Community entrepreneurship for local development

Toby Johnson
Senior adviser on community economic development, AEIDL
March 2012

Entrepreneurship means taking a risk, using one’s initiative, and it has a production element, involving the creation of a new product or service which is sold on the market. But you do not have to follow the ‘cowboy’ model of the entrepreneur, which implies reliance on one charismatic leader. On the contrary, entrepreneurship can be something done in common, for everybody’s benefit. For a local community, it means encouraging local people to take the resources they have, develop a product or service, and find a market for it. To do this you need to provide:
1. the right framework conditions, an ecology; and
2. an attractive experience for potential entrepreneurs.

Regarding the ecological context, six conditions are needed: appropriate legal vehicles, high quality business support, finance, growth mechanisms (such as consortia and social franchising), local support agencies and umbrella bodies which carry out political lobbying.

The delivery system should be attractive for users, and here again this relies on six factors:

1. how to reach the people most in need (outreach mechanisms) – for instance by making partnerships with groups in that community;
2. accessibility – to make it accessible, by providing care services for children and the elderly, which is particularly important especially for the female labour force;
3. the ‘welfare bridge’ which counteracts any disincentives to starting your own business and thus avoids the unemployment trap (three solutions are: transitional benefits that people; the possibility to capitalise benefits, i.e. receive future benefit entitlements in a lump sum for investment in a business; specific legal vehicles, such as business and employment cooperatives);
4. training – in management and co-operative principles as well as trade-specific skills
5. support for development work such as market research
6. mentoring – i.e. one-to-one informal accompaniment from an experienced business person

Social economy and social enterprise

As regards legal vehicles, it is important to have a legal framework that will last, and which entrenches the community benefit objective, so that as the business prospers, the community prospers as well. Two concepts are useful here.

First, the concept of social economy can be summed up simply as carrying out economic activities with a social purpose. It is often seen as bringing together four families of organisations:

– two families that serve primarily their members:
– co-operatives – which are based on a set of seven principles including democratic decision making and fair distribution of profit;
– mutuals – which exist mainly in health care and insurance, rely on mutual interest and are a diluted form of the co-operative;

– and two families that serve primarily the community at large:
– associations (democratic member-based organisations that do not have starting capital)
– foundations (manage a capital endowment towards the ends the donor specifies)

In the EU, there are 2 million social economy enterprises, which make up 10% of the economy and provide 6% of all employment. It is a modern idea as well as an old one, and balances self-help with altruism, practice with ideals. The size of the social economy tends to grow as economies and societies progress.

The second concept I want to introduce is that of social enterprise. These are is a form of economic innovation, but their meaning is rather blurred. The definition is slightly politically contested, but the most widely accepted was developed by the European research network EMES. It is not a prescriptive definition, but rather an ‘ideal type’ in a Weberian sense), based on 9 criteria (the first 4 are economic, the next 5 social):

1. Continuous economic activity
2. Autonomy (it is not simply another name of a local governmental department)
3. Economic risk (it is producing a product or service and bearing the risk of trade and exchange)
4. At least one paid worker
5. Explicit aim to benefit the community
6. Citizen initiative
7. Decision-making not based on capital ownership
8. Participatory approach involving users of the enterprise’s goods or services
9. Limited profit distribution – only a limited part of the profit should be distributed; it should predominantly be used for the community

To conclude, these social enterprises produce multiple outputs by combining multiple resources. They might for instance produce benefits in terms of employment, training, social inclusion, environmental improvement and offender rehabilitation, by combining different sources of income such as sales to the public, wage subsidies from central government and environmental improvement contracts from the local municipality. They tend to provide services rather than products, so they tend not to have much financial or material capital, but have a large social capital based on trust and co-operation. The links between the producers and users are strong, and these models cannot be exported or delocalised, as they have strong roots in the local community.

The EU’s Social Business Initiative

Due to the financial crisis, the social economy is being given more importance. Michel Barnier, European Commissioner for the Internal Market, wants to give a human face to the financial markets, and to come up with a European definition of what a social enterprise is.

The Commission has set out a definition of social enterprise, as set out in the regulation for the Programme for Social Change and Innovation (PSCI). It is as follows:

1. The primary goal is, explicitly and publicly, to make a social impact;
2. Produces goods and services in the market;
3. It is not only entrepreneurial, but also innovative;
4. It trades for profit, but uses its surplus mainly to achieve its social goals and does not distribute it to shareholders (the word “mainly” allows the limited payment of dividends to co-operative members);
5. It is managed in an accountable, transparent way;
6. It involves various stakeholders such as workers and customers.

