Social Enterprises for Development: Beyond Job Creation

Business for development is a celebrated concept these days. Those with a commercial interest and an eye for development more recently have moved away from microcredit or microfinance and are now looking towards impact investing, entrepreneurship and social enterprise creation.

We should be careful, however, in defining what these terms mean and how they are executed. For instance, social enterprises really need to separate themselves from philanthropy or charity. A business that has a profitable business model in a high-income country that is giving away those profits through charity to a low-income country should not be considered a social enterprise. This type of model is more often than not simply disrupting production potential in the low-income country.

Social enterprises should also not be measured by the number of jobs they create. This tends to be another misconception about social-impact businesses: that a business can have a social impact if it creates jobs in a low-income country. Job creation is not enough. Those who live and or have worked in low-income countries have likely witnessed all too often how one person is hired to sign a piece of paper while another is hired to stamp it. This is not doing justice to the capabilities of the people nor the company.

Not to be mistaken, job creation is a positive thing, but for the sake of business operations and efficiency, job creation should not be the metric that social impact businesses are measured against. If the business is to be profitable and therefore sustainable, the business will need to be efficient. This is the opposite of job creation for the mere sake of creating jobs. The result of counting the number of jobs created simply encourages a business to hire extra people as opposed to expanding rationally and according to demand.

Instead of jobs created, we need to look at other metrics. These can include various elements that should require some insight into the business and the local context. For an agricultural off-take business, this can include increasing returns to smallholder farmers by purchasing large quantities of the product at a slightly higher rate than smaller buyers and not accepting bulk discounts; or allowing those farmers (cooperatives in some cases) to share in the profits of the business if the business is centered around smallholder farmers in order to be productive. Indeed some successful business models created have coop members as shareholders of the company, which utilizes their production in order to increase quality, accountability and encourage growth within the sector.

Other means of measuring the impact of investments in the health industry may include better and wider access of health resources and infrastructure at the community level. This can be applied where the health facilities are privatized and not supported by government. An expansion of health services to new and previously unserved community can be commercial in that it broadens the customer base by broadening the access to service, which would also be impactful, in that it allows more people to have access to the desired services.

Likewise within the food processing industry, investments can go beyond expansion efforts and include an improved vito-sanitary environment, which would reduce illness locally, improve knowledge and expertise at the local level and could also go hand in hand with access to international markets and export options.

All of these possibilities can be seen as options for social-impact businesses or social enterprises that would have a positive impact on development within a low-income country context. All of these options are beyond job creation. There should be a fundamental commercial element for the investment in order for the business to succeed and thrive. Let’s not distract ourselves from the commercial elements just because we say that it needs to be sacrificed for the sake of impact. The two are not mutually exclusive. While it is true that jobs need to be created in many low-income countries, we can do more to benefit the economy if we work on improving business operations, access, income levels, and more ethical practices at each stage.

There is quite a lot of literature coming out these days on social-impact measurement. I'll be sure to post something soon on how I think we can apply it to social enterprises.