A Structural Framework For Social Enterprise Economics
Entrepreneurship is more than just starting a business; it is about having the proper attitude and the drive to succeed. Entrepreneurs are the economy’s initiators and drivers. Islam considers the role of entrepreneurs as farde kifia. The fact that they are essential and scarce resources of the society, they are considered as social assets meant for social benefits.
Various western scholars have summarized common personal qualities of successful entrepreneurs for market economics. These are: inner drive to succeed; an assertive personality; creative; dynamic in nature; competitive; highly motivated and energetic; able to accept constructive criticism; and a positive attitude. But the most essential ones such as to serve the society and social goals and values, and commitment to ethics and religious values, are not present in this list. These are, in fact, the personal qualities that differentiate the commercial entrepreneurship (of market economics) from the Islamic and social entrepreneurship (of the social enterprise economics).
MODES OF ENTREPRENEURSHIP
There are basically two dominant modes of entrepreneurship: the market/private sector economics relying on commercial entrepreneurship (self-interest centric) and the state/public sector economics relying on state entrepreneurship (public- well-being centric) for achieving the economics fundamental goal of societal-wellbeing. Due to limitations and failures of both the modes, the social and Islamic entrepreneurship (community-wellbeing centric) in the form of third-sector economics is now emerging.
- Commercial entrepreneurship (market economics) is founded on the fundamental assumption that self-interest is the sole motive of human behaviour and actions. It relies on methodological individualism and profit maximization on the assumption that individual benefits, when added together, will maximize society’s benefits. It has two main features: (1) the individual’s benefit is placed at the centre and (2) it is based on free-market competition, meaning that the “strongest takes it all” following the Darwinist social philosophy. State entrepreneurship (public sector economics), on the other hand, puts society methodologically at the centre and relies on the philosophy that society’s benefit is the summation of all individual benefits. Therefore, when society’s benefit is addressed, it takes care of the individual’s benefit.
- Market-state entrepreneurship (mixed sector economics) is the result of the realisation that market alone could not be trusted to ensure community wellbeing. This led to the idea of the states necessary involvement and participation side by side with the market i.e. a market-state mixed economy where the market would produce and supply mainly the private goods and the state would produce and supply primarily the public and collective goods. This model was initially enthusiastically accepted by academicians, professionals, and policymakers. However, serious shortcomings of this economic model surfaced when the income inequalities within and among nations continued to increase.
- Social entrepreneurship (third sector economics) is a non-conventional economic approach comprising of cooperatives and social entrepreneurship, charities, foundations, trusts, waqf and other non-profit institutions. It was introduced to address deficiencies of the private and public sector economics and was meant to operate in the peripheral sectors of the economy to meet the minimum unmet requirements for social well-being.
SHORTCOMINGS AND FAILURES OF MAINSTREAM/DOMINANT ENTREPRENEURSHIP
The principle of profit maximization without regard for social justice led the private sector enterprises to exploit others and concentrated the wealth in the hands of a small group. On the other hand, the state’s inherent inability to handle economic and business operations resulted in gross inefficiency and economic losses in the public sector. The significantly increasing income inequalities eventually became so obvious that according to The World Development Indicator 2007, 84% of the world’s population received only 46% of the world’s income. The richest 1% of adults own 40% of the world’s wealth and only 2% own more than half of the world’s household wealth. Even the wealth inequality within nations is too high: the wealth Gini of Japan is 0.55, and the wealth Gini of the United States is about 0.8.
Moreover, this model has failed to eliminate the most acute forms of poverty in many societies and countries. The increased economic growth thus has not been matched by increased well-being and happiness. Therefore, both private and public sector economics have been proven to be inadequate in ensuring the well-being of societies and nations. Various attempts were made to remedy the shortcomings of this model such as the privatisation of the public sector, but has not yield the expected results. This indicates how difficult it is to obtain socially responsible behaviour from agents concerned only with maximizing their self-interest.
Market economics also lacks legitimacy in the sense that it is founded on a distorted assumption of human motivations for behaviour and action. It ignores the multifaceted nature of human motives, as it predominantly serves self-interest. This entrepreneurship model has been subjected to a great deal of criticism on the grounds that it became increasingly irrelevant for understanding and solving major economic problems of the real world. Moreover, instead of producing a perfectly competitive market, it produces and ensures an imperfect market for exploitation.
