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A Brief History of Social Enterprise in Ukraine

In 2002/3 P-CED's founder spent several months developing a social enterprise strategy plan for Crimea's Tatars and was interviewed in 2004 by a diaspora leader

"The following interview with Terry Hallman, Director of the London-based People-Centered Economic Development Ltd., examines the various factors involved in improving small-business environment in post-Soviet Crimea. Focusing on the case of Crimean Tatars, he discusses the availability of micro finance, assistance from international organizations, direct foreign investment and aid from the diaspora. He explains why his proposed People-Centered Economic Development program, also referred to as social enterprise, would work better for repatriates who lack the necessary material collateral to start their own business."

Terry goes on to describe the non dividend distributing model of business he'd argued in his 1996 position paper and how it had been deployed to source the Tomsk Regional intiative in Russia.

A key element in the Tomsk success was the deployment of unsecured lending and business development education which had helped achieve a remarkable first year survival rate of 99%.

In the proposal itself, he makes the case for aligning the "community funding enterprise" with a micro credit union as a potential solution to the high interest rates typical of this kind of microfinance:

"By combining a community-funding enterprise (CFE) with a micro-credit union, the limitations inherent in each one is greatly diminished. The CFE provides sufficient funding to ensure the operating costs of the credit union, reducing the risk that the credit union will have any need to use its capital to sustain itself. The credit union immediately makes available sufficient loan money to match the needs of the community, thereby eliminating the time needed for the CFE to generate the same amounts of money. Additionally, CFE profits over and above what is needed to help with the operating costs of the credit union can be put directly into the credit union. Over time, the amount of money used to originally fund the creation of the CFE is offset by CFE contributions to the credit union. The credit union is increased so that larger amounts of money become available either to make larger loans or to service more borrowers. Together, the CFE and credit union create an enterprise where the original funding not only remains but also increases with time. They complement and balance each other by addressing the economic goals both have in common and offsetting each other’s limitations."

It' was also the approach we proposed in 2004, with our UK business plan to tackle poverty, which warned of the risk of global uprisings.

One of these would begin that same year, when we returned to observe the beginning of the Orange Revolution.which had been brewing since the murder of journalist Georgiy Gongadze.

We learned later that Terry's 2003 op-ed for the Kyiv Post had caused quite a stir, as intended 

"I have just spent a year in Crimea at my own expense designing a program that I believe would relieve some of the country’s poverty. The U.S. is interested in making the program a reality.

The program involves no freebies or handouts, and it would make it possible for anyone to earn a decent living. As an added benefit, it would pump funds into social programs for children like those who presented themselves on my doorstep.

The problem? Ukrainian government officials are reluctant to permit its implementation unless they see an opportunity for personal gain. I am totally opposed to graft, so we are at a stalemate. Neither Ukraine or the U.S. can implement the program without my assistance, and I have made stealing from the program extremely difficult.

My advisors say that Ukrainian officials will not budge until they are paid. In the meantime, messy details like starving children are held hostage. It seems that no matter how good your intentions, nothing happens until the dons of the Ukrainian political mafia are paid.

Because the public will not change this situation, the officials are killing the economy, people are starving or dying of neglect. At the end of the day, it seems that most Ukrainians just don’t give a damn about each other. Surely, there are exceptions, but if those exceptions exist, they are all but invisible."

Lack of interest in the UK led us back to Ukraine, to make childcare reform our primary cause. 

Early In 2006, it was a letter from an NGO which drew our attention to Torez, a name we were unable to speak when the Death Camps, For Children article was published.  The root of the problem is poverty and the cause of poverty is greed:

"Excuses won't work, particularly in light of a handful of oligarchs in Ukraine having been allowed to loot Ukraine's economy for tens of billions of dollars. I point specifically to Akhmetov, Pinchuk, Poroshenko, and Kuchma, and this is certainly not an exhaustive list. These people can single-handedly finance 100% of all that will ever be needed to save Ukraine's orphans. None of them evidently bother to think past their bank accounts, and seem to have at least tacit blessings at this point from the new regime to keep their loot while no one wants to consider Ukraine's death camps, and the widespread poverty that produced them.. "

By October 2006, a formal proposal for Microeconomic Development and Social Enterprise enters government channels.

