Can social enterprise curb income inequality?

Promoting social enterprise in international development can foster sustainable and inclusive growth and help address entrenched social problems, notably those caused by income inequality. It can therefore play an important role in complimenting traditional philanthropic and government approaches to development. 

These were the verdicts of the panellists and audience polled during an auditorium debate held on June 3, 2015 by the British Council during the European Development Days, Europe’s leading forum on international development.

Entitled, “Social enterprise: Stemming the tide on income inequality”, the debate responded to the sharp rise in income inequality that has occurred over the past 20 years in developed and developing countries alike – even as the number of people living in absolute poverty has been significantly reduced.

Before introducing her global panel, Paula Woodman, the British Council’s Global Social Enterprise adviser and moderator of the debate, highlighted that economic growth is not currently creating greater income equality – and often the exact opposite. “Apparently one definition of insanity is when you keep doing the same thing over and over, but expect different results. So today we want to look at how our economic model can evolve,” she said.

Yu Ying, a Chinese social entrepreneur, illustrated the economic opportunities and positive social change that social enterprises can create. Her social enterprise, Gen-Silk, provides training and employment to ethnic minority women in the poor province of Guizhou to use traditional craft techniques to produce a range of elegant products that are sold nationwide. As a result, these women earn 5 to 20 times more than the average rural worker in the region and this enables them to remain at home with their children rather than leaving to seek work in China’s big cities – a phenomenon that has had negative repercussions for the so-called ‘left behind’ children.

Picking up on this theme, Peter Holbrook, who is both CEO of Social Enterprise UK and Chair of the Social Enterprise World Forum, described the global social enterprises movement as,  “often driven by smart young people that are finding new ways to tackle old problems” and were developing “market based solutions that are having a dramatic impact over the short and long term in tackling inequality and enhancing social mobility.” 

Linda McAvan, a UK member of the European Parliament and Chair of its Committee on Development, noted during the debate that inequality posed an enduring threat, saying, ‘If you impoverish everybody then how is the system going to work? We have to find new models. Our big institutions do need to invest in new models, as well.”  

Diego Angel-Urdinola, a senior economist at The World Bank Group, said that social enterprise model had proven it could successfully address social problems and market failures and that it would be a “natural ally” for international development organisations. Yet he acknowledged that donors including the World Bank did not yet have a clear strategy to promote social enterprise and that their financial support for social enterprise was infinitesimal compared to that given to traditional businesses. He said, “We are not doing enough […] and I would encourage policy makers and international organisations to have more concrete actions and milestones.”

Professor Aung Tun Thet, the economic advisor to the President of Myanmar, said that social enterprise were tackling a range of inequalities – income but also social, gender-based and political. He underscored the opportunity that social enterprise can represent in tackling youth unemployment, and hailed an entrepreneurship programme, co-run by the British Council, that inspires young people to unleash their innate creativity and build their own social businesses and create jobs for themselves.

This point was amplified by Budiman Sudjatmiko an MP from Indonesia, who noted that inequality was growing in Indonesia, where 56% of all assets were owned by just 0.2% of the population. He explained that he had introduced a law to promote social enterprise and provide funding to create community-owned social enterprises as these provided a strong means for economic empowerment and democratic participation. But he too noted that without some state intervention and private sector support, social enterprises could not reduce income inequality on their own.

This was a theme picked up by Daniel Mihajlovski, a European “Future Leader’, who spoke about improving the economic opportunities for vulnerable young people in his home country, Macedonia. He noted that Macedonia had just passed a first social enterprise promotion act and that he saw social enterprise as means of providing youth employment.

As the conversation turned from the role of social enterprise in tackling inequality to the steps needed to support the sector’s growth and ability to deliver positive change, Professor Thet said that it would be impossible for social enterprises to scale up substantially without support from the private sector and the state, noting that his government would encourage all foundations to set up social enterprises and mandated all foreign investors to devote 2-5% of their net profits to CSR.

Diego Angel-Urdinola of The World Bank said that social enterprises struggled to access funding and he would advise focusing on developing financial instruments to support this nascent ecosystem. 

Peter Holbrook called on government, charities and other organisations to reward social entrepreneurship by procuring goods and services from them. He said, “We need to move whole markets so they recognise social value. We need to be much more ambitious [because] if markets reward social value, equality, fairness, justice, conservation of natural resources then every business will be moving into this space.”

You will find video, quotes and a recap of the debate at the European Development Days Site here.