EMPHATIC ROLE OF SOCIAL AND ISLAMIC ENTREPRENEURSHIP FOR ECONOMIC GROWTH & DEVELOPMENT
Islam regards entrepreneurship an essential and indispensable for the progress of human civilization as it effectively explores and exploits existing and potential resources to benefit mankind. In Islam, engaging in business is to perform a duty that is obligatory upon the community (fard-al-kifāyah) as opposed to the individual. Those who seek to fulfil it must seek to pioneer continual change through innovations in the economic environment for society’s benefit, profits are incidental.
Islam supports entrepreneurship, regardless of whether it is driven by opportunity or necessity, as long as it is based upon a solid moral and ethical ground and conforms to Islam’s code of conduct. Entrepreneurship in western societies is mainly driven by the prospect of material rewards. Islamic entrepreneurship is not against seeking a reasonable profit, but it does put ethical consideration and community interest first. Given that Islam aspires to create high-quality entrepreneurs and productive Islamic entrepreneurship. Muslim entrepreneurs are permitted and encouraged to be involved only in morally accepted and socially desirable productive business activities. Therefore, all activities associated with alcohol, drugs, usury, prostitution, gambling, and highly speculative business behaviour are strictly prohibited, despite the possibility of their economic viability.
Islam views entrepreneurship from a larger perspective, and thus entrepreneurs assume an altruistic role that goes beyond satisfying their immediate needs and personal interests. The entrepreneurs’ ability to orchestrate and lead the economic transformation, as well as carry out the needed fundamental cultural and socio-economic changes, depends greatly upon the entrepreneurial motives of the new business founders. Entrepreneurship is considered an integral part of Islam, which encourages its members to engage in business as part of doing good deeds. Muslim entrepreneurs, just like other Muslims, are considered Allah’s agent (vicegerent) and thus are guided by the ethics and values prescribed by the Qur’an and the prophetic Sunnah.
Social enterprise economics and Islamic economics seek to achieve similar objectives: humanity’s collective benefit, balanced and just economic development, the equitable distribution of income and wealth, the narrowing of income gaps, closer understanding and trust among nations and societies, and increased quality and standard of living for everyone. Islam’s commitment to cooperation and justice makes the wellbeing (falāh) of all human beings its principal goal. Given that this is achieved by the balanced realization of humanity’s material and spiritual needs, the mere maximization of total output cannot be the goal of a society. Islamic economics is founded on the principle of goal realization rather than profit maximization, as ethics dominate economics. The “ethical factor” fundamentally sets the Islamic system apart from all other economic systems.
THE EMERGENCE OF THE SOCIAL ENTERPRISE ECONOMICS (THIRD SECTOR)
Cooperatives and social enterprises are the two main movements of third-sector economics. A cooperative can be defined as a voluntary organisation (e.g., a farm or a firm) that is owned and managed jointly by its members for a common goal and that shares benefits among themselves; and serving the community is only incidental.
Social entrepreneurship, which includes social business, is a “social-mission driven” business organisation. It is defined as an activity that focuses primarily on value creation rather than value appropriation. Therefore, it has to have self-regulation and operating rules. It can be described as “doing charity by doing trade,” rather than “doing charity while doing trade.” For social business, according to Muhammad Yunus, the key differentiating element is that investors can receive at best their original investment, for there is no additional dividend or capital return, while a social enterprise is allowed earning a reasonable profit for sustainability. Therefore, in terms of concept and scheme, social enterprise includes social business but not the other way.
Some recent theoretical developments have helped to strengthen the academic and analytical arguments for social enterprise economics. They have shifted away from the emphasis of viewing the firm as an entity centred on profit maximization to one working as a coordinator to solve society’s problems via the production of goods or services. This has broadened the firm’s role to include both public and collective-interest goods.
The Behaviourist School maintains that human actions spring from a mix of motivations (e.g., intrinsic, extrinsic, self, others) and are influenced by a general ethical factor of inclination to help each other and uphold justice and equity. Under the circumstances, the social enterprise economics consisting of primarily social and Islamic entrepreneurship is now seen as most viable and needed economic model that can ensure the realization of economics’ fundamental goal: humanity’s well-being at the national and global levels.
