capitalism in crisis social enterprise futures social enterprise uk

Is capitalism in crisis? This was the question asked at the opening session of Social Enterprise Futures 2021. A session which looked at the bigger economic picture, how we got to an economy characterised by rising inequalities and what role business has to play in getting us to a more equitable world.

How did we get here?

Professor Ha-Joon Chang, Professor of Political Economy of Development at Cambridge University, set the scene by addressing some of the structural and institutional attributes of 21st century capitalism which have resulted in an economy characterised by short-termism, extraction and inequality.

He noted how financial deregulation from the 1980s onwards created a financial sector with a bias towards short term gain and a culture of shareholder value which prioritised immediate returns to shareholders over long-term investment in the future.

“In the last couple of decades, 90-95% of profits have gone to shareholders, leaving very little to re-invest” – Professor Ha Joon Chang

The shift to this relentless focus on shareholders has been institutionalised within corporate governance leaving out other stakeholders (eg. employees, local communities, suppliers) making it harder to align the need to make a profit with wider social goals. In short “narrow profit seeking is becoming less compatible with social goals” because the structures of the economy of capitalism are not conducive to the betterment of society.

To fix this, Dr Chang suggested the need for reform of the financial system and systems of corporate governance. In being businesses set up in a fundamentally different way social enterprises have a vital role to play in the reform of the economy.

What does it take to be a successful entrepreneur?

Our second speaker, Lord Karan Bilimoria, Founder of Cobra Beer and President of the CBI (which represent thousands of traditional British businesses) unsurprisingly came at the subject of economic crisis in a different way.

He focused more on what makes a business good, reflecting on Cobra’s journey from being an Indian micro-business to a multi-award winning global brand. Cobra’s ethos is “to aspire and achieve against all odds with integrity” something Lord Bilimoria believes is inherent to how the business behaves but also to how to be an effective entrepreneur.

He stressed the importance of diversity in teams and also the importance of treating everyone who you work with as partners be that employees and suppliers or your PR agency and lawyers. His argument, though not couched in the language of a failing economic system (as hinted at by Professor Chang) rested on the duty of business to act with integrity.

Beyond profit – What if every business was a social enterprise?

What united both Professor Chang and Lord Bilimoria was a belief that for businesses to act in a way which promotes social (and environmental good) they have to be driven by a desire to act beyond the interests of a narrow group of shareholders. But what about those businesses already set up to create a more equitable world? What about social enterprise?

Our final panellist, Liz Allen, Director of The Connectives – a social enterprise consultancy,  looked ahead to what a future economy dominated by social enterprises would look like

“We’d see a more positive economy. I honestly believe social enterprises can change the way we feel in our communities.”

She made the case that even if you are a business doing good you still, if you are a company with shareholders, have an imperative to maximise financial returns to them. If however, you’re a social enterprise you have a social imperative not a profit driven one and it is this attribute that can change the societies we live in. She pointed out that social enterprises are saving money for the public purse through delivering preventative services, filling in the void caused by years of austerity and creating jobs and opportunities in areas abandoned by other industries.

Carrot or stick – how to make reform happen?

The Q+A was dominated by one big debate – if there is a consensus that business can do more to build a better world and that there is an issue with economic short termism then what can be done about it?

Dr Chang made a powerful case for regulation and legal incentives to make businesses act in a way which benefits people and planet. He made the analogy of road traffic laws which had to be created when humanity evolved from using bullock carts to cars – once such a transformative invention has been created it needs rules to govern its use so we “find ways to maximise the benefits of this powerful system without it harming lives”

Our Chair Lord Victor Adebowale called for urgent reform of s172 of the Companies Act so that social and environmental concerns are placed at least on a level pegging with shareholder value.

Lord Bilimoria, whilst sympathetic, believed that businesses are getting the need to be good economic citizens and can do so by acting through enlightened self-interest.

Where there was real agreement, however, was on the need for investment to create jobs and support businesses grow and develop. What is needed now is for investment to go to those businesses which are putting people and planet first, to social enterprises.