"It is almost impossible to overstate the need for social enterprise in Ukraine. The nation is plagued by widespread socioeconomic problems and deficiencies, with a host of disparate, haphazard, uncoordinated efforts aimed at solving them. In order to understand the overwhelming critical need for social enterprise and a formal national center to facilitate social enterprise, an operational definition for social enterprise is essential.

Enterprise is any organizational activity aimed at a specific output or outcome. Once the output or outcome – the primary objective – is clear, an organization operating to fulfill the objective is by definition an enterprise. Business is the most prominent example of enterprise. A business plan, or organizational map, provides a reference regarding how an organizational scheme will operate to produce a specific outcome: provision of products or services in a way to create profit. Profit in turn is measured numerically in terms of monetary gains, the “bottom line.”

This is the function of classic capitalism, which has proven to be the most powerful economic engine ever devised.

An inherent assumption about capitalism is that profit is defined only in terms of monetary gain. This assumption is virtually unquestioned in most of the world. However, it is not a valid assumption. Business enterprise, capitalism, must be measured in terms of monetary profit. That rule is not arguable. A business enterprise must make monetary profit, or it will merely cease to exist. That is an absolute requirement. But it does not follow that this must necessarily be the final bottom line and the sole aim of the enterprise. How this profit is used is another question. It is commonly assumed that profit will enrich enterprise owners and investors, which in turn gives them incentive to participate financially in the enterprise to start with. 

That, however, is not the only possible outcome for use of profits. Profits can be directly applied to help resolve a broad range of social problems: poverty relief, improving childcare, seeding scientific research for nationwide economic advancement, improving communications infrastructure and accessibility, for examples – the target objectives of this particular project plan. The same financial discipline required of any conventional for-profit business can be applied to projects with the primary aim of improving socioeconomic conditions. Profitability provides money needed to be self-sustaining for the purpose of achieving social and economic objectives such as benefit of a nation’s poorest, neediest people. In which case, the enterprise is a social enterprise. "

Our position seem increasingly isolated. It seemed prudent to gain support and so we joined the Social Enterprise Coalition and introduced what we were doing:       To be told:

"At present, your area of work lies beyond the focus of our work, however, we know of some people who may be more aligned with what you are going.  Please see details below:"

There was an obvious risk that this plan could be used for the benefit of an elite minority and in July 2007, we were obliged to take a step toward radical transparency:

“As the 60th anniversary of the Marshall Plan came around in June 2007, noise was emerging within Ukraine of a certain political boss preparing a Marshall Plan for Ukraine.  This person was a reputed mob boss — exactly the sort of entity that the original Marshall Plan meant to oppose.  It seemed most likely that whatever he came up with would be self-serving, hijacking the label ‘Marshall Plan’ and turning the whole notion on its head.  I reviewed the original Marshall Plan and realized that what I had written was, in fact, the definition and spirit of the original Marshall Plan.  Thus, in June 2007, I appended the original title with “A Marshall Plan for Ukraine.”  After some discussion among trusted colleagues over timing, I published an abbreviated version of the paper in two parts in August 2007 in the ‘analytics’ section of the Ukrainian news journal"

In February 2008 the 'Marshall Plan' was put in front of USAID  calling on their assistance with a network to tackle corruption in which local civic activists and human rights advocates were partners.

"Behind the scenes, I had already written and submitted the “Marshall Plan” into friendly official – but duly skeptical – channels. I made a deal, that I would recommend Ukraine for a joint project with the US side on condition that Kyiv approved the US side’s involvement and took the initiative to get started. I made clear that decisions regarding project approval would be up to others. In the interest of participative development, I told the Ukrainian side that they would have to take initiative and start the project themselves. If they did that, then I would proceed as described. To demonstrate that initiative, Ukraine would have to unilaterally agree and undertake the most critical factor first – abandoned children in psychoneurological facilities. Final revision of circulation document was submitted into Ukrainian channels in mid-February last year. Kyiv announced their decision about two weeks later to open at their own expense more than 400 new treatment facilities (reference at end.) In mid-March, I forwarded a copy to Ambassador Taylor with recommendation to proceed if the US side found interest in doing so. Appropriate negotiations could only be between US government officials and Kyiv government officials. Kyiv’s renegade (my opinion) parliament was dissolved two weeks later leaving Ukraine’s overall government status up in the air until December."