ITS PERIPHERAL IMAGE
Social enterprise economics was conceptually, structurally, and functionally designed as special programmes to deal with the economy’s peripheral areas: poverty alleviation, rural development, and agricultural development. This gave the two other models a free hand to operate in all of the economy’s dominant and growth-generating sectors. This reflects the tendency of donors and international agencies to promote cooperatives and social enterprises only as tools to reduce poverty and generate employment. As a result, social enterprise economics remained outside the mainstream economy.
However, several large and successful social enterprises (SEs) have appeared in Asia, such as the Grameen Bank, the Bangladesh Rural Advancement Committee (BRAC), and the Population and Community Development Association (PDA). But despite their invaluable contributions to bridging social divides and achieving the community’s well-being, this sector is not receiving the expected attention and recognition for development and expansion. Rather, it is being treated as a peripheral activity, one that has been sidelined in managing the national economic sphere. If social enterprise economics is to emancipate to play its envisaged and expected role as a leading economic system, it must be broadened and mainstreamed.
Scopes and Potentials for its Emancipation as Mainstream Economics and Call for Restructuring With its community-centric conceptual base and social justice-driven motivation, the social enterprise economics (third sector) stands as the superior economic model for goal realization. Unfortunately, as noted earlier, it has remained, both conceptually and operationally, largely confined at the economys peripheral areas to serve primarily as filler of gaps. Typically, it covers the activities of non-government and not-for-profit bodies, of which cooperatives and social enterprises are its two main arms. This not-for-profit narrow base has seriously limited its growth and expansion, as well as its entry into the growth-yielding and more challenging industrial sectors of the mainstream economy.
Social enterprise economics should not remain confined to not-for-profit activities; rather, its spirit and essence demand the widening of its sphere and domain of operations through both not-for-profit and for-profit modes of operation. Many people expected that it would become another dominant model, one that works not only for poverty alleviation but also for enhancing economic growth in order to bridge the economic and social divides. Therefore, it needs to expand its conceptual base, domain of operations, and types of enterprises and objectives. It should expand beyond cooperatives and non-profit social businesses to for-profit businesses to inject its provisions for social justice into the economic mainstream.
Social enterprises should be restructured to include both not-for-profit enterprises and for-profit “businesses blended with social justice” so that it may ultimately become a large and dominant economic model including the following types of enterprises:
- profit-driven businesses that contain some planned social benefit-driven operations
- public-private partnership (PPP) enterprises that feature social benefit as a controlling factor
- all Islamic business enterprises with ethics and social benefit as control factors and
- cooperatives that benefit their members but also have some planned operations devoted to community benefits.
Accordingly, it should be restructured to include both not-for-profit enterprises and for-profit “businesses blended with social justice” so that it may ultimately become a large and dominant economic model, one that is comparable with the market-based first sector as regards its share and control of the economy. With this expansion and restructuring, the third sector will be strong enough to have a significant impact on the behaviour and performances of the first sector. This restructuring will require a regulatory provision for registration of enterprises, specifying the plan of action they have devised to meet their commitments and accountability to community well-being and social justice. Since profit maximization is not their basic or only reward, there should be an accreditation institution for assessing and rewarding them as a category by socially respected trademarks. Formation of an accreditation body is needed for monitoring, assessing, rewarding, and punishing the enterprises.
Also, there should be various credible research and professional institutions to support their growth and development:
- Institute for research, training and development on social enterprise economics,
- Management institute for research, training and managerial development of the social enterprise economics
- Institute for training, studies, and research for entrepreneurship development,
- Professional bodies for social and Islamic entrepreneurship, and
- Regulatory support for revising and rewriting textbooks on economics, business management, and sociology at all levels of studies to reflect the ‘whole truth’ about the human motives of economic behaviour and actions.
EMPHATIC SCOPE OF ISLAMIC ENTREPRENEURSHIP FOR MAINSTREAMING SOCIAL ENTERPRISE ECONOMIC
The unique ethical and motivational structure of Islamic entrepreneurship gives priority to community considerations, and only then to individual benefits. It possesses all the 3 key qualities – legitimacy, order, and welfare (LOW) – for the success of any social system. It is faith-based, enjoys legitimacy and is predominantly for societal welfare. Islamic entrepreneurship, therefore, fits very well for social enterprise economics model with the highest potential for success However, many entrepreneurs may not be so committed to Islamic convictions and spirituality, this is particularly true among non-Muslims. Under these circumstances, any business that falls short of fully conforming to these norms may be called an ‘Islamic- style’ business. In this, output maximization, profit maximization, employee benefits, etc. are subject to community well-being considerations. Profits for the equity holders and benefits for employees are seen as residual matters.
