The Rise (or not) of the Social Enterprise

catherine swift

For a few years now, the left has championed a supposedly new type of business dubbed a “social enterprise”.  The social enterprise claims to demonstrate a different sort of business model which cares at least as much, if not more, about social goals as it does about traditional business goals such as making a profit and staying in business.  Some governments, including the Liberals here in Ontario, have sung the praises of this new type of business as the wave of the future and a better way of operating than the fusty old business models of days gone by.  There are organizations that have been set up to promote this type of business, such as the Better Way Alliance and the Ontario Living Wage Network.   Common characteristics of these businesses are that they claim to pay their employees a “living wage” (usually a dollar or two over the minimum wage), prioritize environmental and other social issues, and seek to make a positive contribution to the communities in which they operate. These are all of course laudable goals, and at first blush this sounds like an innovative new trend.

However, a little digging reveals quite a different story.  One of the tendencies of these social enterprises seems to be to disparage the so-called old business models, claiming them to be only about making money at the expense of employees and others.  Yet decades of research about “old-school” businesses show that the vast majority of them are hardly rapacious abusers and profiteers, but are rather solid contributors to their communities, treat their employees well and succeed in being valuable members of society.  In fact, a number of research studies over the years have concluded that the businesses with the highest levels of employee satisfaction in Canada are actually small businesses, not larger firms nor governments that likely have somewhat higher pay and more benefits.  These studies show that the attributes employees value in a smaller firm tend to be non-monetary, including such things as feeling they are making a valued contribution to the enterprise, having more job flexibility and working hand-in-hand with the business owner(s).

Another aspect of the social enterprise that frequently arises is that they have an unfortunate habit of being on the receiving end of government subsidies or monies from other sources such as charitable foundations.  This calls into question whether these are really businesses at all or just another extended arm of government.  Many social enterprises are quite vocal about the fact they are paying a “living wage” and still remain a profitable business, and are quick to criticize other businesses that don’t rise to this lofty standard.  If this is being accomplished only by government subsidies taken from the tax dollars of those very “old school” businesses they are competing with, it’s hard to see this as a major advancement in business structure.   A cynical person might even say that these social enterprises are really just another means of recycling taxpayer money in a somewhat hidden way, boasting about achieving lofty social goals, while not really accomplishing very much at all.  Based on the evidence to date, that cynicism would be very well-founded.

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