population is divided into three segments, based on purchasing power parity (PPP). BoP customers are defined as those with a PPP of less than $1,500 per year.
In the past several years, an increasing number of multinational corporations (MNCs) have recognized this opportunity and are making commitments to launch ventures in BoP markets. Well known examples include, CEMEX, Coca-Cola, Danone, Dow Chemical, DuPont, Hewlett-Packard, Intel, Johnson & Johnson, Nike, Procter & Gamble, S.C. Johnson, Tetra Pak, and Unilever.
While MNC exploration of low income markets is one well-publicized "BoP strategy," several other players and approaches have also emerged. It is apparent that small- and medium-scale enterprises will play an important role in this space, and a number of development agencies have created programs to facilitate BoP-oriented SME development. CARE Canada, for example, has launched CARE Enterprise Partners, a program that looks to help bridge the gap between entrepreneurs in the informal sector and larger businesses operating in the formal sector. Additionally, as ITC in India, DuPont in Latin America, and VegPro in Africa have discovered, the BoP is also a producer of high quality goods and services that can meet the needs of markets at both top of the pyramid and BoP markets.
- 1Prahalad, C. K., & Hart, S. L. 2002. The fortune at the bottom of the pyramid. Strategy+ Business, 26(First Quarter): 2-14. Stuart Hart is now at Cornell University.
Government FundersGovernment Funders
The Inter-American Development Bank began supporting social enterprises (cooperatives and NGOs) through the Small Projects Fund in 1978 long before there was a field associated with these organizations. In 1998, the Social Entrepreneurship Program (SEP), which replaced the Small Projects Fund, was created to promote social equity and the economic development of poor and marginal groups. In its 29-year history, the Bank has supported numerous projects that fall under the rubric of social enterprise through this program. Today, social enterprise is a key IADB instrument used to drive local economic development within the context of a strategic regional vision.
World Bank's Development Marketplace (DM), founded by Dennis Whittle and Mari Kurashi (currently CEO and President of Global Giving), stemmed from the need for better implementation results on the ground, and an understanding that good ideas can come through multiple channels. DM began as an internally-focused exercise to identify cutting-edge solutions to the most pressing social and economic concerns and change World Bank staff decision-making culture, encourage risk-taking, and shorten project development and delivery.1 With an allocation of US$5 million, the World Bank held its first internal "Innovation Marketplace" in 1998. Over 150 World Bank staff teams put forward ideas, of which 11 won awards.2
Based on the success of this event a decision was made to open the marketplace up to anyone interested in development issues from inside or outside the World Bank. In 2000, the World Bank hosted the first Global Development Marketplace (DM2000), or Global Competition. It was an open competition with over 1,000 proposals originating from both inside and outside the World Bank to address a range of issues from sustainable development to combating HIV/AIDS, winning projects shared the award pool of US$5 million in start-up funds.3 The success of DM2000 created demand for "in-country development marketplaces." The idea was to localize DM competitions to a single country, addressing the local development issues. To date, the Global DM competition has disbursed over US$23 million in awards to 171 winning proposals. The CDM competitions have awarded over US$11 million to more than 650 winners in 42 countries.4
After co-funding several private sector development winners of DM, International Finance Corporation's launched the Grassroots Business Initiative (GBI) in 2004 to strengthen and scale up innovative social enterprises- referred to as grassroots business organizations - that create sustainable economic opportunities for the poor, empowering and engaging them as entrepreneurs, consumers, employees and suppliers. Many of GBIs investments are DM winners that have finished their start up funding awarded though the competition. In addition to BoP strategies and social enterprises, GBI supports intermediaries that support them, with appropriate financing (grants and "patient capital" loans) and capacity building. GBI supports some 30 projects in Africa, Latin America and Asia aiming to bring income generating opportunities and needed products and services to the poor. GBI is currently discussing with the IFC the prospect of spinning off into a separate independent entity with significant seed capital from the IFC.
