Among the most influential economists of the post-war era, Milton Friedman is famed for his aggressive stance on capitalism. Business is only responsible to shareholders, he said. Increase profit at all costs. Social issues are no concern of yours.
Little more than a decade after Friedman’s passing, social enterprise, a hybrid sector, is merging for-profit methods—commerce and scalability — with non-profit goals — like community betterment or environmental protection.
Social enterprises are “businesses that are changing the world for the better.” Whether technically a non-profit or for-profit in their legal status, it would be wrong to refer to these entities as traditional companies, as their core purpose is social impact. These new hybrid organizations apply a business solution to solve a social problem, such as hiring individuals who recently transitioned out of the justice system, with a mission to reduce recidivism rates. Or, organizations might reinvest or donate the vast majority of profits into fixing a social problem.
The shift from Friedman’s philosophy has occurred around the world, with the US and the UK at the forefront of innovative practices. Canada, too, has also recently invested heavily in the sector.
Social enterprise, once considered a niche market offering, is becoming increasingly globalized as investors build social impact portfolios, business schools add social enterprise programs, and consumers devote more of their spending to good corporate citizens.
Historically, America has been a frontrunner in the space. Since 2008, the year social enterprise gained legal designation, 45 bills have been passed with legislation introduced in 35 states and the District of Columbia, codifying entities in the sector to make policy efforts easier. Additionally, federal legislative proposals are continuing to place social enterprise at the forefront of U.S. policy. Leading the way in America are companies like Grameen America, which was founded by Nobel Prize winner Muhammed Yunus. Grameen America has invested over $1 billion in women entrepreneurs in 13 cities around the country.
The United Kingdom (UK) has also been a frontrunner in growing social enterprises. The UK defined social enterprise decades ago, with designated legal models that allow for more comprehensive governance. In the UK, companies like Access Employment Ltd. (AEL) are pushing the envelope forward in terms of social entrepreneurship. AEL runs multiple socially conscious businesses and pledges to donate 100 percent of its profits to charity.
Our closest neighbor, trade partner and ally, Canada, recently also bet heavy on social enterprises. Although it has been slower to enact laws supporting such enterprises, tides are changing as in fall 2018 Canadian Finance Minister Bill Morneau announced a $755-million (CDN) social finance fund, a catalyst for treating philanthropy like an investment, driving returns by solving social issues.
There are two often-cited Canadian all-star examples of social innovation.
The MaRS Discovery District (MaRS) has become one of the world’s biggest accelerators for science, technology and social innovation, attracting 150 tenants (including giants Airbnb Inc. and Merck & Co.) to its orbit. Although most of the entities they enable are traditional businesses, MaRS is leading the Canadian field in social impact financing, helpful to introduce social impact bonds into the country. At its core concept, investors in social programs are paid upon achieving a proven social outcome. This financial instrument is still embryonic in North America, but very well developed in Europe.
Another standout Canadian organization is ME to WE Social Enterprises. ME to WE is perhaps the most successful Canadian export in social enterprise, growing rapidly across the United States and widely celebrated by thought-leaders around the world. ME to WE exists to support WE Charity by providing high paying jobs in developing countries where WE Charity seeks to end poverty, and donating profits to fund program in clean water, health, and education. ME to WE has developed its own brand of products and services, including fair trade consumables, artisanal jewelry, and global volunteer trips. In its legal structure, there’s a commitment to donate at least 50 percent of its annual net profits to its sister organization, WE Charity. Over the past four years, ME to WE’s annual donation rate to WE Charity has been more than 90 percent, with remaining profits re-invested to grow the social enterprise.
The social challenges of our world are complex, and we need to leverage the best of all sectors to achieve outcomes. As consumers increasingly demand products that better the world, and socially-conscious investors grow these opportunities with an influx of capital, policymakers in the US and around the world must continue to enact policies that foster social enterprises. These policies could include laws that provide globally accepted norms for this burgeoning field, access to capital for social innovation and social finance, and even preferred procurement to incentivize social enterprise development.