Opinion Sur
China’s accelerated growth of the past decades occurred in a context of enormous rural-urban migrations and of an unprecedented strong process of social differentiation. The Government seeks to correct this bias through the implementation of a series of measures, including promoting the establishment of social enterprises, which will allow a less-concentrated productive effort and, consequently, achieve a better distribution of the national income. This article proposes a way, among many others, of conceiving, structuring and managing social enterprises in China.
[[In appreciation for the support received from Guangzhou local authorities and staff ]]
The vertiginous growth China has achieved in the past decades is well known. This growth was attained through the implementation of profound reforms in the economic system maintaining the economy’s steering wheel in the hands of the State. Public expenditure was used to capitalize strategic sectors such as roads, energy, ports, airports, communication and transport, among others. Meanwhile, preferential treatment was given to certain sectors considered a priority; such is the case of technology-driven industries, exportable manufactures, tourism, food production and real estate. This was accompanied by a monetary policy that ensured a low inflation and a favorable exchange rate policy.
This accelerated growth gave way to an important repositioning of China in the global geopolitics and economic scenario, while it generated a strong flow of international private investment attracted by the activation of the enormous domestic market. Such a vertiginous growth occurred in a context of strong migration from rural zones towards the cities where investment concentrates and therefore so do new labor opportunities, along with, at the same time, a process of social differentiation unprecedented in the country.
Income inequality and its consequences on the standard of life of very diverse population segments lead the country’s political leadership to take compensatory measures. The first effort came across through a well-known mechanism in China which is income redistribution through social services that favor large population sectors, such as schools, universities, hospitals, social security system, environmental sanitation and also certain specific measures carried out by Human Resources and Labor Areas of municipal governments in order to facilitate vulnerable sectors the access to jobs.
Certainly, the generation of employment in dynamic sectors as construction, tourism and manufacturing which are labor-intensive, was and still is quite considerable; however, that contribution did not turn out to be enough to absorb with fair incomes the enormous migratory flows that keep converging upon the cities. It is in this context of challenges that the Chinese Government promotes and facilitates the emergence of small companies and self-employed workers so that, in a single economic act, a larger production generated in a non-concentrated way and a better income distribution can be materialized.
But, even counting with the backing of the public sector, emerging sectors of small producers find serious restrictions to achieve incomes that will allow them to access appropriate levels of life. The fact is the small scale represents an extremely severe restriction when entering markets where other actors of larger scale operate with much higher productivity levels; competitiveness of small producers is weaker and so is their capacity to access a path of sustainable growth. Efforts to promote small production are therefore at risk of not being able to keep inequality from reproducing over time, with dangerous implications in terms of social cohesion and political stability.
However, this is not an inevitable result in a process of accelerated growth where the economy’s steering wheel is in the hands of the State. If the political will is there, it would be possible to introduce a set of new measures that, without affecting the growth dynamic, would facilitate not concentrating the productive effort and the consequent economic results. There is modern organizational engineering that enables to articulate today scattered small producers in medium scale productive ventures integrated in promising value chains and with a management capacity that allows them to access better opportunities in the domestic and foreign market. It is in this context that the effort to promote social enterprises takes place.
The notion of social enterprise
There is not one but several ways to conceive, to structure and to manage social enterprises. In general, a social enterprise is conceived as a productive venture (of goods or services) mostly formed by underprivileged or unemployed people. But far from constituting a ghetto of poor and vulnerable families, a social enterprise aspires to become, after an initial maturity period, a sustainable economic unit.
Thus, the first crucial challenge for a new social enterprise is to gather actors that are different but who complement each other functionally: (a) small producers who participate in the social enterprise; (b) strategic partners that know how to operate the social enterprise and add value through technology, contacts and access to markets; and (c) developer partners with the capacity to provide funding, to facilitate the insertion of the social enterprise into promising value chains and to ensure an equitable distribution of results.
Social enterprises are an effective way to address social and economic goals at the same time:
(i) It generates employment and incomes for segments of the population that for different reasons have been left behind; in this sense it contributes both to local GDP growth as well as to improving income distribution.
