In this chapter we introduce the notion of social enterprise to those who work in the construction industry. By the construction industry we mean the industry in its widest sense, covering every profession that contributes to its products and services. We begin by providing a brief historical background to the emergence of the social enterprise sector, describing the main social, economic and political forces which have shaped it over the years. We then go on to define some of the basic terminology which one will find in this area and describe the enormous untapped benefits which the construction and social enterprise sectors can bring to the world, and to themselves, by working more closely together. We conclude this chapter with some inspiring examples of pioneering social enterprises which have recognized this potential and started to engage with the construction industry.
Introduction – the private provision of social welfare
Communities around the world face a seemingly endless kaleidoscope of social and environmental challenges which seem increasingly resistant to change. In some countries, which have no social welfare system, it is left to families and charities to resolve these problems for themselves. In other countries, with a more advanced welfare system, governments have traditionally taken the responsibility to resolve these problems on behalf of their communities. However, government welfare systems, charities, not-for-profits and voluntary organizations are being overwhelmed with the sheer scale and complexity of the problems posed, creating calls for a paradigm shift which brings more commercial and entrepreneurial thinking to the table (Wustenhagen et al. 2008, Bonwick and Daniels 2014, LePage 2014). While the current mix of public and private welfare providers varies considerably from country to country (the welfare state most dominant in countries such as Austria, UK, Belgium, Denmark, Finland, France and Germany and the least in countries like the USA and Japan), most commentators point to an inexorable drift towards the greater involvement of firms in welfare provision around the world (Tachibanaki 2003, Kickul and Lyons 2012). As we will show in this book, it is here where many new and untapped opportunities lie, for the construction sector to better engage with the communities in which it builds. The activities of many high-impact industries like construction have come under increasing public scrutiny in recent years, presenting new risks and opportunities for managers which are not well understood. However, one thing is absolutely clear. Those who work in the construction sector can no longer be absolved from the wider social and ecological implications of their decisions. Construction clients and society at large are increasingly expecting that the industry contributes positively to the communities in which it builds. So the contemporary challenge for firms in the construction sector is not only to increase their levels of profit, efficiency and productivity for shareholders, but to ensure that they also contribute to social well-being and to the environment and that they are seen to be doing so. As Fox and Hooper (2011) insightfully point out, today's true leaders must operate at the intersection of business and society.
The involvement of the private sector in welfare provision is not new and its modern incarnation can be traced back to the 1980s when political support for traditional government-based welfare services began to decline in many developed countries. Inspired by the rise of neo-liberal economics, the decline of public sector revenues and the overwhelming scale and scope of problems facing society, the welfare state was criticized as an inefficient system of hand-outs which bred dependency and a sense of entitlement in society. To critics of the welfare state, social welfare was best provided through economic policies which allowed business to prosper and free markets to operate with minimal government intervention. Drawing on the polarizing theories of Nobel Prize winning economist Milton Friedman (1962), who himself was inspired by Adam Smith, it was argued that the ‘invisible hand’ of the market would enable prosperous businesses to thrive. This in turn would automatically provide employment for people, creating economic wealth and generate social benefits through mechanisms like private pension schemes, health insurance programmes and even company housing and other non-statutory welfare services. To proponents of these ideas, a business's only concern should be to increase profits for its shareholders. Indeed, if a business concerned itself with social issues then it would positively damage the interest of business and ultimately society in general by not being able to provide employment, etc.
During the 1980s, this political and economic philosophy was particularly enthusiastically embraced in the UK and US by Margaret Thatcher's and Ronald Reagan's governments. They promoted a new brand of small government, free enterprise and new federalism which resulted in the outsourcing of historical public services to the private sector, supported by a significantly reduced level of public funding. These profound changes meant that solving the world's social and environmental problems had suddenly become an entrepreneurial challenge and it was one for which many traditional charities and non-profits were unsuited and ill-equipped. While this paradigm shift in welfare provision opened the door to many large corporates to exploit the enormous untapped profit in the welfare system, it also catalysed a new breed of social entrepreneurs imbedded in their communities, who started their own small social enterprises to take responsibility for their own welfare needs.
