The Role of Social Businesses in Creating Employment

[Editor’s note: This article was written by Paula Cardenau, leader of Ashoka’s Social Business Initiative in Latin America. Paula is currently participating as an expert commentator in the Powering Economic Opportunity competition.]

Social businesses are key actors in creating decent employment. While there are many different definitions and enthusiastic debates on what a social business is or is not, the most important thing is not the definition but the common denominator, the essence that we all agree about: A social business or company applies market mechanisms — offering goods or services in exchange for payments that cover its costs — in order to benefit sectors of society currently being excluded.

We can identify two types of social businesses. On one hand, we have those that reduce the barriers for poor populations to access critical products and services. These are businesses that increase access to healthcare, education, dignified housing, light, potable water and other necessities. On the other hand — and these have a critical role in the generation of employment — we find social businesses that, throughout their extensive production or distribution processes, create employment opportunities or increased incomes for people in vulnerable situations.

What is the difference between social businesses and SMEs (or other more traditional businesses) when it comes to creating employment?

They differ in an essential way: For a social business, the starting point is not the business itself. Its priority is to provide opportunities to and improve the quality of life of marginalized populations: small producers, recyclers, abused women, disabled people, at-risk youth, individuals who are deprived of freedom and other groups who do not have access to the job market. All of these factors help to determine the type of employment that they create.

I will speak more to this point later on in the post. But first, just to mention a few examples of this type of business in Latin America, we have: Interrupción improving the income of over 11,000 small producers in Argentina, Chile, Colombia, and México; Granja Andar creating stable, dignified employment for 70 people with mental disabilities; Lua Nova incubating companies so that 100 teen mothers become businesses owners; Ciudad Saludable promoting the creation of 35 micro-businesses and more than 40 associations of informal recyclers: RedActivos improving the income and skills of over 350 mentally-disabled people by promoting and selling their products; and Soluciones Comunitarias enabling housewives to start their own micro-consignment businesses with nothing to lose other than their time and work (in 2010 alone, 100 women improved their income). These are just a few examples of this growing trend around the world. The number of entries being submitted in the Powering Economic Opportunity Challenge by the eBay Foundation and Ashoka’s Changemakers® also evidence that!

Social businesses not only help reduce unemployment, they also create new kinds of employment. On one hand, they provide opportunities for increasing incomes to people who would not be able access them any other way (for a traditional SME, employing individuals with mental disabilities or those who are recovering from domestic violence would be very expensive in terms of training and appropriate support). On the other hand, they create employment that dignifies otherwise excluded people: The focus of a social business is not on the final product or service, but on the production process, which prioritizes inclusion. The increase in self-esteem, independence and other social dimensions associated with an individual’s obtaining employment or beginning production serve as indicators of success for this kind of business. Through the traditional lens of “production efficiency,” providing employment to these people is more expensive because their training and support are more intensive. For social businesses, creating new possibilities for these excluded groups has true value.

Social businesses that create employment or promote self-employment in vulnerable sectors play an important role with respect to culture as well. Sometimes, improving the incomes of people who are not included in the system results in resistance and tensions — such as in cases where a woman begins to become independent from her family, or a disabled young person starts to earn more than his father. It is the business’s responsibility to manage and respond to these tensions. Another cultural ramification relates to the production habits and pace of the community involved. While production must be aligned to demand, speeding up the production pace of a community may sometimes be perceived as a lack of respect for the community’s tradition, or the cause of negative change. Any social business must meet these challenges by creating an internal culture that balances the business with the social benefits it is pursuing.  
 
It is clear that social businesses play a critical role, not only in terms of increasing employment, but also in creating decent and appropriate opportunities for otherwise excluded communities. What’s your opinion about these thoughts? Do you have other examples that evidence how social businesses create new kinds of employment?

Photo courtesty of Beckpryor (cc)