2018 was a monumental year for the social enterprise movement, which made a large splash into popular culture with BlackRock’s CEO, Larry Fink, calling for more responsible companies. In his provocative statement to other companies, he declared that you “must contribute to society or risk losing our support”. Politicians soon sought his advice, and not too long after, United States Senator Elizabeth Warren announced her intention to introduce national legislation that would encourage accountable capitalism.
While exciting, these ideas are not new. Rather, they are the culmination of the “Social Enterprise” movement that has been in the making for 600 years: Businesses can do more than maximize wealth, and doing so can be used as an effective tool to create sustainable change.
Social Enterprise has many definitions, but it is NOT just another ‘buy one, give one’ business model (those don’t actually help). For the purposes of this article, let’s use the MovingWorlds Institute definition:
“A Social Enterprise is an organization that is based on business principles to sustainably solve social and/or environmental challenges through the creation of sustainable revenue streams — with the intention of positively influencing the larger system(s) around it”.
In this definition, Social Enterprises strive to both limit harm and inequalities in their operations, while also creating measurable, positive impact with their products and services. Along the way, they force competitors, partners, and even the governments they work with and within to also generate social impact.
So Where Did the Modern Day ‘Social Enterprise’ Come From? Let’s go back about 600 years to find out…
While the idea of economic systems incorporating social good with ‘social enterprise thinking’ is very new, the basis for more inclusive societies can be traced back millennia. Distilled to its most fundamental level, the drive to engage in giving and philanthropy are very human traits. This is perhaps best exemplified by the fact that the world’s most popular religions attempt to codify it into their belief systems. In Christianity, Jesus demonstrated acts of service, in Islam Muhammad encouraged waqf (charitable endowments), in Buddhism the Buddha taught compassion, and in Hinduism the giving “dana” (charity) is a part of one’s dharma.
So when did philanthropy start to interact directly with economic growth? To demonstrate how these two ideas co-existed, albeit separately, throughout history, let’s go back to the ancient Mali Empire, ruled by the wealthiest human to have ever lived, Mansa Musa. While far from benevolent — he was still a “conqueror” and slaveholder — Mansa Musa was charitable and invested in his communities by building schools and universities. Beyond his own empire, he would also donate riches to the poor in places he traveled through. History shows that he gave away so much gold on a trip through Egypt that he caused inflation. While this is recognizable to us now as philanthropy, during Mansa Musa’s rule, philanthropy was not yet a term that people used on a regular basis. But it was about to be…
At the same time as the power of the Mali empire began to wane, European power was beginning to grow as Europe experienced the Renaissance, which led to the development of more stable nation-states (albeit often at war) and more robust economies and governance systems. During this time, Influential Spanish scholar Juan Luis Vives (1492-1540) published his essay “De Subventione Pauperum” (“On the Subvention of Paupers”), in which he held that civil authorities were responsible for providing relief to the poor to maintain societal order. As nations grew, they continued to experiment with ways to maintain order, expand their reach, and increase their access to resources.
This competition between nations the quest for growth by amassing wealth gave rise to capitalistic and imperial economies, and it also gave rise to the power of corporations. In 1602, the world’s first publicly traded company, the Dutch East India Company, was founded. The growth of publicly traded companies enabled a more rapid spread of capitalism, and the resulting economic growth that created new opportunities to pull people out of poverty, while simultaneously creating gross inequalities. While public perceptions of corporations and publicly traded companies trend negative, they did enable real economic growth, which meant livelihood improvements around the globe for many. As data from the NY Times shows, this is worth a moment of attention: corporations — more than governments and NGOs — have fueled economic growth, which has pulled more people out of extreme poverty than any other individual factor. And while most corporations used the power to create wealth, some used it to create social good. As global economies were becoming increasingly interconnected, colonialism was spreading, and corporations were becoming more powerful, the following century would bring with it the birth of grassroots initiatives that were springing up to respond to the negative effects of capitalism.
During this century, community-based efforts to fundraise began to take root. According to The National Philanthropic Trusts’ History of Giving, in the 1750’s, a doctor by the name of Thomas Bond raised money for America’s first general hospital, which would offer free treatment for the poor. With the help of one of America’s first philanthropists, Benjamin Franklin, the fundraising efforts succeeded and the hospital opened in 1756.
“Wealth is not new. Neither is charity. But the idea of using private wealth imaginatively, constructively, and systematically to attack the fundamental problems of mankind is new.”
