Redefining Business with Purpose: How Policy Can Unlock the Potential of Social Enterprise
By Monica Milanowski, December 18, 2024
By creating government infrastructure and tailored policies that define, fund, support, and enable the next generation of social entrepreneurs, we can not only continue building more inclusive and sustainable socio-economic systems, but redefine the role of business as an agent of social change in our society.
Urban farmers gather every Saturday morning to harvest lettuce from community gardens across Chicago, which nurtures both their neighbors and the Earth with affordable, healthy food. My friends run small businesses that breathe new life into discarded wood and paper waste, transforming them into beautiful handmade crafts that marry creativity with sustainability. Across my campus at the University of Illinois and in classrooms, maker spaces, and accelerators around the world, young innovators launch ventures that confront the climate crisis with bold ideas, blending enterprise with purpose, impact, and empowerment.
In communities around the world, small-scale social entrepreneurship, which utilizes the power of business to address social, cultural, and environmental issues, is already making a profound impact. Globally, 10 million social enterprises (or 3 percent of all businesses) generate $2 trillion in annual revenue and create over 200 million jobs. Inclusivity and equity are inherent to their business models, with half of social enterprises led by women (compared to one in five conventional enterprises), and a greater share led by members of ethnic minorities compared to traditional businesses.
However, while social entrepreneurs are rising to the occasion within their communities, financial, legal, and structural barriers too often hinder their ability to drive large-scale systemic change. This is especially difficult in our current economic system that favors large corporations that value profit alone. These challenges are exacerbated for social entrepreneurs of color, who are often at the forefront of developing innovative solutions for social issues that have been inadequately addressed or misunderstood by the public and private sectors, while simultaneously facing the greatest barriers to funding, mentorship, and support.
Governments and policymakers can begin the transition toward a more sustainable economy through the following channels, laying the groundwork for social enterprises to scale their operations and impact up to par and beyond:
Funding
One of the primary barriers to the scalability of social ventures is the lack of access to adequate funding. Policymakers can stimulate private investment in social enterprises by allocating additional public funds towards innovation in social entrepreneurship, creating public-private social innovation funds, and encouraging ESG considerations in investment fund decision making. Grants are also often available to small businesses and nonprofits, but dedicated grant funding, loans, and subsidies can scale social venture operations specifically.
Legal Structure and Corporate Form
Many jurisdictions have two corporate frameworks; one for enterprises primarily intending to generate profit, and another for those pursuing social missions for the public good. Social enterprises tend to fall into a legal gray area. Existing business laws do not adequately support the dual purpose of profit generation and consideration of the welfare of all stakeholders in a community held by these businesses. Defining “social enterprise” in corporate law, securities law, and tax policy, whether by amending current for-profit corporate frameworks or developing new hybrid models, will provide the clarity and the additional benefits necessary for social entrepreneurs to adequately compete in the market. In tandem with this, defining the appropriate impact reporting and/or national certification processes will support these new legal structures by creating greater credibility for socially-focused enterprises.
Tax Benefits
In many cases, social enterprises are organized as non-profits, and there is a growing need for a reorganized tax structure that encourages investment and offers additional tax benefits to profit-generating and mission-driven organizations. Jurisdictions can legislate new tax incentives for social enterprises to create new growth in this sector, offer income tax deductions on donations, and reduce taxes on returns from financial investments in these businesses.
Resources and Education
Prioritizing resource development specific to the needs and structure of social enterprises will actively support scaling up social enterprises. One method to encourage the creation of these businesses would be to create government agencies or organizations that focus on building capacity, mitigating legal and financial barriers, providing advisory services, and distributing more grant funding to social enterprises. Additionally, developing mentorship and peer networks, government-funded incubator and accelerator programs, and youth education programs can further support the creation of a comprehensive social entrepreneurship ecosystem.
It is no secret that our current economic system cannot adequately harness the full potential of social entrepreneurship, with its critical positioning at the intersection of tackling systemic societal issues and economy-building innovation. By creating government infrastructure and tailored policies that define, fund, support, and enable the next generation of social entrepreneurs, we can not only continue building more inclusive and sustainable socio-economic systems, but redefine the role of business as an agent of social change in our society.
Change The Chamber is a nonpartisan coalition of over 100 student groups, including undergraduates, graduate students and recent graduates.