(ii) It complements larger public investments providing a channel for public resources to fund effective, self sustainable economic activities; a successful social enterprise could turn to be an eventual local investment node with multiplier effects on the rest of the community.
(iii) A social enterprise also serves as a constructive bridge between the diversity of cultures and attitudes that its participants carry with them (low income families, operational manager and local government).
Management of the social enterprise
A critical challenge is adapting modern forms of management to the community’s idiosyncrasy, needs and goals in a way that preserves their identity, values, traditions, perspectives on the economy and the environment. It is about adopting a way of management that can successfully overcome the tremendous restrictions that small scale imposes upon any productive venture. Greater scale facilitates accessing a higher threshold of opportunities. The fact is that apart from accessing markets far beyond the local one, a medium scale enterprise can count on differentiated management areas such as administration, sales, product development, training, finances, external relations. It would no longer be an isolated person or family, compelled to do a little bit of everything, limited in reach and effectiveness.
There is not one but several and diverse modalities of managing a social enterprise. It would not be convenient to reduce such diversity to a single formula stated as the most valid, correct or appropriate. However, any management modality that is chosen should (i) successfully combine small producers abilities to work in the social enterprise with the running of the whole medium scale enterprise and (ii) fairly and effectively face critical issues such as the ownership structure of the social enterprise, levels and instances of participation and decision making, equitable distribution of economic results and the eventual use of the social enterprise as a node of economic surpluses accumulation and, in that sense, an investment arm of the community.
Structuring a social enterprise
The type of social enterprise that we propose includes an operational manager, a number of small producers and the community as a whole represented by the local government. They all participate in the ownership of the social enterprise.
(i) Operational manager
The manager is selected by the local government and participant families and must have management experience and knowledge of the specific sector. If a community member meets those qualifications he/she would be the one selected but, if there were not, someone else who knows how to add value to the social enterprise should be chosen. In this case two additional requisites would be demanded. The first one is that he/she knew how to work in a multicultural environment and the second that he/she commits to train those within the community who could further on lead the social enterprise.
(ii) Small producers
The selected small producers will have (i) the right to receive from the social enterprise training, the appropriate equipment and tools to perform their work, and an equitable participation in the economic results, and (ii) contractual obligations to abide, such as respecting rules and standards the social enterprise sets.
(iii) Social enterprise ownership
The social enterprise is co-owned by the small producers, the operational manager and the local government. The proportion of ownership needs to be defined case by case according to the social and economic value each actor contributes. Other actors could be invited to participate if they also add value to the social enterprise by reinforcing its economic base, facilitating access to markets, or bringing additional key knowledge.
Multiplier effects
A social enterprise presents two levels of inclusion: (i) a first level constituted by the participant small producers themselves; and (ii) a whole series of other small producers (family enterprises) that may provide goods and services to the social enterprise. These families that are not part of the social enterprise would get incomes and a stable demand for their services that they would otherwise not manage to access.
The social enterprise as an eventual accumulation and investment node
If successful, the social enterprise can become an accumulation and investment node; its surpluses could be allocated in other productive initiatives of the community, whether it is in the same or a different value chain, helping to set up projects that cannot materialize today due to lack of initiative and seed capital.
The cultural challenge
When communities decide to face economic activities that are bigger or more complex than those they have been conducting, they have to adopt new ways of working and connecting with the outside world. This contact between different cultures, in the context of a historical background of confrontations and inequities, along with the existence of a diversity of interests, needs and even emotions, presents challenges and tensions that have to be properly faced.
The perspective of small rural or urban producers in which executive functions are taken up by a person or a family with extreme scarcity of all sorts of resources is not the same as that of a larger economic organization where the specialized function division is mandatory. Different communities, families, small producers, the selected operational managers and local governments may carry different values, attitudes and reactions towards success, joint efforts and adversity. It is a hard thing, filled with tensions, trying to make people and organizations converge around a common aim, as is in this case establishing and successfully managing a social enterprise. But it will have to be done; working skillfully and transparently to generate trust and understandings, to overcome disagreements between those seeking to combine their efforts. A social enterprise can, ultimately, become an excellent vehicle for different actors to transform into a valuable socioeconomic asset their own diversity of cultures and interests.