At this time, the ideas of making money and creating social good were still separate ideas. This is perhaps best epitomized by Andrew Carnegie, who, in the first half of his life was a monopolistic robber baron, and then in 1889 wrote the Gospel of Wealth advocating that personal wealth, beyond that required to supply the needs of one’s family, should be regarded as a trust fund to be administered for the benefit of the community. But creating good by amassing wealth and then giving it away wasn’t the only way that people were beginning to explore how the concepts of economic success and social good could work together for the good of the whole.
In fact, around the world, leaders were looking at ways to use business as a way to eliminate social problems and bring about positive change in the society. In the early 1800’s, a business owner named Robert Owen experimented with multiple reform ideas in his business New Lanark Cotton Mills, where his most famous initiatives included fair wage and social reform practices. According to Social Enterprise UK, “The pioneers of social enterprise can be traced as far back as the 1840s, in Rochdale, where a workers’ co-operative was set up to provide high-quality affordable food in response to factory conditions that were considered to be exploitative.” This Rochdale Society of Equitable Pioneers still exists as an entity creating good in its community to this day. Not too long after, in the 1860’s, Florence Nightingale started a nursing school and used her influence to also persuade legislative improvements and her work gave birth to the “Social Worker” movement. This intersection of business with local community conditions as well as national policy issues was monumental in shaping the future of business, and its roles in society.
It’s important to note that the idea of connecting business with charity was not only a Western ideal. In India, Vinoba Bhave founded India’s Land Gift Movement (1951). In fact, it was Bhave’s work that inspired Bill Drayton, the founder of Ashoka, to label and define the term of social enterprise in 1972. In the 1980’s, Drayton launched Ashoka to create a social enterprise movement – and it worked.
Building on decades of work by Drayton and others, in 2006, a new nonprofit, B Labs, was founded with a mission of creating a new type of legal entity that would enable people to use the power of business to create social good, and protect that mission from investors who were only seeking financial returns. While B Labs calls this a “Benefit Corporation”, it represents the idea of Social Enterprise.
This marks the point in history of the Social Enterprise movement when business success and positive social impact become interwoven — simultaneously being legally protected and enforced — as a combined strategic imperative, rather than co-existing separately as they had previously. And this movement is growing rapidly, as shown by this chart showing the number of Benefit Corporations incorporated over time (according to TechCrunch):
Another telling indication of the growth of the social enterprise movement is that the number of impact investors — investors seeking capital and social good returns — is also growing, fast. Investors, from angel investors to financial institutions, want to make sure their capital is not contributing to unsustainable growth, and valuing their community as much as they value profits.
Universities have also embraced social enterprise. In fact, many point to graduate programs, namely MBAs, with propagating the evils of capitalism with its ruthless “management by objective” training which focuses solely on bottom-line results for investors. This has developed into such a well-known issue that students created an MBA Oath. As of 2018, many universities most known for their business degrees are launching and/or integrated social enterprise concepts into their degrees and curriculum. As one of the earliest adopters, Stanford’s social enterprise programming started in 2008, and now other leading MBA programs including Harvard, MIT, and Penn offer social enterprise courses. As shared by Harvard, the interest in social enterprise has been growing rapidly in number of classes, enrollment, and case studies.
The Next 6 Years
So where will the social enterprise go from here now that it is a legally endorsed and protected entity, taught in schools, and has a growing number of potential investors – not to mention a workforce that is increasingly looking to create social impact with their careers?
While the last 600 years have been foundational to today’s social enterprise movement, it’s the next 6 years that will dictate the future of our society. With these legal entities available, now is the time for role model business to lead by example and embrace social enterprise. Now is also the time for nonprofits and governments to integrate social enterprise thinking so that they can also become more sustainable. And now is the time for legislation to be adopted by nations that foster more inclusive, sustainable, and accountable capitalism. In a world facing seemingly insurmountable problems like rampant inequality, food security, a lack of access to clean water and climate change, we are desperately in need of a new generation of people that will embrace Social Enterprise thinking and bring it into the mainstream.
In the MovingWorlds Institute, we work with purpose-driven leaders who are bringing Social Enterprise thinking to startup, public, and nonprofit organizations in ways that not only harness best practices in social enterprise, but also to positively influence the systems around them. This is, in fact, the spirit of social enterprise thinking: It’s not simply doing an act of goodwill in addition to doing business. It’s integrating social good into business strategy to make the entire organization, and the systems around it, better. What part will you play in that?