Joseph Schumpeter’s "creative destruction" has long been understood as the incessant product and process-innovation mechanism by which new production units replace outdated ones. Enter 21st century, a new kind of creative destruction is taking form: social enterprises. Lying at the intersection of business, government, and civil society, social enterprises represent a convenient and increasingly necessary marriage of business and social objectives.
One of the key drivers of social enterprises is the non-profit organizations’ quest for sustainability, in the face of growing scarcity of financial support from traditional, philanthropic, and government sources. Social enterprise enables nonprofits to expand vital services to their constituents while moving the organization toward self-sufficiency.
The exact definition of social enterprise remains blurry to this date, despite social enterprises’ (SE) gradual rise to prominence since the 90s. However, an SE can be defined "as a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners." That’s the UK government’s official definition.
In that context, the importance of social enterprises is even more critical in a society like Pakistan, for they can plug important gaps in the delivery of public goods and services, which should have ideally been provided by the public institutions. Admittedly, SEs can never completely fill the gaps created by a misgoverned state, but their contribution can be considerable nevertheless.
Recognising the importance of SEs in economies like Pakistan, the British Council recently partnered with the Islamabad-based think tank SDPI to launch a study on ‘Social Enterprise Landscape in Pakistan.’
Although individual organisations that work primarily for the public interest through commercial activities have existed for a long time in Pakistan, social enterprise as an identifiable sector is still "in nascent stages" in the country.
What are those things that the sector needs to mature? Well, the list is long. But at the heart of it is the role of the Planning Commission. Apparently, the Planning Commission already boasts a Centre for Social Entrepreneurship (CSE). It’s another thing that CSE is without a single feather in its cap as yet.
The SDPI suggests that the commission’s CSE first needs to build consensus to formulate a country-wide broad definition of social enterprises within Pakistan’s context. This is an important task, since a working definition is critical to ensure that all the relevant public, private, and third sector players are on the same page. But it is an equally difficult task.
Recall that until a few months ago, the various stakeholders could not even agree on a single working definition of the all important ‘small and medium enterprises (SMEs).’ For something as blurry and new as this concept in Pakistan, agreeing over a working definition of SE might take another 60 years.
Another hiccup is the ability of Planning Commission and those government offices that are responsible for inter-provincial coordination. The commission is institutionally weak; one of the many examples of which is that it didn’t have a chief economist for months this year because the previous one’s contract had expired and the government didn’t bother much about it. Or that the commission’s Member Energy position is still lying vacant even though energy tops the government’s agenda items.
Pinning hopes on the Planning Commission to lead the country-wide coordination for social enterprises, therefore, may not be the best idea. But it is the only idea on the table for now.
If SDPI’s study is any guide, and it is a good guide, the task on hand is surely the size of a mammoth, of which definition is only the first step.
There are at least 19 national policy frameworks, policies and programmes, 12 statutory laws and regulatory frameworks, and about five intellectual property laws relevant to social enterprises. To put all this in one harmonious direction, the Planning Commission will have to coordinate with countless government stakeholders including provincial planning departments, FBR, SECP, CCP, SBP, BISP, PPAF, TDAP, and whole lot of abbreviates. So thatâ??s another 60 years, on top of the 60 years needed to arrive at working definition for SEs.
During these 120 years, of course, the judicial system will also have to be fixed, a topic that will hopefully be covered in detail in SDPI’s next study on social enterprise landscape.
A few years ago, Baqar Jafri – an entrepreneur, a financial journalist, and a student at Karachi’s IBA – founded a start-up called ‘Investors Lounge’, which was his original idea. Earlier this year in May 2016, his financial partner Mir Mohammad Ali Khan – a former Wall Streeter – got him arrested on the allegation that Baqar had stolen the idea and the source codes from Ali Khan. Last month, finally, after verification of all software licenses and purchase records, Sindh High Court cleared Baqar of the charges and granted Investors Lounge with an injunction in their favour (Suit 1631 of 2016 in Sindh High Court).
But Baqar’s story is an exception and not the norm; not every start-up founder is a journalist and by virtue of it, well informed of his/her rights and also well connected. The norm can also be gauged by Doing Business rankings, which tells us that this country does not have a court or division of a court dedicated solely to hearing commercial cases. Those rankings also tell us that time standards in Pakistan’s case management are not respected in more than half of the civil cases.
This norm will have to be changed if SEs are to take off in Pakistan. While some SEs may be big, a whole lot of SEs will be characteristically small or even start-ups. Remember that innovation lies at the heart of social enterprises. How else will enterprises find business solutions to social problems, if not being innovative and entrepreneurial? And the legal system will have to be able enough to protect those spirits, not dampen them.
Another missing element from the discourse on SEs so far is the right to information. Social problems relate significantly to public goods, the information repository of which is with the government. Without an effective, and effectively implemented, right to information law in place, SEs will only be operating in an information void. This is an area that requires further deliberation by the civil society.
Third, the assessment of impact and outcomes of social enterprises is critical for public and private stakeholders to engage with them. Therefore, a review of social accounting and social audit ecosystem in Pakistan also needs to be done in the next study of social enterprise landscape in Pakistan.
Lastly, who would drive social enterprises in Pakistan? In the United States, SEs have thrived around business schools and pro-active foundations that support social change.
In Western Europe, SEs have grown as a logical extension within the third sector including the likes of voluntary organizations, cooperatives, etcetera. What form and shape of SEs’ breeding grounds is suitable to, or will emerge in Pakistan? That question perhaps requires a separate seminar on its own.