Profit with Purpose - a Critical Mass for social enterprise

As is fairly well known, a critical mass is the minimum amount of fissile material required for a sustained nuclear chain reaction. This term has recently been used to describe the evolution of social investment.  This month it's the title of yet another conference on social value and investment, at the Royal Institution.      

At a pre-conference event in London, the CEO of the British Council Sir Ciarán Devane said that he is fully committed to supporting the development of social enterprises globally.

Devane is the former CEO of Macmillan cancer support whose fundraising videos have become prominent on our TV screens:

 

 

From personal experience, I know that feeling, both from living with cancer and running a social enterprise. Both propagate the perception that support is at hand   .

In reality, as I'm informed by a local healthcare professional who'd referred several patients in our area to Macmillan, that support doesn't seem to exist, any more tham it does for social enterprise. A neighbour, guided toward them by CAB described a letter apologising for being unable to help at the time, which to him meant they weren't going to help any time in the future.

The British Council had been our customers for a  number of years and from 2004 when our work began in Ukraine, I'd made several approaches for their support, offering the same kind of IT support service as we'd done for their head office in Manchester. In 2010, we responded to their solicitation by applying to become a partner.

At the time, we shared our strategy paper on 'Microeconomic Development and Social Enterprise: A 'Marshall Plan' for Ukraine which included a proposal for a social enterprise development centre at Kharkiv National University. In 2007, we'd helped this university leverage investment for an education centre for fundamental science. The was once the place where Oleg Lavrenteyev had lead the development of Russia's fusion weapons.    

"One of the most important aspects of general prosperity of any country, including Ukraine, is development of science. Western countries invest in science not because they are wealthy, but the opposite: they are wealthy because they invest in science. In Ukraine the scientific field now mostly retains old (pre-independence) level of functionality, organization and efficacy, which does not respond to the needs of social development and modern progress. Scientists now must reexamine and reshape the science policy both to sustain continuity and succession in science and to facilitate the role of science in the broader national interest.

Each core element of the national interest requires strong commitment to scientific research and education. Through scientific discovery, scientists enlist the forces of the natural world to solve many of the uniquely human problems: feeding and providing energy to a growing population, improving human health and security, taking responsibility for protecting the environment and the global ecosystem. Scientific discoveries inspire and enrich any country, teaching about the mysteries of life and the nature of the world. Ukraine’s future demands investment in people, institutions and ideas. Science is an essential part of that investment, an endless and sustainable resource with extraordinary dividends. Science is also an endless resource: in advancing the frontier: knowledge of the physical and living world constantly expands. The unfolding secrets of nature provide new knowledge to address crucial challenges, often in unpredictable ways. Moreover, science fuels technology  the engine of economic growth that creates jobs, builds new industries, and improves the standard of living."

Joining the Social Enterprise Coalition in 2006 and introducing this work, we'd been told "At present, your area of work lies beyond the focus of our work".  It wasn't clear whether this meant the international nature of our work or the social business model, I'd described to them. It seemed we'd managed to join a club who weren't too keen to have us as members.

The overall theme of our 'Marshall Plan' was a soci\al investment strategy for a country on the brink of crisis. We'd arrived in October 2004 and found ourselves working alongside Maidan civic activists who helped steer the proposal into government channels. By March 2007, government had announced policy changes which aligned with the main recommendations for childcare reform.

Our founder Terry Hallman refused to give up on the cause of childcare reform which had begun with his shocking and insightful report on Death Camps, For Children. Both a Maidan leader and I had spoken to him on the night before his death, alone in Kharkiv. Natalia Zubar wrote of man whose last thoughts were for those in greater need.

"The author of breakthru report “Death camps for children” Terry Hallman suddenly died of grave disease on Aug 18 2011. On his death bed he was speaking only of his mission – rescuing of these unlucky kids. His dream was to get them new homes filled with care and love. His quest would be continued as he wished."

