Social Enterprise and Local Government - Literature review Example

Has the emergence of social enterprise provided an alternative to local government’s role of providing social well-being? Contents Literature Review 2 Origin of the Social Enterprise 3 Argument of IPE for importance of State 4 The local Government’s and social enterprise 5 Social Enterprise as Supplements to Government 6 Social Enterprise and Government as Complements 7 Social Enterprise and the Government as Adversaries 8 How can social enterprises help? 8 Conclusion 9 Bibliography 11 Literature Review The social enterprise concept has emerged and developed to describe an entrepreneurial approach, where firms and organisations prioritize social innovation in their work and engage in social responsibility. Despite repeated attempts, no fixed definition has been able to be conceived for the term because of overlapping observed in the groups of social enterprises, like, the public sectors enterprises, employee or labour owned enterprises and co-operatives (Ridley-Duff and Bull, 2011). The motivation behind writing this paper is drawn form a series of readings of private conversations within the community of social enterprises and discussion of their role within the society, which might undermine the role and need for a local government enterprise in some areas as well. The literature is organised in a manner to facilitate a step-wise understanding of the role of social enterprise in relation to that of the government in provision of social well-being. The paper begins with exploration of the origin of a social enterprise and then putting forth an argument that states that social enterprises can work without much intervention from the government. The review then organises itself for identifying the role of social enterprises and local government in these societal existence and explores various categories that gather instances to depict how social enterprises and the local government act as complements and supplements. It then goes on to discuss why social enterprises can replace local government’s role and concludes in highlighting the similar view. The resource dependency theory states that there exist exchange relationships between firms and their external environment. To make sure that such firms survive long, social enterprises source resources that are the key to attain objectives. The resource dependency theory is relevant in the context of a social enterprise because the board member want to sources resources from all possible places beyond the social economy. Companies tend to rely on scare financial resources and therefore devise strategies to recruit directors who have the ability to influence the world with a view to get the desired resources. The stewardship theory states that corporate governance and the board can influence the behaviour of other people within the organization by performing the role of an advisor and strategy maker. The manager here plays the role of a steward rather than a profit seeker. In case of social enterprises, the stewardship theory is being extensively used because of the inherent established relationship of corporate governance and competitive advantage through employee motivation. In this extremely competitive industry, the only way to get competitive advantage appears to be through the philanthropic activity route (Mswaka, 2011). Both the views reflect the importance of social enterprise within the context of public service initiative and thus reflect the potential of such enterprises to replace the role of government in this aspect. Origin of the Social Enterprise The concept of a social enterprise is one that is relatively new and not as developed as the local government patterns. This structure is intensely complex and has grown to become an integral part of most economies across the world today. However, despite all complexity in definition, it can be safely said that social enterprises are businesses that work primarily for the motive of serving the social objectives and the profits of which are used again for the business purpose or serving the community and shareholder needs (DTI, 2002). The social enterprise concept has come from the understanding of a social economy. The 19th century industrial revolution was characterised by high levels of industrialisation and ruthless economic conditions. This is the period which is believed to have initiated the felt need of a social enterprise. Exploitation of labour and capitalist torture during this period had led to the establishment of organizations that served the purposes of labour needs and hence marked the establishment of nascent social enterprises (Hines, 2005). Argument of IPE for importance of State The International Political Economy or IPE framework, developed by Karl Marx, Thorstein Veblen, John Commons and Ha-Joon Chang, have propagated the idea that no market-oriented enterprises, be it for profit motive or for the purpose of welfare, can work without the intervention of the state. This comes from the fact that market economics cannot be separated from social and political systems. Also, the state acts as the key motivator behind the roles of individuals, institutions and organizations. It is to be realised that markets are nothing but an act of politics, that influences institutions and whose study in turn shall help to get a better understanding of the market functions (Shah, 2009). The IPE theory postulates that a social enterprise works in close connection within a capitalist framework and the surplus extracted is used up for the greater benefit of the society, rather than the individual. This theory also suggests that a social enterprise cannot be viewed in complete isolation of the capitalist structure and such theoretical underpinning is also done by means of a structure and legality, with which the social enterprise develops. The evolution of a social enterprise is similar to that of a capitalist business concern (Seanor and Meaton, 2008). A social enterprise is not generally seen as a company limited by shares. This is because of the ownership pattern and the board structure of a social enterprise hardly allows for public ownership. Social enterprises function largely for social motives and charitable purposes, but are exempted from taxes for their charitable ventures. It has been argued that tax structure is the main driver behind failure of markets within the commercial sector. Tax relief is seen as an economic relief for performing those tasks, which the social enterprise can do better than a commercial one. Tax relief is provided by the government in order to promote social benefits and initiative of a social enterprise the reduce the burden on the government to take initiatives in similar regards. The logic behind tax exemptions is that the government is saving on