Blog | Foundational economy | Policy | Social enterprise

Why social enterprises are key to the foundational economy

The foundational economy is defined as including activities that provide essential goods and services for everyday life. Examples of foundational economy businesses include grocery shops, childcare facilities and construction companies.

By Ceri-Anne Fidler Jones · 16 December 2019

See this page in: Cymraeg

Social businesses make up an important part of the foundational economy. But whilst social businesses and foundational economy businesses share many characteristics, they are not one and the same.

Many social businesses operate in foundational sectors but they are not restricted to foundational sectors providing daily essentials.  For example, within Wales, they can be found making luxury toiletries and beers as well as running graphic design studios and film production companies.

Perhaps the key similarity is that both foundational economy businesses and social business are grounded in local communities with decision making rooted firmly within the local populace. Both business types aim to improve their community, provide jobs and make local money work for local purposes.

The reason that social businesses are key to the foundational economy is that, compared to mainstream businesses, social businesses deliver added social value. Like mainstream foundational businesses, they aim to make a profit, but this profit is then reinvested or donated to create positive social change.  Investment in these businesses stays in the community and is recycled for wider economic and social benefits.

Unlike mainstream foundational businesses, social businesses have a clear social and/or environmental mission set out in their governing documents. By selling goods and services, social businesses create employment and reinvest their profits back into their business or the local community. This allows them to tackle social problems, improve people’s life chances, provide training and employment opportunities for those furthest from the market, support communities and help the environment.

They are also important employers in their local area, with latest statistics showing that 57% of the social business workforce living within 10 miles of the business. Social businesses also tend to be better employers than traditional businesses. The social business sector strives to be a fair work sector.

For example, around a quarter of all social businesses invest their profits in their social objectives and more than three-quarters pay the Living Wage to all their staff, compared to 48% of Welsh small businesses.  The majority of social businesses (86%) report that, to at least some extent, their staff are actively involved in decision-making.

Social businesses are already playing an important role in the emerging foundational economy policy agenda.  This is reflected in the number of social business based projects awarded funding in the Welsh Government’s Foundational Economy Challenge Fund.  But there is still a need for a dedicated agenda for social businesses in Wales.

While social businesses face many of the same challenges as any mainstream foundational business, they also face particular challenges too. They have different drivers and need to balance environmental and social objectives with economic ones.

Social businesses can find access to finance more difficult because of their ownership structures. They are multi stakeholder businesses with staff, community and member involvement, which requires a different approach to running a business. For these reasons they need specialist business advice and support and bespoke funding systems. These businesses need to be supported in ways which are sympathetic to the means of delivery and the social impact.

Next year will see the launch of a vision and action plan for the social business sector in Wales setting how priorities and actions for the next ten years.  It is our hope that this plan will see the social business sector in Wales growing in strength and supporting the foundational economy, creating a Wales that is fairer for everyone.