It is these smaller social enterprises which are the focus of this book. In particular, we are interested in how social enterprises can work more effectively into the construction sector and how private firms in the construction industry can better engage with social enterprise to meet their responsibilities to society and the environment. This is a new addition to a research field currently dominated by the role of government and community associations. While there has been some good work done here, the next stage in the evolution of social enterprise is to help firms in the private sector recognize that social enterprises can add value to their business. This requires a sector-specific approach since every industry has its own unique networks, culture, traditions and ways of working. Of course there are also commonalities across industries. As we will show in this book, there is plenty of compelling evidence that social enterprises can make a potentially significant contribution to important generic business challenges like competitiveness, innovation, recruitment, training, workforce diversity, staff engagement, corporate reputation and community engagement. Importantly, the timing is right for the construction industry to start engaging more with the social enterprise sector. For example, in the UK, the Conservative government's flagship policy, ‘Big Society’, has strongly promoted the concepts of self-help and devolution, aiming to empower local people to take responsibility for their own welfare and reduce their reliance on the state. The Big Society idea is said to be a personal passion and crusade of the British Prime Minister David Cameron and many have welcomed this initiative as moving away from distant, inefficient, bureaucratic, inflexible and uncreative public welfare authorities. Advocates of the ‘Big Society’ concept argue that communities will benefit enormously from the opening up of many new opportunities for social enterprises to play a significantly greater role in solving many local social and environmental problems at a grass roots level. These are ideas that have also resonated in other parts of the world. For example, in 2014, the Australian Federal Government's Minister for Social Services questioned the ‘one-size fits all’ approach to social problems which he argued had been designed to fit Australian government silos rather than the needs of the community. Like the UK, the Australian government is seeking greater flexibility in welfare provision through the outsourcing of public services to the community and to the private sector, asserting that the state provision of welfare has denied people the chance to show individual initiative in solving social problems in a way which suits their own needs (Jabour 2014).
Although the concept of Big Society has undoubtedly provided some impetus to the UK's leadership in the field of social enterprise, it has also been highly controversial. For its many critics, the Big Society is simply a rhetorical smoke-screen for dismantling of the welfare state and justifying the UK government's austerity programme which has made deep cuts to welfare programmes (Macmillan 2013, Doherty et al. 2014, Whelan 2012). It is also widely seen as a further step towards the outsourcing and privatization of welfare services, motivated by reducing costs rather than ensuring better quality services to communities (Alcock et al. 2013). Furthermore, as Rose and Bulloch (2013) note, there is widespread doubt that communities are equipped to take on these additional responsibilities and many commentators have pointed to the recent global financial crisis as clear evidence that free markets, if left to themselves, will encourage selfish risk-taking behaviour which will fail to provide for society's social needs. Indeed, critics argue that the global financial crisis proves that if left to their own devices, unregulated free markets appear to exacerbate inequalities in society and damage the environment.
Social enterprise
No matter what political position one takes, it is clear that neither capitalism nor government intervention has been able to address the growing tide of social and environmental problems the world faces. In Australia for example, despite an unprecedented 23 years of continuous economic growth, there is a widening gap between the top and bottom of society with more than 1 in 10 Australians living in poverty and 2 million trapped in a cycle of long-term unemployment, economic inactivity or underemployment. The recent global financial crisis and changes in the labour market towards zero hours contracts, part-time work and formal qualifications have especially affected young people's employment prospects, especially those who do not complete school. For example, in Australia 41.7 per cent of those from the poorest backgrounds are disengaged from work or study, more than double the 17.4 per cent rate in the most well-off group, with a widening of the gap between 2006 and 2011. Indigenous students fare the worse with 60.6 per cent not being fully engaged in work or study, well above the 26 per cent rate among the rest of the youth population (Hurst 2013).
New thinking is clearly required and it is this need for social entrepreneurship which has led to the emergence of social enterprise which represents one part of a much larger ‘third economic sector’ which includes voluntary and community organizations, charities and social enterprises, associations, cooperatives, mutual organizations and foundations. Social enterprises are part of an emerging ‘social economy’ within this third economic sector which was recently defined by International Labour Organization as including any ‘specific forms of enterprises and organizations. Cooperatives, mutual benefit societies, associations and social enterprises … that all promote and run economic organizations that are people-centred’ (Fonteneau et al. 2011: 1). What makes social enterprises (and other social economy businesses) different to other organizations in the third sector is that they trade for a social purpose. As PWC (2011: 1) states, the defining characteristic of social enterprise is that it ‘combines the passion to solve social and environmental issues with the power of commercial enterprise – creating businesses that are good for the economy, good for people and good for the planet’.