the spending it would have had to make in the absence of initiatives from the social enterprises. Such ventures undertaken by social enterprises are also seen undesirable by many entities because the purchaser and the recipient are not directly linked for such tasks. This lack of service, on the part of the government, has led to the formation of privately owned and funded self-help organisations, which work towards addressing issues that are not heeded to by the government. Such a theory is largely true for those that are separated by geographical or economical inefficiency. It can alternatively be looked as an activity that supports government’s role, rather than competing with the same. The local Government’s and social enterprise The local government and the social enterprise are two separate forms of organizations and both have separate roles to play in terms of development of the economy. It is largely possible that local governments and social enterprises come together to benefit the larger society. The governments generally extend their support either by way of promotion or by way of funding and special allowances to social enterprises to fund their working. The government view social enterprises to be bodies which perform their task with a profit motive. They believe that a for-profit organisation like a social enterprise shall do their job better and the motive of profit and competitiveness shall help the social enterprise in achieving such goals of the government. For example, the UK government provides incentives as a policy measure to social enterprises that are established in the deprived areas of the country. The social enterprise, on the other hand, believes that the government plays a key role in their functioning by providing the necessary support in this competitive environment. The local government within countries face increasing pressure in the realm of rising demand for efficiency in the economy, thereby making equitable decisions and working towards successful development of the local environment. The local government acts as the primary governing body for the entire community within its scope. There are numerous structures associated with the local governance and involves a lot of tensions pertaining to creation of successful outcomes within the democracy. Being the agents of government and of the state as well, these local bodies run a persistent tension between their interactions with the State government and the community at large (Ridley-Duff and Southcombe, 2012). This makes it difficult for local governments to operate smoothly and calls for a need of groundwork assistance, thereby providing a ground for social enterprises to emerge. Social enterprises find out ways of working, which involves benefitting the society by working within one environment, with a definitive motive of providing assistance to government activities. These social enterprises exemplify government working across the sectors and silos through means and motives that interest the government. Social Enterprise as Supplements to Government The theory, that a social enterprise functions to provide public goods and services to the society on a voluntary basis, was first postulated by Burton Weisbrod, 1975 in his study of government failure (Theodore, 2009). The basic premise was that the government provide public goods and services, which are desired by the public with the constraint of maintaining equity and bureaucratic procedural compliances. This is done after due consideration of the democratic voting procedure and what the dominant coalition deems desired by the median population. However, all citizens do not have similar preferences and the government often fails to help all groups of people equally. The citizens who receive less of what they pay and want are the ones, who organize themselves in formations of a social enterprise in order to serve their common goals (Dees, Anderson, and Wei-Skillern, 2004). This is also supported by the fact that substitution of private goods for public goods is costly and is also not completely substitutable (Bishop and Green, 2008). Therefore, the non-profit organization or social enterprise comes in to help the government in areas where population heterogeneity is not supported by government policies, which are designed for the larger good. Defence and security have homogenous desires among people and hence, the role of the government becomes instrumental here (Armstrong, et al., 2002). Amidst ebbs and flows of the public sector in areas of goods and services, that are substitutable, heterogeneous and dynamic, the role of a social enterprise becomes essential. Their support helps to expand the role of the government over time. The role of the social enterprise often strengthens the minority and helps the government to take required action regarding those areas that needs specific attention. Social Enterprise and Government as Complements It has been argued that the social enterprises and government organise themselves to work for a contractual relationship, where the government acts as a financing agent for the purpose of delivery of public goods, while the social enterprise works towards the delivery (Brooks, 2000). Here, the problem of social goods is resolved by a strategic tie-up between the private incentive and support of government and power. It is suggested that the government should finance these non-rival and non-excludable goods, either by way of direct financing or providing incentives. The theory of transaction costs helps to support the reasons behind delivery of such public goods and services being done privately. This theory states that as the task becomes larger, bureaucracy in the administration heightens, which makes discharging of duties and tasks difficult. This point makes it cheaper to outsource such task, so as to gain from lower costs and higher efficiency of private enterprises (Borzaga and Defourny, 2001). Also, private enterprises are more efficient in benefiting from economies of scale and cheaper labour costs, than what government discharge of such public goods would have incurred. The government also benefits from heterogeneous preferences of different groups of people through private provision of public good because social enterprises have more knowledge about the surrounding needs than government enterprises. Social enterprises work for the larger good of the society and are less likely to compromise on quality for the purpose of gaining higher profits. Therefore, governments do not have to monitor or enforce contracts to such organizations. Social enterprises and the theory of transaction costs together offer plausible explanation as to why the government finds it suitable to engage in social activities in collaboration with the social enterprises, rather than work solely (Nicholls, 