Rodney Schwartz: Do name and form matter if society is better off?

Tax credits and bidding preferences should go to the firms that have the greatest social impact, regardless of which category or sector they fall under, writes our columnist

Rodney Schwartz
Rodney Schwartz

The G8 Social Impact Investment Taskforce has published reports that have dramatically advanced the development of a global social economy. But hidden beneath the pages of well-argued text rages an interminable debate: what do we call those endeavours that are generating social impact?

The term "social enterprise" has been in use since the 1970s, and "social investment" since the 1990s. The SITF reports contain both, plus "impact entrepreneur", "impact investment", "social impact investment" and many tortured derivations thereof.

Such arguments about definition would be amusing if we were not approaching a time when such naming has real significance. After the SITF launch, Chi Onwurah, the shadow social enterprise minister, announced that in power she would create a legally binding definition of a social enterprise. The intention is positive: to favour social enterprises in government contract bidding. But to define the term as a unique thing in itself is problematic. For example, should it be based on a legal form, the types of employees or even the intentions of the entrepreneurs and investors? The debate goes on.

Whatever the form, structure or intention, we should weight our judgement – or dole out tax credits and bidding preferences – towards those firms that have the greatest impact. Society is not helped if, for example, contracts are available only to community interest companies or charities if a limited company is better able to deliver the sorts of results that governments desire, such as reducing reoffending or helping young people to find long-term employment.

I am also not sure that intentions should matter in this equation. They are nearly impossible to define, change frequently and might well be irrelevant. I am happy for a business that dramatically reduces carbon dioxide emissions or generates low-cost renewable power to prosper and receive state benefits, even if the entrepreneur is mainly interested in getting rich. Society is better off and, in certain instances, such a model might prove the most socially impactful.

I can see the risks of such a position, and can already hear the arguments about how this would lead to the erosion of the welfare state. But I am confident that would not be the outcome. Private sector contractors such as Capita are in it for profit; maximising social impact is far lower on their agenda - and the existing system is absurdly stacked in their favour. Such changes as I am proposing would harm, not aid, them in their efforts. Unlike the shadow minister, I would award all contracts – not just a few – on this basis.

Rodney Schwartz is chief executive of ClearlySo, which helps social entrepreneurs raise capital

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