October 31, 2014

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Creating Local Impact: Connecting Social Business With Economic Development

Development goals are furthered when linked with ethical, pro-social business.

Ron_schultz_2014

By Ron Schultz

Studies from Harvard, MIT, the HIP Investor, and dozens more demonstrate the positive economic impact implementing environmental and social innovation programs have on corporate market value. We also know the importance social programs have in providing service to our communities as well as generating a financially healthier community. If this is news to your enterprise, you can see these studies on HIP Investor.

The studies quantitatively show the corporate financial impact of “doing well by doing good.”

Yet, when economic development agencies of all stripes are brought into this conversation, the viability of social entrepreneurial programs that are often self-sustaining and profit-making enterprises are dismissed as trivial or some form of ersatz non-profit charity. One reason might be because there are no direct studies of the relationship between social innovation and economic development conducted in the U.S.

When our book, Creating Good Work – The World’s Leading Social Entrepreneurs Show How to Build a Healthy Economy came out, we started proclaiming the banner of Creating Good Work and Building a Healthy Economy into the traditional business community as a highly promotable way of doing Creating Good Workbusiness. To us, Creating Good Work and Building a Healthy Economy was something akin to a warm puppy… something everyone wanted to hold. 

Development Agencies Fail To Connect The Dots

In light of this assumption, what we encountered from the traditional business economic development agencies came as a bit of a shock. “We don’t care if we’re creating good work or bad, we just want to create work!”

When I assured those who made these statements that they might not want anyone to hear what they were saying, they recognized the potency of their declaration. Ever since Milton Friedman declared the fiduciary responsibility of the corporate exegesis was somehow immune from its greater social connection, business, as an amoral financial extraction machine, has prevailed. It continued even when we were assured that corporations were human, but still somehow exempt from their human responsibility.

Socially Responsible Companies Are HIP

However, when I mentioned The HIP Investor’s statistics to these mavens of Miltonian Friedmanity that companies that have a higher ratio of human impact to profit (HIPness) than other companies out-perform the market by 4-5 percent, there was a visible recoil.

The notion of social good that makes financial profit was tolerable, if it were true. Well, the statistics don’t lie… but they also don’t tell the whole story.

The only studies about the impact of social innovation on economic development I could find come from Italy, in which flourishing economic non-profit organizations played an increasingly central role in the economic and social growth of the northern Italian region, Emilia Romagna.

Not coincidentally or without significance, this region was also home to the largest manufacturing output region in Italy. And while these social cooperatives never returned vast wealth to their owners, Impronta Eticathey proved more than apt at producing enough wealth over a sustainable period to play “an important role in the national economic system.” (Chiara Carini, Ericka Costa, Maurizio Carpta, Michele Andreaus 2012)

The intention here is to not only improve the understanding between economic development agencies and social innovators, but to also provide EDCs with a banner under which they can proclaim that they are Creating Good Work and Building a Healthy Economy.

Three Key Ingredients Of Building a Healthy Economy

To do so, let me take a moment to explain what Building a Healthy Economy requires from my perspective. The three key ingredients are:

  1. An ability to nurture resilience: This translates into being able to change personally, allow that others change too, and making sure the system within which you are operating can accommodate change and adaptation without blowing out its boundaries.
  2. Creating work that is meaningful and purposeful: Work that is generative and benefits others as opposed to work that is more extractive and benefits the few over the many.
  3. The willingness to establish wealth for 100 percent of the population as opposed to establishing work systems that produce vast wealth for the few and less for the many. This is also about recognizing the Commonwealth we share together – not just our parks, roads, lakes and trees, but our expertise, knowledge, and wisdom as well as our compassion and generosity.

Action Plan For Good Works

So, how do we put this into action and build the relationships necessary to satisfy the needs of both our economic development agencies and our social enterprises?

The process begins by initiating the conversation.

Sit down together, in one to one or group meetings, and start talking about the economic needs of the community. Establish what you share in common – a better and healthier economy in the community in which you all live. The process begins at that point, not with our opinions, our politics, or how much we know, or how good the work is that is being done. We begin this conversation with what we share and our alignment around a common purpose.

When we take this meeting, before we define what we can do together, it’s best to have your facts and figures together. The studies listed are a great service in supporting the efforts of what both social enterprise and economic development folks are aligned around: improving the economic landscape of their communities.

Spreading The Culture of Doing Good

What these studies demonstrate is that when any business operates with a healthy cultural relationship to the society within which it exists, they out-perform the market. Doing good business makes good business sense for the entire community in which these businesses operate. The more businesses focus on human impact, the better they do, the better the community does, the better the economy does.  

Now, imagine the profound impact on the economy of social businesses that are dedicated to creating good work.

With this evidence in hand, how do we work with those who don’t care if they are creating good business or bad? One way is to engage them in the process and discussion. Remind them that you are aligned in what it is you both are after, a healthier local economy.

And if they are still unwilling to shift their perspective, you marginalize their indifference. You don’t try to go through them or fight them. You go around them, over them, under them, or you simply ignore them. Sometimes you have to go outside of the system and show success in order to be brought back in and bring the old system along.

Creating Good Works: The Economic Development Perspective

It begins by taking action that will influence the economic development perspective.

When I met with Louis Stewart, from the California Business and Economic Development Agency (GoBiz) who leads a series of innovation hubs around the state, we began discussions around operating a pilot program with one of the iHubs to see how infusing these ideas of creating good work and building a healthy economy could inform business as usual.

innovation hubs

At the same time, a university credit union and CDFI with whom I had been discussing business loans decided that they could work very powerfully together to bring more business loans to enterprises creating good work. And now that it appears the local state iHub is about to relocate onto the campus the credit union serves, suddenly a model is in place that would benefit all the players – and especially those businesses not interested in equity financing. These businesses now had a choice to access debt financing that hadn’t been available to them previously.

With these credible partnerships in place, there was now an opportunity to create an innovative program that could be a model used, in this case, statewide.

Model The Behavior You Want Others To Emulate

The real message here is that for social enterprise and social businesses to take their rightful place in the economic community they have to model the behavior they want others to emulate: build the collaborations and demonstrate the partnerships in action. 

We can talk about the importance of the relationship between EDCs and Social Innovation all day long, but the real test is action. How we show up for the conversation to discuss what we are doing.  Stating a problem exists -- for instance, economic development isn’t appropriately recognizing the impact of social businesses -- is like saying “air exists.” In contrast, being able to state a problem and deliver a solution along with the challenge means you are doing business.

It’s time both sides recognized that they are all players in a dynamic and vibrant local economy and by working together to further the goals and aspirations of both communities, we can truly begin to create good work in our communities and build a healthy economy. 

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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