2006). Social Enterprise and the Government as Adversaries There is a certain amount of adversary between social enterprise and the role of government, which renders the role of each of these entities as distinct from each other. The government and the social enterprise often work together towards passing of any legislation, which has to work for the overall social benefit. Here, ruling of the government is desired and necessary for the overall benefit of the society. This is because it is quite possible that social enterprise might work for the benefit of a certain section of people, which otherwise might not be beneficial for the larger society (Young, 2006). The model also helps to understand that any new public service model shall be a representation of a small minority, when it is initially proposed. The social enterprise might seek the help of few people in order to establish changes that the proposed idea might entail (Czerwinski, 2007). Economic theory also helps to realise the role of government to oversee such initiatives by social enterprises, such that organizational behaviour and performance are kept in check. It is also desired that non-profit organizations change their ways of working or motives for projects and this also calls for supreme government intervention (Martin and Osberg, 2007). How can social enterprises help? The local government establishes relationships with the community by ways of working towards resolving community issues and problems. Even so, social enterprises mobilise community resources, while the government uses up public funds provided by the state government. The rise of social enterprises implies that the market has mobilised locally available resources with a view to sort out their local problems, thereby bringing in equilibrium in the local as well as the social phenomenon. The local government establishes relationships and working equations with their designated communities, while social enterprises function by establishing their relationships with the local people as well as the local communities. Social enterprises are more local because they emerge from working within the local environments and thus, become and act as agents of such places. They create social values by working for the benefit of such local vicinity and such is done as a blend of other values, including social, economic, cultural and environmental values. The local government is not the agent of the location alone, within which it functions. It is a blend and contribution of various other actors and agents, who together work towards achieving the corporate outcome and bring forth newer ideas towards local governance and performing such opportunities innovatively (Kasim and Hudson, 2006); Boris and Steuerle, 2006). Conclusion The above discussion is a reflection of an insight into the role of non-government social enterprises in the government’s working and activities in order to determine whether and how they complement, support or challenge the role of the government within the societal set up. The adversary study helps to get some useful insights into how power balances have been enacted to separate the role of the government and that of the social enterprise, thereby defining their working scope and interests. The supplementary view and study on the government and the social enterprise suggests that private interests have promoted the need for social enterprises and to address social needs without intervention of the government. The complementary role study of the government and the social enterprise offers the view that the government addressed social needs with the assistance of the social enterprise, such that its own bureaucracy was not expanded unduly. Each one of these studies offers the view that roles are relative for the government as well as the social enterprise and business in addressing the overall societal needs. When the social enterprise had emerged, there was a division of responsibility between the government and the social enterprise over issues that addressed social welfare. With the advent of modernization and assumption of welfare activities by the corporate, new and higher level of social responsibilities have been recognised and realised. The government works in close association with the non-profit organizations for meeting the needs of public welfare and expanding such scope in the field of education, art, environment and health and it is quite possible for social enterprises to replace the government. The present era sees the government taking a backseat, both in terms of role and financial provisions in servicing public social needs, while the private sector and the third sector comprising of the social enterprise is becoming highly active and reaching out to higher levels of voluntary provision for social benefits. Rapid industrialisation, along with huge wealth from the private spending, is largely responsible for such a shift in role for provision of social welfare. They provide the private sector with the power and resources to work towards social benefits. However, a different thought undermines such role in a significant way, when private enterprises look at social responsibility as a means to induce marketing and building employee morale. Despite this, the strength and power difference between private sector and the government cannot be denied. The tax structure and reform policies keep the government’s role alive and reduce capitalist power. The government, by way of challenging the tax exemptions on social initiatives, is trying to undermine the effect of social enterprise, while also limiting the scope of its social responsibility through the working of social enterprise. This presents the strength of te view that the government can be replaced by the social enterprise. It is to be noted that the present scenario of social enterprise functions reveals that such organizations are stuck in the middle of uncertainty of the social contract, where the private support and voluntary effort grow, but are limited within the resource base. The concept of a social contract is virtually absent within the public policy, which limits the scope of social enterprise functions. It is, therefore, suggested that partnership approach between the government and the social enterprise has the possibility to evolve differently. The burden on the government to provide for social causes, out of its limited resources, shall thereby be minimised. Bibliography Armstrong, H. W., Kehrer, B., Wells, P. and Wood, A. M., 2000. The evaluation of community economic development initiatives. Urban Studies, 39(3), pp. 457-81. Bishop, M. and Green, M., 2008. Philanthro-Capitalism: How The Rich Can Save The World. New York: Bloomsbury Press. Boris, E. T. and Steuerle. C. E., 2006. 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