The Position of Social Entrepreneurship in Mainstream Economy

KoRSE blog_Položaj socijalnog preduzetništva u mejnstrim ekonomiji

Today, it is difficult to imagine an ordinary day which does not rest on economic activities. Although we do not think about the economic system on a daily basis and do not deal with theoretical backbones, or practices in economics as a basic social activity, it affects our daily lives in obvious and subtle ways. The economy influences many of the choices we make about work, leisure, spending, and savings. At the systemic level, macroeconomic developments, such as inflation, interest rates, and economic growth, also shape market relations and affect actors in the economy differently.

What we know more than today is that we live in an economy framed by a capitalist way of thinking, which is adapted to different political and cultural systems around the world – the mainstream economy. Nevertheless, the economy everywhere in the world is based on a certain degree of free market and profit orientation of all market actors. The prevailing belief is that the goal of any economic activity is to maximize profits and the whole spectrum of different types of economic actors – entrepreneurs, start-ups, micro, small, medium enterprises, multinational companies, is aimed at gaining extra profit for capital accumulation and further investments – again in order to maximize profits. When we think of the economy, we first think of all those multinational companies, a large amount of annual income, business complexes and centers, and a day that lasts more than 24 hours. In the modern capitalist system, this profit-filled center of thought is becoming increasingly fragile due to crucial socio-economic challenges – large numbers of unemployed, many people at risk of poverty and social exclusion, violated labor rights, environmental damage, and free market unattainable  for all without large investment capital to start a business. In such circumstances, the growth trend of the social enterprise sector is stable, as enterprises that are not exclusively profit-oriented, but oriented towards solving a social problem in the community by using the profits they make.

In the previous blog, we talked about what is “social” in social entrepreneurship. In this blog, we will explain where social entrepreneurship is places within the mainstream economic system. What is its relationship with the public sector and how does it affect the traditional business sector? How many social enterprises belong to the “third sector” and what does it represent for us?  Understanding the position of social entrepreneurship in the mainstream economy will help us understand why economic theorists and practitioners are increasingly characterizing the solidarity/social economy – the economy of the future

Where does the social enterprise sector in the mainstream economy belong?

For a long time, the mainstream economy knew only the division into public and private sectors. This division is based on the ownership of economic organizations. In the public sector, there are companies in the public sector – state ownership, which make the state a legal entity that equally participates in the market. Also, the state owns non-profit organizations, aimed at solving individual social challenges, most often related to unemployment, poverty and social exclusion. On the other hand, the private sector includes all firms, companies, start-ups and other organizations that are owned by a private person or a group of private persons – entrepreneurs, limited liability companies and the like. However, in the second half of the 20th century, the private sector in the mainstream economy did not address the socio-economic problems that the capitalist system brings with it – high unemployment, large gaps between rich and poor, worrying numbers of people at risk of poverty and social exclusion, violation of labor rights; while on the other hand the state under the influence of neoliberal access to the market had not effectively addressed these issues. States, believing that the free market could regulate these irregularities with an “invisible hand”, sided with big business and privatized many public services. Guided by the principle of minimalist interference in the economic activities of the private sector, states have not made greater and more effective efforts to solve the problems that have become more complicated in society. Such circumstances motivated people to unite and initiate actions in various forms in order to solve various socio-economic challenges in the community. It was these forms that developed over the years and influenced the change of the traditional division into public and private sectors, creating a “third sector” in the mainstream economy.

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The development of social/solidarity economy organizations, which we have already talked about, is additionally encouraged by the state’s determination to privatize social services and leave this role to companies, private insurance companies and other private sector actors. The result of the privatization of social services was reflected in the increased unavailability and inaccessibility of these services for a large number of people, which further supported the expansion of the third sector, within which numerous initiatives began to address social services, with value orientation, contrary to profit maximization. Circumstances of third sector development and growth not only changed the division of actors in the mainstream economy, but also had a strong impact on the changes in the functioning of the public and private sectors – the public sector turned more to cooperation with third sector organizations and launched more governmental nonprofits directed at community problem solving. The way in which the state treats the social problems that the mainstream economy creates is also sensitized. The ways and scope in which the state deals with these issues, as well as cooperation with the third sector, are tailored to each state individually, but it can be said that to a greater or lesser extent each state seeks to retain the right to regulate unemployment, poverty, social exclusion, labor rural development, environmental protection, etc. The third sector influenced the re-sensitization of the state to impose standards on the private sector in terms of correcting the defects of the capitalist system, but also to become more efficient in resolving socio-economic issues in accordance with the public interest.

Circumstances of development and growth of the third sector have not only changed the division of actors in the mainstream economy, but have also created a strong impact on the changes in the functioning of the public and private sectors.

The third sector  jhas also influenced changes in the private sector. The concept of socially responsible business, which today more and more companies are integrating into their business, also speaks of sensitizing the traditional economic sector. There are more and more companies that are transforming the ways of production in the direction of creating less negative effects on nature and the environment, and then more and more adhere to the principles of protection of workers’ rights, and create employment opportunities for members of marginalized groups. Many companies base their concept of socially responsible business on donations sent to organizations from the third sector, in order to contribute to the struggle of these organizations to solve the identified problem in the community. However, socially responsible business differs in many respects from the activities of social enterprises and other organizations of the solidarity economy. In short, socially responsible companies contribute to the community by reducing and limiting the negative effects they produce in their business, while social enterprises do not even meet this challenge and directly create benefits and positive changes in the community.

