Social enterprise, the hybrid economy and public policy

**This post is written by Julian Le Grand, Jonathan Roberts and Jack Winterton from the Marshall Institute at the London School of Economics. **

• The problem: Social enterprises often can’t compete fairly in the market against purely profit-driven companies.
• Why it matters: Social enterprises and other hybrids are helping resolve some of our major social and environmental problems.
• The solution: Level the playing field for these new socially focused organisations through tax breaks or direct government subsidies.

There’s an exciting new development in market economies: the growth of social enterprises. What’s a social enterprise? It’s an organisation that operates in the market, deriving revenue from its sales of goods and services, but whose principal aim is not to make a profit for its owners but to pursue a social mission: to make the world a better place. Let’s begin by looking at three examples of socially-driven organisations.

OLIO

OLIO is a UK-based online platform that facilitates the distribution of surplus supermarket food to over five million consumers. OLIO’s mission is to reduce food waste at scale by diverting food away from landfills and towards consumers. It does so by allowing individuals and large commercial partners including Pret a Manger, Planet Organic, and supermarket Tesco to redistribute edible food waste that would otherwise go to waste. At the end of each day, members of OLIO’s 25,000-strong volunteer network collect surplus food from partnership stores, create listings on the OLIO app and distribute food to local app users who can reserve and collect produce for no cost. In 2020, OLIO’s partnership with Tesco resulted in the number of items listed each month rising from 300,000 to 1,600,000.

4Ocean

The world’s oceans are full of harmful plastic waste. 4Ocean, a public benefit corporation based in Florida, is reclaiming this plastic and transforming it into bracelets and other small craft items. 4Ocean has a global presence with its 250 crew members and 25 vessels based in Indonesia, Haiti, Guatemala, and Haiti. Once the plastic is collected and sorted, 4Ocean employs a team of 350 craftspeople to transform the plastic into bracelets that are sold online for around $20 each. In total, 4Ocean has removed 17 million pounds of plastic from the ocean in the last five years.

Redemption Roasters

Redemption Roasters is a coffee roastery and chain of London-based stores that combines selling excellent, high-end coffee with a social mission to reduce recidivism in the UK. Ex-prisoners need a pathway through employment and skills training to avoid crime once released from prison, and Redemption Roasters’ mission is to provide such a path. The main operation is based at The Mount prison north of London. Redemption Roasters offers skills-based training to ex-prisoners of The Mount, together with employment opportunities and apprenticeships in one of their eight London-based coffee shops. Redemption Roasters are in the process of developing an evaluation scheme and in 2020 published its first Social Impact Report.

Social enterprises and an evolving hybrid economy

It has been estimated that there are at least 100,000 social enterprises in the UK. Their number has increased by nearly half over the last decade, while their contribution to the UK economy increased by 150% to an estimated £50bn. Employment in social enterprises has doubled to around two million; around 6% of the UK workforce, three times bigger than the agricultural sector.

Policy-makers can use the development of social enterprise as an instrument of public policy – one that could develop into a key part of their policy toolkit.

Social enterprises are part of a wider phenomenon currently being explored by researchers at LSE’s Marshall Institute: the growth of the ‘hybrid economy’. Members of the hybrid economy combine attributes from the private, public and charitable sectors to create new forms of organisation and action. They have a variety of labels: social businesses, social enterprises, public benefit corporations, community interest companies, and community benefit societies. But they all have one thing in common: they blend the market or business on the one hand and social purpose on the other.

Clearly, the development of social enterprises and other hybrids is no substitute for sustained government action to resolve the major social and environmental problems faced by public policy-makers. But they can be a useful complement to such action, often operating in parts of the economy and society that government finds it difficult to reach. In fact, policy-makers can use the development of social enterprise as an instrument of public policy – one that could develop into a key part of their policy toolkit.

What policy-makers can do to boost social enterprise

There are a variety of things that policy-makers can do to improve the effectiveness of this policy instrument. Social enterprises often find it difficult to compete in the market against purely profit-driven firms, who do not take account of all the costs they impose on the wider society. So the playing field can be levelled up by tax breaks or by direct government subsidies.

For instance, in France, work integration social enterprises (WISEs) receive compensation for the extra costs of supporting vulnerable or disadvantaged people in the labour market. Governments could match the revenue raised through market operations in a fashion similar to the pound-for-pound ‘match trading’ scheme being developed by the UK School for Social Entrepreneurs. When governments commission public services from private providers, they could favour social enterprises. The Social Value Act of 2013 in England (and similar policies in Wales, Scotland and Northern Ireland) requires commissioners of public services to think about how they can also secure wider social, economic and environmental benefits: commissioning social enterprises is an obvious way to do this.

When governments commission public services from private providers, they could favour social enterprises.

The capitalist economy is changing. No longer simply seen as the domain of large corporations whose aim is the short-term maximisation of shareholder value, it is increasingly populated by hybrid market-based organisations such as social enterprises that want to do good, and to do it efficiently and effectively. The future of capitalism may lie with the hybrid – to the benefit of all.

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