Page last updated at 12:53 GMT, Wednesday, 27 August 2008 13:53 UK

How effective is social enterprise?

By Alexis Akwagyiram
BBC News

Soap production training session
The Township Trades project involves young people making and selling soap

Capitalism and a social conscience are not generally considered natural bedfellows, so what is social enterprise and can a business have an ethical dimension?

Chris Shaw set up a business in South Africa two years ago in the hope that he could give poor people in a township the chance to develop new skills.

His brainchild was Township Trades, a not-for-profit business where young adults, most of whom had lost parents to HIV/Aids, could make soap that would be sold at local markets.

Lucian Russ, director of Township Trades, who relocated to South Africa last year to run the business with his wife, said: "There are no real jobs in the townships and there's no training.

"So people living there are stuck in this world where there's a lack of opportunities. We wanted to give young people a future."

The business, based in the Khayelitsha township on the outskirts of Cape Town employs 16 locals who are trained to make soap from natural ingredients, which is then sold at market stalls.

Township Trades is an example of a social enterprise. But what sets this breed of business apart from more conventional companies?

According to the Social Enterprise Coalition (SEC), which represents these businesses in the UK, the companies are set up to tackle a social or environmental need.

Thobani Cunsus and his daughter
Thobani Cunsus says working at Township Trades has changed his life

"A social entrepreneur sets up a business in order to make a positive change in the world," said Jonathan Bland, the SEC's chief executive.

"Rather than maximising shareholder value, a social entrepreneur's main aim is to use the power of business to address social or environmental issues and use the profits generated to further these goals."

And, in developing countries, "social enterprise has an added value in that it breaks the cycle of dependency - to empower communities through business means there is a chance for real change", he added.

These sentiments were echoed by Oxfam, which said businesses have "a central role to play in lifting people out of poverty".

"Small-scale sustainable initiatives have proven their value in helping people improve their livelihoods," a spokeswoman said, adding that large trans-national organisations "can deliver far more than governments can in aid by creating new job opportunities".

Thobani Cunsus, Township Trades' 23-year-old head soap maker, said he had benefitted from working at Township Trades - his first full-time job - as the money had helped him to feed and clothe his three-year old daughter and provided valuable training.

"I really enjoy the job. It's something different and it's great to learn. The money helps - it makes a big difference," he said.

'Gentle soul'

The position, which he has held for six months, involves overseeing production and is a far cry from his past life as a teenage carjacker.

The redemptive power of employment is something Lucian, a 37-year-old former financial planner from Bristol, is keen to stress.

"When you get to know him, Thobani is a gentle soul. This is about giving an opportunity to people who are talented and bright but can't get a job or training," he said of his employee.

The government's 2006 Annual Survey of Small Businesses UK revealed there were about 55,000 social enterprises in the UK, with a combined turnover of 27bn.

One of them, the Elvis & Kresse Organisation (Eako), takes industrial waste material, which are turned into luggage and handbags. It donates 50% of the profits to the Firefighters Charity.

Jamie Oliver (centre) and trainee chefs
Jamie Oliver's Fifteen restaurant projects are social enterprises

James Henrit, of Eako, said the company wanted to offer an alternative to landfills, which he compared to "sweeping dust under the rug".

"A retail campaign is an innovative way to make a huge range of positive impacts from waste reduction and socially motivated manufacturing to creating charitable feedback," he said.

Divine Chocolate, a fair trade chocolate company that makes its confectionary in the UK and is co-owned by cocoa farmers cooperative Kuapa Kokoo in Ghana, is another example of a successful social enterprise.

However, it is difficult to accurately measure the benefits of this approach other than in the success of small-scale projects.

And by setting up businesses in developing countries, where wages are lower and there may be less protection for workers' rights, there is a danger that social entrepreneurs could be viewed as using the "ethical business" tag to reduce overheads.

Possible pitfalls

But this notion is vehemently rejected by Mr Bland, who said "good working conditions, a fair wage, diverse workforce, and employee empowerment are the bedrock of the social enterprise business".

Township Trades stressed that it was a "South African registered... not for profit, organisation", which means "all profits have to be re-invested in the business, and should the organisation cease, then all assets must be invested in an organisation with a similar constitution".

But balancing ethical and business demands remains a precarious task, which leaves the social enterprise model vulnerable to shortcomings and possible abuse.

"When it comes to social enterprises there are also, at times, challenges with accountability," said Alessandra Buonfino, of the Young Foundation, a charity which focuses on social innovation.

"It is relatively easy for a business to be accountable - to its shareholders. And it is relatively easy for charities to be accountable too - they are there for the public good.

"But it is a lot more complicated for social enterprises to bridge the ambiguity of accountability - who should they be accountable to?"


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