Later, in December 2008 the plan was introduced to what was known as the EU Citizens Consultation,

IN 2010 Learning of the Budapest social business tour, I introduced the plan for a spcial business ideas competition run by Erste Bank.

Soon after I learned of The British Council's intent to take social enterprise to Ukraine and the plan was introduced in our application for partnership. 

In the end, as can be seen plainly from the donors and sponsors to USAIDs East Europr Foundation. All those I refer to above are part of it. Erste Bank, The British Council , the oligarchs including the "alleged mob boss" are "all in this together".  

Their Code of Ethics says:

"East Europe Foundation’s mission is to mobilize public and private resources for community, social and economic development in Ukraine. Its work with partners and donors from the public, private and civil society sectors is professional, transparent and partnership-oriented.
East Europe Foundation does not accept funds from entities if there is an unacceptable risk that the donor contributes to or is responsible for serious and systematic human rights violations, such as murder, torture, deprivation of liberty, forced labor, child labor and other forms of child exploitation, severe environmental damage, gross corruption or other particularly serious and systematic violations of fundamental ethical norms.
If doubts are raised about a particular donor, the Board of Directors of East Europe Foundation shall review the donor and make a final decision.
East Europe Foundation does not promote corporate donors or partners’ products or services in its projects; however, donor names and logos may be displayed in communications materials and project presentations. Donor funds are invested for the benefit of local communities."

It should be noted that the articles of Ukraine's written constitution make it a responsibility of all residents to act on the knowledge of harm being done to the vulneralble and voiceless. Those who go out of their way to exclude and silence the whistleblower are in contravention of this constitution.   As I've related earlier, the father of that constitution Mykhailo Syrota died after speaking out, like us, about child abuse.  

“There’s a whore-house in Odesa where 3 to 6-year old kids are used as prostitutes. Officially, it is called the Zhemchuzhyna orphanage and in which 60 boys and girls live. They are regularly raped by adult clients. Who provides a cover for it? – The law-enforcement agencies. I have to do something about it. A have a 6-year old grandson, and when I think that my grandson can be one of them, I can kill the criminals with my bare hands. Now they tell me that vice is easier to be dealt with when my deputy immunity from prosecution is lifted. But a lawmaker must be protected against coercion and harassment from anyone, law-enforcement including,”

So what of the 'Marshall Plan' now Ukraine has become something of an international crisis. One of those call for one now, is a right wing political group with influence in the EU    The European People's Party have a proposal costing 30 billion Euros.

Commissioner Michele Barnier denies any knowledge of the proposal and its uncanny resemblance to a subsequent consultation's conclusions

The EU have also discovered people-centred business a 'new concept' as of last year

We should also pay attention to Klaus Scwab of the WEF and his advocacy for a Geneva Ukraine Initiative.

Wrting recently on The Profitability of Trust, Schwab makes the case for business which applies profit for social objectives. Exactly the same point as made in the 'Marshall Plan and this article on The New Bottom Line I wrote for Mixmarket last year.  It seems logical that anyone researching a plan of action would have found this.

It was former PM Tony Blair who made social enterprise UK government policy and here he is at Davos playing host to one of the oligarchs. They still don't seem to know what to do.




A conflict of ethics.

In drawing USAID's attention to the involvement of racketeering and organised crime activities, Terry Hallman had delivered an inconvenient truth for anyone who would try to steer around the problem of institutional childcare. As a Brtish subject I have no influence on USAID policy, but I do have the right to question The British Council who after all are supported by our taxes. 

When pressed by my MP Mark Harper on the question of why our application for partnership was ignored, the answer given by Martin Davidson was that social enterprise partners were expected to make a financial contribution. We had of course done so, in funding our research and development activities, for which there was no compensation. Were they expecting a bribe?

I have been unable to find any such criterion in The Britiish Council's solicitations for partners. .We have however contributed through taxation the investment in research and even in the unpaid support service we provided for our Meeting Point software used as their Manchester offices.

A more plausible reason for keeping us out is that tackling childcare reform would have been considered a high risk strategy for what was a essentially a corporate vanity project.