We didn't get a response from the British Council but a couple of years later I learned from Martin Davidson that their partners were expected to make a financial contribution. What did this mean? As a quango supported by funding from the public purse, we'd contributed in tax payments for many years and there was no such criterion to be found on their solicitations.

We weren't giving our work away of  course, but defending the copyright from predators, As Terry Hallman wrote in his notes:

“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 for-ua.com.”

It may come as no surprise to learn that the 'political boss' described above became a partner in the joint USAID/British Council initiative for social enterprise in Ukraine, listed here as a donor to the East Europe Foundation alongside partners such as BITC. 

What the 'Marshall Plan' had argued was tha case for social investment on a national scale to the tune of 1.5 billion dollars. The paper described an approach based on the P-CED model, where profit is applied for the benefit of society. It said this of a social enterprise development initiative.

' 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.'

This is the 'Profit for Purpose' model shared with the social enterprise community in 2004, as described on our About page.

As one may observe, it's something which has been widely endorsed on the Mixmarket platform, describing a 'New Bottom Line' for capitalism of which the proof of concept had been the 'Marshall Plan' and its impact.

At the conference later this month, contributor John Elkington will no doubt be presenting the case for Breakthrough Capitalism which seems very much aligned in its thinking. 

 

Back to the crisis in Ukraine and as uprising seems to be inevitable, Maidan leaders make what amounts to a last minute appeal for support for Western Governments.It refers to a 'Marshall Plan' type of intervention. I take it upon myself to share with MEPs serving South West England. One of these, Sir Graham Watson was an advocate for military intervention in Ukraine. It was Jeremy Corbyn who like ourselves, had argued for peaceful assistance. 

 

 

Noting what Jeremy said about the war in Iraq, the 'Marshall Plan' has reasoned;

"It is proposed that the United States of America be actively engaged in supporting this project, financially and any other way possible. Ukraine has clearly demonstrated common will for democracy. Ukraine has also unilaterally taken the first critical step to fulfill this program, thus clearly demonstrating initiative and commitment to participation required in the original Marshall Plan sixty years ago. The US side is presumably attempting to foster democracy in another country, which never expressed much interest and shows little real interest now. That of course is Iraq, where recent estimates indicate a cost of $1.5 billion per week.

That same amount of money, spread over five years instead of one week, would more than cover the investment cost of the initial components of this project, and allow a reserve fund for creating new projects as Ukraine’s intelligentsia invents them in the Center for Social Enterprise. It is proposed that Ukraine and the US provide equal portions of this amount. Ukraine is certainly able to provide that level of funding, given that projects are designed with the same fiscal discipline employed in the traditional business sector. That means they pay for themselves, one way or another.

Project funding should be placed as a social-benefit fund under oversight of an independent board of directors, particularly including representatives from grassroots level Ukraine citizens action groups, networks, and human rights leaders. "

In 2008 this was followed up by an appeal for support to USAID and the US Senate  Committee on Foreign Relations, which concluded:

"Thank you for your time and attention to this. I and others will look forward to hearing from you. I hope we continue to realize ever more fully that outside the box and inside the box have only a box in the way. We outside the box know quite a bit of what’s going on, many times in exquisite detail, perhaps in ways that those inside the box can’t quite as easily access if at all. We are grossly underfunded in favor of missiles, bombs, and ordnance, which is about 100% backwards. Now, with even the US Pentagon stating that they’ve learned their lesson in Iraq and realize (so says top US general in Iraq ten days or so ago) that winning hearts and minds is the best option, I and others shall continue to think positive and look for aid budgets and funding spigots to be opened much more for people and NGOs in silos, foxholes and trenches, insisting on better than ordnance, and who understand things and how to fix them. We can do that. We can even do it cost-effectively and with far better efficiency than the ordnance route. Welcome to our brave new world. Except it’s not so new: learn to love and respect each other first, especially the weakest, most defenseless, most voiceless among us, then figure out the rest. There aren’t other more important things to do first. This message has been around for at least two thousand years. How difficult is it for us to understand?"

