Doing well by doing good

    8 November 2014

    Have you heard about the Social Economy? It’s big stuff, apparently. Last year, it contributed more than £24 billion to the British economy, a sum which is expected to grow considerably next year. There’s a jazzy new campaign group, the Social Economy Alliance, which is spending lots of money trying to influence political parties as they prepare their election manifestos for next year. It has taken out advertisements across Westminster Tube station, showing Margaret Thatcher as Che Guevara. ‘The best ideas from left and right,’ the posters say.

    What’s it all about? The Social Economy in fact refers to the more than 180,000 enterprises, co-operatives and other groups which occupy the space between the private sector and the voluntary one. Social enterprises are trading entities rather than charities in the strict sense, but ones with ‘a social mission’ (i.e. they aim to do something good) and they reinvest at least half their profits in their own projects or other charitable causes. The Big Issue is a celebrated example, as is Jamie Oliver’s Fifteen restaurant, which makes lots of money employing underprivileged youths.

    It’s all very Third Way — harnessing the power of capitalism to make society more equitable, and in that sense the Social Economy is not so different from the Big Society, or Ed Miliband’s ‘producers versus predators’ thesis. They are all waffly political concepts reflecting the long-standing consensus that the financial system really ought to work better for those at the bottom, and that businesses should do more of the state’s work in upholding the common good.

    What’s changed is that social enterprises are now big business. As an investor, one can now feel good about oneself and expect to make a tidy gain at the same time. ‘We need to get away from this old idea that just because these businesses are socially good they cannot generate competitive returns,’ says Peter Holbrook, chief executive of Social Enterprise UK. ‘That’s just not the case any more. I have several social investments and I fully expect to see a healthy return on them; anywhere between 3 per and 15 per cent.’

    Since the 2008 crash, more and more people have moved away from traditional business models towards the social sector. Social enterprises now make up around 15 per cent of small to medium-sized enterprises in this country. ‘People can see that it’s not just a nice thing to do, it’s a very smart thing to do,’ says Holbrook, ‘because when enterprises go social they usually see a huge productivity gain.’ What he means is that people work harder if they feel they are doing something worthy. A Social Economy Alliance press officer tells me that ‘56 per cent of social enterprises developed a new product or service in the past 12 months compared with 43 per cent of small to medium-sized enterprises,’ which suggests that social enterprises are more innovative than purely money-orientated endeavours.

    Britain is now recognised as a world leader in social entrepreneurship, and that’s because our government goes to great lengths to encourage it. The Treasury now offers Social Investment Tax Relief at 30 per cent, so high-net-worth Spectator Money readers can offset earnings in a tax-efficient but reassuringly ethical way.

    Since 2010, the government has also offered Social Impact Bonds, which try to direct private investment into improving ‘social outcomes’. The deal is that if an altruistic group can prove that it has saved the state money — for example by reducing re-offending rates among ex-prisoners, as has been done by Social Finance UK in Peterborough — the state agrees to pay back the original investors in the scheme with interest.

    Fewer criminals, cheaper government, happy investors. Win-win-win. It all sounds a bit too lovely, doesn’t it? When societies try to blend goodwill and self-interest to create systems so perfect that nobody needs to be virtuous, something begins to stink. There’s bound to be a lot of hot air and possibly a fair amount of corruption. We’ve already seen how the government’s green schemes generate eco-fortunes for millionaires with little provable benefit to the environment. Still, if there’s money to be made from doing good, that can’t be all bad.