However, many entrepreneurs may not be so committed to Islamic convictions and spirituality, this is particularly true among non-Muslims. Under these circumstances, any business that falls short of fully conforming to these norms may be called an ‘Islamic- style’ business. In this, output maximization, profit maximization, employee benefits, etc. are subject to community well-being considerations. Profits for the equity holders and benefits for employees are seen as residual matters.
EXAMPLES OF COMMUNITY-CENTRIC ACTIVITIES OF ISLAMIC-STYLE SOCIAL ENTERPRISES ISLAMI BANK BANGLADESH LIMITED
One of Islami Bank Bangladesh Limited’s distinguishing features is that its overall activities are directed toward the society’s overall welfare. Its firm commitment to uplift and emancipate the country’s poor people has resulted in the creation of a separate fund, the Islamic Bank Foundation, to carry out social responsibility through:
- Income-generating self-employment programmes by providing finance and other necessary inputs.
- Education programmes to improve the country’s educational scenario by supporting Forquania Maktab, providing scholarships/grants to poor and meritorious students, and financial support to educational institutions.
- Health and medicare programmes to extend health, medicare, and sanitation facilities to the urban and rural areas.
- Humanitarian help, relief, and rehabilitation programs for the poor and needy.
- Dakwah programmes, such as working with prisoners to reform their morals.
- Crafts and fashion programmes for distressed women to find sales outlets for home-made garments, handicrafts, and develop clothing that conforms to Islamic norms and contemporary fashion.
- Service centres to be constructed in coastal areas, river deltas, and off-shore islands that can be used for social development as well as shelters during natural disasters. Two such service centres have already been established in Noakhali and Manikgonj.
- Establishing international schools and colleges that will transform local youth into human capital with relevant technical skills. Two technical institutes have been established in Dhaka and Bogra, offering trainings in computer, secretarial science, driving, electrical, refrigeration and air conditioning, radio and television, and tailoring and garments.
JOHOR CORPORATION (JCORP)
The Malaysian state of Johor’s government’s investment agency, Johor Corporation (JCorp), is an example of successful Islamic entrepreneurship. By creating a corporate waqf, WANCorp, it has successfully initiated a new way of doing business under the banner “Business Jihad”, an alternative to the purely shareholder-centric business-driven economic model.
Its mission and slogan, “Building wealth for all with Islamic entrepreneurship”, is based on waqf. This newly created corporate waqf is a legally recognised community-owned corporation that continues in perpetuity, produces useful goods and services for society. Profits are reinvested in charitable or social causes to bridge the social divide. It is more or less like “social business.” Proponents claim that this approach largely adheres to the nature and character of Islamic entrepreneurship, for its ultimate goals are community and social justice.
CONCLUSION
The capitalist market economics failed because it is founded on the artificially formulated fundamental assumption that self-interest is the sole motive of human behaviour and actions. This is not tenable. Human nature cannot be conditioned to follow any artificial assumptions formulated based on convenience and emotions without reflecting the reality. Thus, market-state entrepreneurship has failed to ensure the well-being of people and society.
Social enterprise economics comprising cooperatives and community-centric not-for-profit social entrepreneurship emerged as a make-up strategy to meet the minimum unmet requirements for social well-being. However, a broadly-based social enterprise economics with both not-for-profit and for-profit businesses blended with social justice needs to go mainstream so that it can have significant impact on the poverty alleviation and bridging the existing economic and social divides through economic growth.
Islamic entrepreneurship is a community-centric mode of business initiative and a natural strategy for solving the problems of economic inequity, the concentration of wealth, and social divides. Islamic entrepreneurship is a highly suitable and effective approach for broadening and mainstreaming social enterprise economics, primarily in developing countries. Nations and societies that are interested in expanding, developing, and mainstreaming their social enterprise economics may profitably promote this model, which approves seeking of a reasonable profit but puts ethical considerations and community interest above everything else.
