For part 3 in this series of short podcasts, Chris Lloyd-Smith interviews senior associate Madhur Sharma on how she has been coping during these unprecedented times.
Fundamentally, it’s an economy operating for the common good, rather than for private benefit. People might previously have thought that that’s what we already had, though recent events have made it clear that we don’t. Large and powerful corporations are badly letting us down, and lots of people have suffered. Oil spillages, sub-prime mortgages, phone-hacking, interest-rate fixing, PPI miss-selling, prisoner-tagging fraud, tax avoidance, and now emissions deception all make it clear that at its very core, investor-owned business is fundamentally dedicated to the pursuit of profit, not public good.
This has always been the case. Since the 19th century and the explosion of innovation and trade caused by the industrial revolution, capital and profit-seeking businesses have constantly pushed at the boundaries of what is socially acceptable. Of course many for-profit businesses (particularly privately-owned ones) are highly conscious of their social impact, and behave responsibly. They create jobs, provide apprenticeships and training, encourage local trade, help to create pensions savings, and share profits with their local communities and other good causes.
Many private businesses operate with a clear concern for social responsibility, and do so because it is how their owners want them to behave. But untempered profit-seeking knows no moral boundaries, and Parliament has continually had to intervene to protect people: protecting workers (e.g. Factories Acts); protecting consumers (Railway Protection Act); and the environment (Clean Air Act). It even protects investors (Companies Acts).
But it is not just law-makers who set out to change things. The last 10 years have witnessed a surge of interest in social enterprise, social business, social firms and social finance. I believe that this reflects a clear intent by an increasing number of business people to distinguish themselves from the anti-social behaviours of those businesses solely concerned with shareholder return.
Again, this concept is not new. Since people started trading, there have been those motivated mainly by self-interest, those motivated primarily to benefit others, and everything in between. The self-help (co-operative and mutual) and philanthropic (charitable and voluntary) traditions reflect the social nature of humankind: a basic instinct to look out for each other, to provide for ourselves and our families, but also for communities and future generations: everyone, including the destitute and vulnerable.
The self-help and philanthropic movements were themselves a response to adversity: the poverty, hardship and suffering of those affected by the transition from an agricultural to an industrial economy. The response by these people-based movements providing welfare, healthcare, education, housing and much else besides, was so successful that by the early 20th century, the state recognised the importance of these social benefits and wanted them to be universally available. So the state assumed responsibility; the public sector was born; and self-help and philanthropy were side-lined.
The post-war settlement brought massive benefits through universal access; but there was a flip-side: creating an entitlement without establishing parallel responsibilities; collecting the payment through central taxation rather than local contribution and involvement; the centrally controlled and directive nature of what became “service provision”, leaving citizens with little voice or influence, and expecting somebody else to do things for them.
This has become unsustainable. An aging population, living much longer, needs more care and support than the public purse can afford, especially after a financial crisis caused by an unfair business model that the public purse had to bail out. So now the state is cutting the funding to do those things that it previously took responsibility for. And here’s the greatest irony: it is now looking to the big corporate world to assume that responsibility – after all the damage that it has caused.
It’s not just co-operative anoraks, tree-hugging lefties or occupy activists who think these thoughts. In 2014 the Governor of the Bank of England strongly criticised City behaviour. “Bankers made enormous sums in the run-up to the crisis and were often well compensated after it hit. In turn, taxpayers picked up the tab for their failures.” But he thought that the scandals highlighted a “malaise in corners of finance”, rather than a design fault at the heart of investor-ownership. He warned that there was a growing sense that the basic social contract at the heart of capitalism was breaking down amid rising inequality. What social contract?
Many are angered and dismayed by the daily scandals of excessive pay, dishonourable commercial behaviour and profiteering, but refuse to lie down and accept it. Whether as customers, workers, entrepreneurs or business funders, people are looking for a different approach to doing business because they know that things can be better. They can be fairer. Healthier. Kinder.
So today’s response is the rise and rise of social business, which in the UK includes the arrival of social enterprise, the revival of self-help (mutuality and co-operation) and voluntarism, and the emergence of some fascinating contemporary new models crossing a number of these approaches.
But it is important to acknowledge that many shareholder-owned businesses, particularly (but not only) small or micro-businesses, operate with a responsible social outlook and don’t (can’t) pay owners obscene amounts. In areas like care of older people, it is the barely profitable small and micro private businesses that are, in reality, the social businesses of their sector – they just don’t (yet) self-identify as such.
Social business is the basis of an economy for people not profit. The phrase probably denotes an ill-defined, inadequately understood, and currently marginal collection of a whole range of businesses and organisations. But they have one thing in common: they all think there is more to life than just making money.
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This article was first published on The Co-op news website and is article one in a series of four articles written by Anthony Collins Solicitors. To read the others please click on the links below:
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