Global income inequality is growing fast, but can social enterprise make a difference? The British Council's Paula Woodman looks at the issues ahead of the European Development Days event on 3-4 June 2015.
Global leaders, such as Barack Obama, Bill Gates and Pope Francis, have given income inequality considerable attention in recent years, and best-selling books on the subject, such as Thomas Picketty's Capital in the Twenty-First Century, show a growing public concern about the issue.
Out of this seems to have emerged a new consensus: income inequality is growing fast and it's bad for us in ways we hadn’t realised, but nobody seems exactly sure what to do about it.
Is social enterprise part of the answer?
What are the trends in income inequality?
Studies consistently show that income inequality, as measured through the Gini coefficient for disposable income, has been rising at unprecedented levels in advanced and emerging economies.
For example, a 2014 study of OECD (Organisation for Economic Cooperation and Development) countries concluded that inequality was at its highest level for the past half century. It found that ‘the average income of the richest 10% of the population is about nine times that of the poorest 10% across the OECD, up from seven times 25 years ago.'
The concentration of wealth in the hands of the very rich is even more pronounced: a recent Oxfam report warned that the richest one per cent of the world’s population will own more than all the rest combined by 2016, unless rising inequality is checked.
Who's most affected by income inequality?
Inequality is at its highest levels in developing economies, with Latin America and Sub-Saharan Africa being the worst-hit regions. Countries in these regions do often show high levels of economic growth. The poorest African economies grew by six per cent or more in 2013, for example. The question is: how can the largely poor populations in those countries join in the success?
This year, the UN will adopt new 15-year Sustainable Development Goals (SDGs), and the potential they have to answer this question will be a significant area of concern.
What is the impact of income inequality?
A report by the United Nations Development Programme (UNDP) concludes that inequality is linked to higher crime rates, lower life expectancy, conflict and political instability. It also identifies a negative cycle where inequality increases the frequency of financial crises, which in turn increases inequalities, and so on.
Globally, inequality is linked not only to a wide range of negative social outcomes but also, according to the International Monetary Fund, with slower and less durable growth.
How can social enterprises make a difference?
Social enterprises are businesses. They take varying forms and operate in a diverse range of markets. What distinguishes them is their mission to achieve positive social or environmental outcomes. Their business strategy and use of profits are devoted to their pursuit of this mission.
Social enterprises around the world are already working to reduce economic inequality in a number of different ways:
Quality employment for disadvantaged groups
Many social enterprises develop products or services to employ people who would otherwise struggle to find work. Examples include grounds maintenance businesses that employ ex-offenders, and software companies that employ people with autism.
Social enterprises can also provide quality employment for women. Established in Bangladesh in 2004, Hathay Bunano today employs around 8,000 women on wages that external audits have found to be double that of the average wage in Bangladeshi garment factories. Itself a registered not-for-profit company, Hathay Bunano established a distribution company called Pebble, which now exports to 37 countries including the UK and Australia.
Better representation and leadership positions for minorities
People at a higher risk of being excluded from the economy are better represented in social enterprise. The latest findings from the UK show that 40 per cent of social enterprise leaders are female, compared with 18 per cent of small and medium enterprises (SMEs), and that 11 per cent of social enterprise leaders are from minority ethnic backgrounds, compared with seven per cent of SMEs.
Another example in Europe is the In Concerto consortium, formed by 22 social co-operatives in North-east Italy. Their aim is to include otherwise marginalised people – for example, disabled people and ex-offenders – in local employment. Working in areas such as carpentry, cleaning, and care, the consortium had a turnover of 47 million euros in 2010.
Products and services designed to boost income and livelihoods
In many countries, social enterprises use modern technology in pursuing their mission. This ranges from low-cost solar panel lights, which make it possible to study at night, to more efficient ways to clear landmines and re-open land to productive use.
In Burma, where 70 per cent of the population depends on agriculture, and there are high levels of subsistence farming, Proximity Designs is a not-for-profit social enterprise that designs and manufactures affordable, durable products, such as pumps and other irrigation equipment. It also provides loans to help rural families increase their incomes. Proximity Design claims it has positively affected the lives of half a million people to date.
Regeneration that benefits everyone
Regeneration professionals are increasingly considering how their projects can benefit local and especially poorer populations.
Did you know that the iconic OXO Tower building in London is owned by a social enterprise? In 1984, following a long community campaign, a 13-acre, bleak and largely derelict site was transferred into community ownership, and Coin Street Community Builders was formed. Today Coin Street operates as a social enterprise, generating surplus from profitable land use (such as the OXO Tower and its restaurant, run by Harvey Nichols) to fund affordable homes, health and nursery facilities for local people with low incomes.
In a city where the top tenth of employees earns around four and a half times as much as the bottom tenth, Coin Street shows how people who would have otherwise been excluded from the economy can have disposable income and access to services.
Generating profits to train excluded groups
We are all familiar with the idea of trading businesses whose profits are used for social good. Charities the world over have set up such businesses as trading subsidiaries, while examples like TOMS Shoes take the concept to a new level.
Regina Agyare set up Soronko Solutions in Ghana as a for-profit business that provides information communication technology services to SMEs, for example by equipping them with mobile phones, laptops and tablets. It uses the profits to run Soronko Solutions Foundation. The foundation runs a number of programmes including Tech Needs Girls, which teaches underprivileged Muslim girls software coding.
The British Council is hosting a debate about the role of social enterprise in reducing income inequality as part of the European Development Days, Europe’s leading forum on international development, on 3-4 June 2015.
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