In understanding what a social enterprise is, it is often easier to explain what it is not. For example, a social enterprise is not a traditional commercial business which is motivated to maximize profits for its shareholders. Conversely, nor is a social enterprise a charity or traditional not-for-profit which is motivated by purely social goals. Rather, although a social enterprise may have started in either way, it is a ‘hybrid’ organization which sits between these two extremes, trading in the open market for a social or environmental purpose (Goldsmith et al. 2010, Maclean et al. 2012). Agafonow (2013) encapsulates the idea when he points out that social enterprises ‘create social value’ rather than just ‘capture economic value’. They blend economic and social goals, are ‘mission-driven’ rather than ‘profit-driven’ and their performance is judged by the difference they make to the communities in which they operate (their social impact) rather than by the profits they generate for private shareholders. Social enterprises operate at the intersection of business and society, engaging in commercial activities with the aim of benefiting specific groups of beneficiaries in the community such as the unemployed, those with disabilities and the disadvantaged (McNeill 2011). While they exist to make profit like any other business, their profits are reinvested back into the community rather than into the pockets of a narrow cohort of private shareholders. For example, Villeneuve-Smith and Chung (2013) showed that 38 per cent of social enterprises were based in the UK's most deprived areas and that one of the defining characteristics of many social enterprises was that they tended to be based in and recruit from their local communities, providing employment opportunities for marginalized and disadvantaged groups. Indeed, social enterprises are more likely than normal businesses to be led by people from these groups.
As one would expect, being a relatively new form of hybrid organization, establishing and growing a successful social enterprise is challenging. Research shows that social entrepreneurs face numerous challenges in establishing and growing their social enterprises. As Doherty et al. (2014) point out, arguably the biggest challenge is resolving the inherent tensions and conflicts which can exist in balancing economic and social goals. What might be good for society might not be best for the business and vice versa. Indeed, recent research by Villeneuve-Smith and Chung (2013) indicates that many social enterprises fail to achieve financial sustainability, reflecting a widespread misunderstanding of how to manage this conflict and run a business successfully. In contrast to normal businesses, Villeneuve-Smith and Chung's (2013) research found that only 32 per cent of social enterprises cite trade as their main source of income and that 89 per cent sought grants rather than loans when seeking finance. Later in this book we will discuss research which shows that while grants and hand-outs might be useful in establishing a new social enterprise in the short term, they will not sustain it in the long term. Furthermore, if a social enterprise ideologically prioritizes its social goals ahead of its commercial goals then it is less likely it will survive to maximize its desired social impact in the community. The question of how social enterprises resolve these inherent dilemmas within their business model is a controversial one which is crucial to success, and it is an issue we return to later in this book.
The growing social enterprise sector
Despite the difficulties which many social entrepreneurs experience managing their business, recent research shows that the social enterprise sector is booming in many countries and that it is no longer a fringe activity, having found itself into many industries and communities. The UK has shown particularly strong leadership in this field through a wide range of government policy initiatives, support programmes and incentives which have ensured that the social enterprise market now represents approximately 24 per cent of total public spending at £82 billion per year (about 35 per cent of total public procurement expenditure). This is anticipated to increase an average of about 20 per cent per year in the foreseeable future fuelled by a steady growth of investment funds flowing into it. For example, between 2011/12 the UK's social investment market funding was just £202 million, supporting 340 social ventures in various stages of development. However, by the end of 2013 social investors had committed £6.3 billion and were expecting to invest 19 per cent more (£7.5 billion) in 2014 (Villeneuve-Smith and Chung 2013). This growth of funding has led to a rapid increase in the number of UK social enterprises in existence. For example, Villeneuve-Smith and Chung's (2013) survey showed that in the UK there were over 70,000 social enterprises employing around 1 million people and contributing over £24 billion to the economy. In the EU, the social enterprise sector is also expanding rapidly, accounting for over 6.5 per cent of aggregate employment (Monzon and Chavez 2012) and in Australia non-profits now make up 9.6 per cent of the economy and employ about 14.5 per cent of the workforce (Traill 2013). It is also interesting to note that many social enterprises have proved more resilient to economic cycles than traditional commercial businesses with more than twice as many seeking to raise additional finance for expansion than small to medium sized enterprises...