Non-profit is often singled out as the basic characteristic of the third sector. Organizations in the third sector are usually completely non-profit and funds for their work are provided through various types of donations. As the third sector also belongs to the domain of the private, when it comes to ownership – the association of citizens in organizations, implies the joint action of private and natural persons, the main difference is non-profit action. However, social enterprises, as third sector actors, are not non-profit because they make a profit, often as much as private sector actors, but the ownership structure of the enterprise itself and the use of final value embodied in profit are markedly different from traditional companies. Social enterprises most often belong to everyone – from workers to managers, as well as the profit is directed to internal or external programs for solving socio-economic problems in the community. That is why social enterprises, in all their individual differences, are always on the spectrum of the private and third sectors.

Socially responsible companies contribute to the community by reducing and limiting the negative effects they produce in their business, while social enterprises do not even meet this challenge and by their actions directly create benefits and positive changes in the community.

Third sector – value-oriented sector

In order to bring the position of social entrepreneurship even closer in the managerial economy, it is important to determine what the third sector means. According to the globally accepted definition, the third sector is a term that encompasses a large group of different organizations that are not part of either the private or public sector. They include volunteer, non-profit and non-governmental organizations such as citizens’ associations and associations, but also cooperatives, communes, foundations and social enterprises. The third sector is always a non-governmental, i.e. independent sector, value-oriented and directed towards the improvement of resources and capacities, in order to achieve their social missions. The value orientation of third sector organizations always implies the existence of a social mission – a focus on solving a recognized socio-economic problem in the community. These organizations are created in order to solve a problem that affects a certain group of people (marginalized and vulnerable groups) or the whole community (environmental problems, for example), as well as the focus on the development of the community through improving living standards and living conditions.

Third sector organizations base their work and exercise positive influence at different levels – locally, nationally and globally, while the type of action and the way of influence depend on the individual organization. Foundations, communes, cooperatives, citizens’ associations, social enterprises all engage in various types of activities, such as the provision of social services, research on socio-economic issues, public campaigns aimed at raising awareness on various issues of community importance, advocating for change or creation a new regulatory framework that shapes issues of community importance and the like.

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Social enterprises stand out the most in terms of profit segment, and in addition to social and humanistic activities carried out in accordance with the social missions of social enterprises, they also have a wide range of economic activities – production of goods, provision of services, and work in various industries. Social enterprises make a profit, by producing goods, providing services, or performing work, and then invest that profit in solving problems in the community. This is exactly what classifies social enterprises in the third sector, while making profits, these enterprises make them close to the traditional business sector in the mainstream economy.

Ideology in economic activities – ideology of values in social entrepreneurship

The basis and starting point of action of all organizations of the solidarity economy are values. These values ​​are embodied in all aspects of the work and the influence of these actors. The economy we are talking about is one built by citizens, for citizens, and for the planet. The values ​​of the solidarity economy are: self-help; self-responsibility; democracy; equality; equality and solidarity. In the solidarity economy, citizens have an active role in shaping all dimensions of life: economic, social, cultural, political, and ecological. The backbone is the adoption of successful existing practices such as efficiency and the use of technology and knowledge and adaptation for the purpose of community well-being based on common values ​​and goals. These values ​​are the foundation upon which the community of social enterprises is further built. Given the negative consequences of the activities of for-profit companies, as well as the inefficiency of the state to create conditions in which inequalities in society are declining, the contribution of social enterprises to changing the development paradigm has become unquestionable. The current crisis suggests that these actors cannot always be in a position to correct the mainstream economy, but rather that the solidarity economy must become the mainstream economy.

The values of the solidarity economy are: self-help; self-responsibility; democracy; equality; equality, and solidarity. In the solidarity economy, citizens have an active role in shaping all dimensions of life: economic, social, cultural, politica,l and ecological.

Social entrepreneurship as the economy of the future – social entrepreneurship and sustainable development

Global efforts to transform the existing system towards sustainable development have made social entrepreneurship recognizable. Although the Millennium Development Goals and the Sustainable Development Goals represent a socio-economic trend that has emerged independently of the development of solidarity and social economy organizations, the degree of permeation and complementarity is high. The concept of sustainable development was defined at the global level in 2015 through the Sustainable Development Agenda 2030 and is aimed at encouraging the creation of profits, maintaining the mainstream economy, but with maximum care for people and the planet. The main messages of all 17 goals are related to the eradication of poverty, protection of the environment, and ensuring peace and prosperity for all. As the goals are complex and interrelated, achieving them requires the joint efforts of governments, economies, and the third sector.

The third sector is value-oriented by nature and acts in a way that improves people’s living conditions. It deals with the protection and improvement of the environment and makes profit meaningful, only in the context of creating funds to solve challenges and problems in the community. Social enterprises mostly contribute to the achievement of sustainable development and they do so in two main ways: through the integration of sustainable development goals into their value chains (supply, production, distribution), or through focused economic and social action to meet some of the individual goals of sustainable development. Efforts to achieve sustainable development are set both globally and in the long run, and accordingly, the required transformation of the entire socio-economic system will result in changes in the managerial economy.

The complementarity of the goals of sustainable development and social entrepreneurship is still a new field for researchers and practitioners, but what is easy to see is that the demands for greater care for people and the planet, with profit as the basic principles of sustainable development, are most clearly achieved through the operation of social enterprises carried out within the existing market and the positive changes and influences in the community that they create.

If you want to find out which social enterprises exist in Serbia, what products and services they provide and what positive impact they create in the community, check out the CoSED database of social enterprises.

The Coalition for the Solidarity Economy Development has launched the first blog on social entrepreneurship in Serbia within the project “Fostering the development of social and solidarity economy” in cooperation with the Heinrich Boell Stiftung – Belgrade Representative Office.

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