Government of the United Kingdom
In the United Kingdom Blair administration determined that social enterprises could play an important role in helping deliver on much of government's agenda by: helping to increase productivity and competitiveness; contributing to socially inclusive wealth creation; enabling individuals and communities to work towards regenerating their local neighborhoods; showing new ways to deliver and reform public services; and helping to develop an inclusive society and active citizenship.5
In response to these findings, the British government created the Social Enterprise Unit within the Department of Trade and Industry in 2002 to put social enterprise at the center its social reform policy. Social enterprise is now the fastest growing sector in the United Kingdom; data from a 2004 survey conducted as part of the Global Entrepreneurship Monitor (GEM) suggests that new 'social startups' at a faster rate than conventional startups in the UK.6 Research also shows that employment created by social enterprises has outstripped employment created by conventional business .7 The UK government has done more than other governments toward establishing an enabling environment for social enterprise. In 2004 a new legal form was introduced, the Community Interest Company, which addresses from a legal perspective the particular needs of the social enterprise hybrid.
- 1Development Marketplace website: www. worldbank.org/developmentmarketplace
- 5Synopsis from Social Enterprise Unit, British Department of Industry and Trade website
- 6Nicholls, Alex, Social Entrepreneurship: New Models of Sustainable Social Innovation, Oxford University Press, 2006.
- 7Salamon, Lester, The Resilient Sector, Brookings Institution Press, 2003.
Venture Philanthropists and "Philanthropreneurs"Venture Philanthropists and "Philanthropreneurs"
In the last fifteen years, a huge amount of new wealth has been created which is influencing philanthropic giving. This year, as never before, the line between philanthropy and business is blurring. A new generation of philanthropists has stepped forward, for the most part young billionaires who have reaped the benefits of capitalism and believe that it can be applied in the service of charity.1 In the past, the rich endowed their estates upon passing. Now not only do they want to give their money away while living, but want to play an active role in doing so. Drawing on their success in business, new economy philanthropists apply market principles to their philanthropic efforts and view grant-making through a venture capitalist lens. They treat charity as "social investment" for which they expect to realize a measured social return (and often a financial return) and thus have been dubbed "venture philanthropists."
The venture philanthropy adapts the six tenets of venture capitalism: high funder engagement; multi-year funding; risk-return analysis and risk management; exit strategies; capacity building of the funded institution and measurable performance results (social and financial retuns). The first venture philanthropy fund is attributed to the Robin Hood Foundation in New York City and was founded in 1988, yet venture philanthropy as a funding approach was not popularized until the late 1990s. Between 1998 and 2000 a groundswell of new venture philanthropy funds were endowed; several then folded in early 2000-2001 when economic contractions reduced their asset base. There was also a settling period when funds and foundations built their own internal capacity to deliver grants using an investor or venture philanthropist approach. In the early years, language broadened to include terms like, "strategic funder," "engaged philanthropist," "social investor," "social angel," and "philanthropreneur." By the mid-2000s venture philanthropy funds and foundations using the approach become an ingrained part of the funding landscape and it become resoundingly clear that the culture of philanthropy was changing forever.
The approach of "philanthropreneurs" reflects the culture of the business that brought them their wealth: information technology, with its ethos that everyone should have access to information. By their way of thinking, the marketplace can have the same level-the-playing-field impact, and supply the world's poor with basic needs like food, sanitation and shelter.2 This generation of philanthropists is globally-oriented and thus interested in funding international development programs, a major difference from pervious generations. In the last ten years, "Venture Philanthropy Funds" or "Social Venture Capital Funds3 ," nonexistent ten years ago, today have formidable endowments and engaged founders.
Leading business innovators such as Pierre Omidyar (founder of eBay), Gib Myer (Mayfield Fund), Larry Page and Sergei Brin (co-founders of Google), Jeff Skoll (first president of eBay), Bill Gates, (Founder Microsoft), Steve Case, (co-founder of America Online), and Klaus Schwab (founder of The World Economic Forum) are focusing of their giving on social entrepreneurship. Therefore, this new type of philanthropist has become a serious contender in development funding which until recently has been dominated by governments.
The market-based approaches such as social enterprise and BoP strategies make these initiatives a natural funding match for new philanthropists. In fact, it is difficult to discern whether the rise of social entrepreneurship has fueled the growth of venture funds or visa-versa. Although many venture philanthropists have sector orientations, the bulk of their funding goes to support social entrepreneurship and market-based approaches, as opposed to traditional nonprofits or development projects. For example, Acumen Fund invests in water, health and housing by providing some grants, but largely loans and equity investments to social enterprises.