10 policy tools that governments are implementing to spur social enterprise
Governments around the world are recognising the potential of Social Enterprises (SEs) in order to build more inclusive social and economic agendas. For instance, the Government of United Kingdom is praising innovative solutions of social enterprises as a vehicle to close the gap on the provision of public services like education and health. Other countries like the United States and Italy are seeing in SEs the opportunity to improve the quality, affordability and equity of service provision, and Chile, South Korea, Canada and Poland envision SEs as a way to increase social cohesion and derivate economic benefits for their nations.
This does not seem to be a surprise, considering that Social Enterprises are demonstrating that they can generate sizeable national–level returns. The sector as a whole is becoming an important contributor to gross domestic product, like in South Korea where, according to the British Council, the contributions of the sector accounts for 3 per cent of the GDP. It is also outperforming profit-driven small-sized enterprises on a number of indicators in the UK. The Social Enterprise UK Survey reports that 41 per cent of SEs created jobs in the past 12 months compared to 22 per cent of small-sized enterprises. Furthermore, in the United States, SEs are proving to have a high economic rate of return, especially over the long term. The report on Economic Self-Sufficiency and Life Stability shows that one year after starting a social enterprise job in the US, the return of investment of social enterprises include an economic multiplier of 2.23 and a savings for US taxpayers of USD 1.31 for every dollar invested in SE due to reductions in government transfer benefits. Finally, SEs are also proving to reduce inequalities by providing stable employment to those typically excluded from the labor market. In Manitoba, Canada the sector contributed more than USD200 million each year in saved cost associated with unemployment.
In the face of these opportunities, how are policies evolving to support social enterprises? Countries with a more mature policy framework recognise the role of SEs in the long term vision of the country, for example UK included SE in the National Plan of Government 2010 – 2015. Laws have been put in place in some countries like the Edward M. Kennedy Serve America Act in the US enacted in 2009 or the Social Enterprise Promotion Act of South Korea, enacted in 2007. Moreover, specific institutions have been created that are supporting SEs like Social Enterprise UK or the Korea Social Enterprise Promotion Agency.
How do governments around the world support Inclusive Business?
In addition, they are implementing different policy tools that are nurturing the social enterprise ecosystem. Here is a list of 10 policy tools identified after mapping the policy frameworks of 14 countries including UK, USA, Canada, Chile, Colombia, Thailand, India, South Korea, Kenya and South Africa. The policy tools correspond to those countries where the social enterprise policy frameworks were at a growing or mature stage.
Policy tools used by governments to spur social entrepreneurship
- Legal forms. Different countries have enacted laws that recognise new legal form for SE. For example, the Community Interest Company in the UK, Social Enterprise in South Korea, Social Cooperatives and Social EX Ledge in Italy or the Benefit Corporation in the US. By legally recognising SE, this opens the door to formulating policies that support them.
- Fiscal Incentives. The UK is implementing the Social Investment Tax Relief to benefit those who invest in social enterprises by giving a reduction of 30% of the investment in income tax bill for that year.
- Public Procurement Systems. Used by governments to demand and consume from social enterprises. The Social Value Act enacted in 2012 in the United Kingdom is a good example on how a government can open up opportunities for SEs to deliver public services.
- Grants. Used to strengthen the ability or capacity of actors in innovation ecosystems to generate knowledge and produce innovation. The Social Innovation Fund and Investing in Innovation Fund of the Department of Education in the United States, as well as the Big Lottery Fund in the United Kingdom are undertaking such initiatives.
- Public Venture Capital Funds. They look to achieve attractive, risk-adjusted returns through long-term capital appreciation of investments made in investee companies. For example, the Maharashtra State Social Venture Fund in India, which aims at generating superior returns by investing in start-ups, early and growth stage capital primarily in medium–sized enterprises that would add economic, social or environmental value to the State of Maharashtra.
- Guarantee Funds. These facilitate the access to finance when social enterprises stimulate sound credit transactions. For example, KODIT in South Korea or the II Guarantee Fund for Social Cooperatives in Italy extend credit guarantees for the liabilities of promising social enterprises which lack tangible collateral.
- Social Impact Bonds. These are financial mechanisms through which investors pay for a set of interventions to improve social outcomes that is of critical interest to the government. The model combines government initiation, private investment and implementation of a third actor that can be a non-profit organisation or a social enterprise. Social Finance in the UK is an example.
- Awareness Campaigns. Helping to identify, engage and promote social innovators, entrepreneurs and scientists that are contributing to solve social problems. Some illustrations are the Thai Social Enterprise Awards in Thailand, the Community Solutions Tour in the US, the Amplify Awards in Malaysia and the Social Value Awards in UK.
- Incubation and Acceleration. Some Governments are engaging or financing directly the incubation and acceleration of Social Enterprises. For instance, the Social Incubator Fund in the UK and the Seoul Creative Lab in South Korea.
- Training and Capacity Building. Through mentorship programmes social entrepreneurs are developing the commercial and social skills needed to develop their ventures. Some examples are the Young Social Entrepreneur Program in South Korea and Egypt, or the Malaysia Social Enterprise Track.
While many of these policies and reforms are too recent to fully assess their impact, some countries with a longer history of social enterprise policies, such as the United Kingdom, have conducted studies on individual policy instruments, and SE surveys that shed light on broader patterns of the evolution of the sector. The National Evaluation of the Social Enterprise Investment Fund in the UK is one of these cases. However, at the global level there is a lack of comprehensive and comparable data sources, and therefore the challenge for the governments implementing these sets of policy tools will be to gather information, monitor and evaluate their results and impact. The Social Enterprise Program at the World Bank is working on a forthcoming paper with more detailed information.
This blog is part of the October 2016 series on Exploring the social enterprise landscape, in partnership with the World Bank Group and endeva. Read the whole series for insight and opinion on policy, business models and definitions from social entrepreneurs, policy makers and facilitators around the world.