A critical mass would be an appropriate metaphor for social investment if it led to a chain reaction of investment for social benefit. Clearly that is very far from the current situation which is being stage managed by the British Council and the neoliberal interests they serve as a "soft channel" for despotic regimes and oligarchic interests.      

Among these is another 'Marshall Plan' in which none other than Lord Mandelson has carved himself a role, "bringing together the nation's employers, including the oligarchs, as they set about to build a new Ukrainian capitalism".. It calls for investment of 300 billion dollars, which is 200 times what was needed before the conflict began. There is no plan as such. 

How about that? A new Ukrainian capitalism.

The argument for social purpose in capitalism were heard again without attribution at Davos in 2014 where Tony Blair chaired a discussion on behalf of oligarch Viktor Pinchuk in which Bill Gates, Sir Richard Branson and Muhammad Yunus took part.

 

Interestingly, in 2009, both Virgin Unite, the charity run by Sir Richard Branson and Yunus' Grameen Creative Labs has disregarded calls to support this program as had UK government when Business Secretary Lord Mandelson proclaimed that they were helping firms who help others, There were obviously some exceptions, like Ukraine's abandoned children:

'This is a long-term permanently sustainable program, the basis for "people-centered" economic development. Core focus is always on people and their needs, with neediest people having first priority – as contrasted with the eternal chase for financial profit and numbers where people, social benefit, and human well-being are often and routinely overlooked or ignored altogether. This is in keeping with the fundamental objectives of Marshall Plan: policy aimed at hunger, poverty, desperation and chaos. This is a bottom-up approach, starting with Ukraine's poorest and most desperate citizens, rather than a "top-down" approach that might not ever benefit them. They cannot wait, particularly children. Impedance by anyone or any group of people constitutes precisely what the original Marshall Plan was dedicated to opposing. Those who suffer most, and those in greatest need, must be helped first -- not secondarily, along the way or by the way. '

A critical mass for social enterprise would be the minimum support required to create a sustained social economy. That isn't going to be arriving any time soon. 

in December 2010 Terry Hallman wrote to Price Waterhouse Coopers reminding them of the importance of IP protection:

"Without IPR protections, it is extremely unlikely that social enterprise can take root in Ukraine. Reason: any social enterprise project, anywhere in the world, which is capable of turning a profit can have the 'social' part stripped out in favor of increased financial profit. "

Distancing themselves from this obstruction and more recently the accounting fiasco at Tesco, PWC now promotes itself under the banner of Profit with Purpose.

Axxording to Cliif Prior of UNLTD, the Profit with Purpose business model was conceived only last year by the Social Invesment Task Force.

"The new Profit-with-Purpose Business model combines conventional profit-distributing business forms with a powerful commitment to social impact. It has been created by the Taskforce’s Mission Alignment Working Group, which Cliff chairs, with input from an international panel of experts and practitioners. "

Though P-CED's work on the 'Marshall Plan' is defended by a Creative Commons license, this social investment task force, like PwC seems to have scant regard for IP rights let alone  children left to die in remote locations. It's a 'twisted by knaves' reinterpretation of social business, which argues without any practical experience that social benefit can be achieved without sacrificing profit.  

"Who will build a more efficient marketplace?" was the question raised on Social Edge in 2009, Terry Hallman spoke as plainly as he had about corruption in Ukraine's childcare institutions

Finally, is it acceptable to build projects with stolen property? What sort of results would that lead to? Can be build an ethical system based upon unethical behavior (such as violations of Intellectual Property Rights)?

If we invent such a system, is it anything new? Or is it just a twist on the old system?

One thing that can be collaborated openly is this: a Code of Ethics. But, whose ethics? What org(s) will enforce them, and how? Who decides who gets in, how, and why?