Goodbye Old Economy: Enter the New Era of Social Enterprise

by Lynn Serafinn, The 7 Graces of Marketing: http://the7gracesofmarketing.com/2013/08/goodbye-old-economy-enter-the-new-era-of-social-enterprise/

Lynn Serafinn, Founder of The 7 Graces Project , discusses how we have outgrown our economic models, and how social enterprise could hold the key to our future.

While it is becoming an increasingly popular idea here in the UK and Europe, the business model known as a ‘social enterprise’ is still a new concept for many.

Simply put, a social enterprise is new paradigm business model that amalgamates enterprise with a social focus.

The company’s constitution must clearly state how its activities will serve specific needs of a particular community. The ‘community’ it serves does not have to be geographically defined; it could be a worldwide or virtual community defined upon specific needs.

For example, the 7 Graces Project CIC serves a global community of independent business owners seeking to develop their ethical business and marketing practice.

While technically a non-profit organisation, a social enterprise can make a profit. But rather than benefitting shareholders, the bulk of this profit must be reinvested back into the company, thus enabling it to better serve the community.

As I see it, the idea of social enterprise as an alternative business model has arisen as a response to the relentless and never-changing economic and political swings the world has endured over the past two centuries.

Since the beginning of the Industrial Revolution (and even before), two broad ideological models have been continuously batting against each other for supremacy: capitalism and socialism. This dichotomy formed the foundations of the Cold War between East and West throughout the latter half of the 20th Century.

Consciously or not, our personal socio-economic orientation tends to fall into one or the other of these two camps. But since the global collapse of BOTH of these economic models over the past generation, we now find ourselves questioning the validity of either.

Capitalism vs. Socialism Stripped Naked

Over the years, I’ve trudged through many books on economics and economy theory. My conclusion after all this study is that I am no economist. My brain rejects the complexity of it all.

I like to see things at the most basic level, because I believe simplicity underlies everything in our Universe, no matter how complicated we humans tend to make things.

So, for my own sake, and for those who think like I do, here’s how I would explain Capitalism and Socialism when stripped down to their most basic level:

• Capitalism is the belief that everyone has a fundamental right to engage in free enterprise and reap the fruits (profits) of their labour.
• Socialism is the belief that governments have the fundamental responsibility to serve the needs of society and ensure the well-being of all.

Defined like this, both ideologies seem to be equally desirable. Who would not want to be free to engage in enterprise and reap the profits of their work? Who would not want to have their government ensure their well-being?

Yet, in spite of the soundness of both of these visions, Capitalism and Socialism have been on opposite sides of the economic and political pendulum for decades. Things swing Right (Capitalist, Conservative, Republican, Tory) and then they swing Left (Socialist, Liberal, Democrat, Labour) and then back again.

When something goes awry under the Left, advocates of the Right wag a big, self-righteous finger blaming the Left for everything that is wrong in the world. A few years later, the scenario repeats itself, but this time, it’s the Left who are wagging their fingers at the Right.

Over time, this continual swing of the economic pendulum has only made our problems worse, as we find that neither of these paradigms is 100% ‘right’ for either humanity or the planet:

• Capitalism without responsibility leads to exploitation of people and resources, an increasing divide between rich and poor, overproduction, overspending, over-consumption, debt and severe environmental imbalances .

• Socialism without free enterprise leads to over-taxation, economic and political dependency, apathy, and an endemic loss of craftsmanship, innovation, initiative and self-worth.

Most of us in the West tend to think that we live in a capitalistic society, but really our modern world is always a combination of these two economic models.

Even third-sector, ‘non-for-profit’ organisations are dependent upon the co-existence of Capitalism and Socialism. For example, many charities would suffer if they did not receive both corporate donations and government grants.

Social Enterprise as a Balancing Force

The institution of the social enterprise provides us with a viable opportunity to break from this dizzying swing of extremes, and balance the best of all ideologies:

• Like Capitalism, social enterprise is about enterprise. It has to function like a business. It cannot depend upon donations, taxation or grants to support it. It must generate enough money to sustain itself so it can do what it is meant to do.
• Unlike Capitalism, the majority of the profit generated must go back into the enterprise itself. There are also legal limits as to how much profit can be distributed to shareholders.
• Like Socialism, a social enterprise must be justified, defined and driven by a recognisable social purpose. Making a profit serves the company because as the company’s assets increase, it becomes more able to serve society.
• As a non-profit organisation, a social enterprise is eligible for some funding as a charity would be, but it cannot depend upon funding for its sustenance. Thus, it can benefit from the philanthropy and generosity of others, but it cannot become lax, needy or complacent.
• When a social enterprise dissolves, its assets must be given to another social enterprise with a similar social aim. Thus, unlike any of the afore-mentioned economic models, the social enterprise incorporates economic and social sustainability.