Examples

These are six examples of social enterprises that have contributed in different ways to local development.

1. BIK: Buurtinitiatieven Kuurne, Flanders1 – provides neighbourhood services such as short-term flexible childcare, an after-school club, waste management and security. It invented the term ‘cloverleaf financing’ because it combines four different financing sources:
• Employment – e.g. wage subsidy for high-risk groups or compensation for lower productivity of disabled workers
• Client contributions – often subsidised by using ‘service vouchers’, which allow the client to pay a market rate but ensure that the worker’s tax and social insurance is paid
• Other policies – childcare, elderly care, environment, security
• Local authority – as buyers of the social economy services

Note that the project was based on market research, which discovered that is very important to provide flexible childcare facilities, because otherwise parents cannot go to interviews for jobs.

2. FRG: Furniture Resource Group, Liverpool, UK2 – collects bulky household waste and recycles old furniture. It is a very good example of the way a social enterprise can create a profitable niche by combining multiple sources of revenue to create multiple benefits for different stakeholders. This example of cloverleaf financing brings together a contract from the local authority for waste collection, grants for workforce training and employing ex-offenders, and sales revenue from the renovated furniture it sells.

3. Öko-Service, Graz, Austria3 – provides environmental services such as trimming trees, recycling frying oil into diesel fuel, and hiring recyclable plates and beakers for events like football matches. It exists in a niche created by agreement among trades unions, employers and government, because it is supposed not to compete with the private business sector. Its economic viability relies on the special legal framework of Beschäftigungs¬gesellschaft (employment company), which is allowed to re-invest profit, which is specific to the particular region (the Land of Steiermark).

4. Suma Wholefoods, Elland, UK4 – wholesales organic food. Set up in 1975 by a group of politically aware hippies, it is now with 150 workers the UK’s largest collectively managed worker cooperative. It is a good example of success of a grassroots organisation that has grown purely through its own entrepreneurial energy without public help. It has a radical employment system, based on equal pay for all (pay is about the UK average wage, €30,000 a year) and job rotation, which means members have a chance to go through all different jobs within the company. It has used a number of tools to promote local business development:

• Co-op discount: In its early days it actively helped dozens of other co-operatives (mainly retail shops) to start, by giving them a 5% discount.
• Banking together: Several dozen businesses in the north of England banded together to form the Federation of Northern wholefood Collectives, and some of them shared a bank account which improved cashflow and meant Suma could buy more cheaply on everybody’s behalf.
• Co-operative development fund: For a period, every time wages were increased, the same amount was put into a development fund for cooperatives.
• Vertical integration: New autonomous workers’ co-operatives were started to carry out jobs like retailing (Beano), catering (Wharf Street Café), research (Cena) packing and making peanut butter (Hebden Water Milling Collective). Independent regional warehouses were started in Glasgow (Green City) and Nottingham (Ouroboros).

5. CAP Märkte, Germany5 – a chain of 100 supermarkets employing people with disabilities, operated through a social franchise. It developed a model of community supermarkets which take over premises left empty after the large supermarkets leave for out-of-town sites. The shops contribute to the regeneration of the area and also provide access to the elderly and other people who cannot travel to hypermarkets on the edge of the city. They have a purchasing partnership with the national SPAR-EDEKA retailers’ co-operative, but also sell local produce. The franchise can be bought by associations wanting to provide work for persons with disabilities.

6. Komosie, Flanders6 – Europe’s biggest social franchise, with 64 member companies operating 140 enterprises which employ 4,000 people, 85% of whom are disadvantaged. The main activity, branded ‘de Kringwinkel’,7 is the repair and sale of second-hand goods such as electronic and other domestic items, but it has also created a second franchise, Energiesnoeiers8 offering advice in energy-saving. Half of its €29 million income is from sales, and the rest from financial support and donations.

References

• SEN: Social Entrepreneruship Network (successor of BFSE: Better Future for the Social Economy) – http://www.socialeconomy.pl(external link)
• COPIE: Community of Practice in Inclusive Entrepreneurship – http://www.cop-ie.eu(external link)
• Wikipreneurship knowledge base – http://www.wikipreneurship.eu(external link)

Social economy and social enterprise

The EU’s Social Business Initiative

Examples

References

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