Why Our Economic Model Needs to Change

While many political and economic analysts in the media have shared their complex views of how and why we have found ourselves in the current recession, I believe it can be explained more simply:

Economic crisis was inevitable because our technologies rapidly advanced while our old economic models stayed the same.

Capitalism was ‘invented’ before our modern technologies were even imagined. It worked fine when our rate of production matched our rate of consumption. But the more advanced our technologies became, the more efficient we became at extraction, manufacturing and transportation.

This meant more products got to more people more quickly and we found ourselves with way more ‘stuff’ than we used to have.

Driven by our Capitalist model of linear economic growth, we had to figure out ways to drive down costs, and to encourage people to throw out their old stuff to buy new stuff. So, we invented modern marketing to encourage people to consume all this extra ‘stuff’.

The mismatch between our own efficiency and our Capitalistic model ensnared us in a relentless cycle of over-production, over-spending, debt, pollution and environmental waste at an unprecedented scale. And really, that’s just the tip of the iceberg; we’re not even looking at how it has impacted our societies, health and overall well-being.

Over and over throughout the 20th Century, we saw many warning signs that technology would one day catch up with us, but we chose to ignore them.

The first sign was the Great Depression of the 1930s. But in America, rather than opening the Pandora’s Box to discuss what was really going on, US President F.D. Roosevelt responded to this crisis by introducing income tax and social benefits - a clear example of how we tend to respond to Capitalistic problems with Socialistic solutions.

Throughout the 1970s and 80s, the words ‘recession’ and ‘inflation’ rotated in the headlines almost on a daily basis. Later, in the 1990s and early 2000s, we tried to plug up the leaky dam of Capitalism with the ‘chewing gum’ of a ‘credit card economy’, in a vain attempt to create the illusion that there was plenty of money to go around.

Eventually, we learned what a lie this was. Even entire governments fell into this economic trap by over-spending, especially on military technologies. Capitalism finally seemed to be crumbling under its own weight.

And still, in spite of nearly a century of warnings, most of us hold on to our out-dated economic thinking. We imagine we need to ‘fix’ our economic systems, rather than replace them. I find it ironic that we seem to have no qualms about upgrading our mobile phone every two years, but we’ve been stubbornly clinging to basically the same two economic models for over two centuries.

Let’s face it. It’s time we hold our hands up and admit it:

ALL our former economic models are obsolete.

It’s time we stop talking about fixing our economy, and start talking about redesigning it. But if the time for ‘business as usual’ is over, what could be the alternative?

Why Does the World Need Social Enterprise NOW?

I believe the new business paradigm of social enterprise can help provide the framework for that alternative. I also strongly believe social enterprise will play a vital role in the recovery of the global economy over the next generation. Just as Capitalism and Socialism each had their place in history, now is the ‘Era of the Social Enterprise’.

That is why I felt it was very important that the 7 Graces Project CIC would be a social enterprise. If the purpose of the 7GP is to help foster other new paradigm businesses , surely it had to be a living, breathing example of one. Over the past year, many ideas about what that would look like have come into our 7GP ‘boardroom’.

Finally, our business model is taking a tangible form. I spent 5 days working this past week on a 3-year plan for the 7 Graces Project with my colleague and co-director, Nancy Goodyear. We came up with some very exciting ideas, especially around how to make the enterprise itself sustainable, not just financially, but in terms of human resources.

And THAT is what makes the social enterprise such a vibrant concept. It’s not just about creating ways for the company to make money; it’s about designing a system where the company can keep serving society even after we’re long out of the picture. It’s taking business to a new, holistic level, profits serve the businesses, and businesses serve society.

Yes, it’s an experiment. Yes, it will be wobbly at first. But I have no doubt that this socially-oriented approach to business will become the norm rather than the exception by the time my young grandson has children of his own.

I cannot bear to imagine what the future would hold in store for us if we stubbornly persist in holding on to our old, antiquated economic systems.

But if we dare to step into that great unknown and challenge our old ways of thinking by creating new, innovative, socially focused business models - such as the social enterprise - we might just find ourselves stepping into the next phase of human evolution.

I, for one, feel privileged to be alive at this truly remarkable time in history, and to be amongst the early adopters of this innovative new paradigm. I hope you’ll share the journey that lies ahead with us. Please stay connected with the 7 Graces Project by subscribing to this blog and joining our Facebook community.

And, of course, please share your own experiences with social enterprise in the comments below. That way, we can all help each other as we work together to create a brighter future.

Lynn Serafinn
25 August 2013