Guest editorial: Social enterprises and public organizations: allies of adversaries? Introduction to special issue

Citation

Karré, P.M. (2024), "Guest editorial: Social enterprises and public organizations: allies of adversaries? Introduction to special issue", International Journal of Public Sector Management, Vol. 37 No. 3, pp. 305-316. https://doi.org/10.1108/IJPSM-04-2024-356

Introduction

This special issue deals with social enterprises (SEs), a type of organization that, until recently, has not received much attention from public administration and public management scholars (Calo et al., 2024). We will mainly focus on the relationship between these “organizations combining aspects of business and charity” (Battilana and Lee, 2014, p. 406) and public organizations, especially governments. For them, working together with social enterprises, and perhaps even using them as service providers, can be advantageous on various fronts (Korosec and Berman, 2006, pp. 449–450; Choi and Park, 2021, pp. 666–667). SEs can help mobilize previously untapped societal resources. Because they often focus on a specific neighborhood or other geographically demarcated area, they often understand the needs of a specific community better than administrators who are not embedded there. Due to their social mission, focusing on the creation of public value, they are also expected to be less likely than commercial enterprises to adopt opportunistic behavior. In general, using social enterprises as public service providers is expected to lead to better services due to their focus on social innovation while simultaneously decreasing the size and expenditure of the public sector.

A close relationship with public organizations is also advantageous for social enterprises themselves. Often, especially with regard to social and employment services, local governments are important customers for their goods and services, so cooperating closely with them is an economic necessity. The public sector is also an important partner for social enterprises, as governments shape the ecosystems they operate in through their policies.

Ecosystems are “the union of localized cultural outlooks, social networks, investment capital, universities, and active economic policies that create environments of supportive of innovation-based ventures” (Spigel, 2017, p. 49). Cooperating with and influencing the actors that create and shape such ecosystems is of strategic interest for social enterprises that need to enable ecosystems to flourish. Such an enabling ecosystem “provides to SEs the power, means, opportunity and authority to pursue their final objectives of benefiting society” (Biggeri et al., 2017, pp. 300–301) and is made up of “contextual factors supporting, and constraining, social enterprise” (Bruin and Teasdale, 2019, p. 6). This includes the availability of human and financial resources, access to a variety of supporting actors, support infrastructure such as incubators and knowledge institutions and an entrepreneurial culture, aided by supportive governments and policies and the visibility and recognition of SEs (Diaz Gonzalez and Dentchev, 2021). An example of attempts to create such an enabling ecosystem are recent steps by the European Union, often in collaboration with the OECD, to help member states understand and facilitate social enterprises better (OECD and European Union, 2017; European Commission and OECD, 2018; European Commission, 2020; European Union, 2021). The idea of SE and the benefits they can have for society at large are also promoted worldwide by influential nonprofit organizations such as Ashoka or the Schwab Foundation for Social Entrepreneurship.

This editorial is meant to set the scene and provide public management scholars with the background to understand the SE phenomenon and combine the viewpoints provided by the individual articles into a more coherent vision. The following three questions will be touched upon:

1. What are SEs?

2. What does the hybridity of SEs mean for their governance and management?

3. Which challenges underlie the relationship between SEs and public organizations?

This editorial will also shortly present each of the individual articles and formulate some broader questions that could be of interest to future studies on SE from a public management perspective.

What are social enterprises?

What precisely is a SE? This question is surprisingly difficult to answer and has preoccupied the field of SE research for longer than perhaps was necessary and beneficial (Lyon and Sepulveda, 2009; Dart et al., 2010; Teasdale, 2012). SEs are difficult to pin down, as social entrepreneurship is a catch-all term. A wide and diverse range of organizations can be found in the SE zoo (Young et al., 2018), including entrepreneurial nonprofits (ENP) (Suykens et al., 2021), social cooperatives (SC) (Evers and Laville, 2004), work integration social enterprises (WISE) (Aiken and Bode, 2009) and social businesses (SBs) (Desai and Tyler III, 2020). What all these different SE forms have in common, is (following the widely used EMES definition; see Defourny et al., 2014) that they aim to generate social impact rather than profit for the company’s owners or shareholders by trading goods and services on the market in an enterprising and innovative manner. Profits are mainly used to achieve social goals, and the organization’s management is transparent about its actions and accountable to its employees, customers and other stakeholders. In short, SEs use an entrepreneurial outlook mainly to achieve societal, environmental or community objectives (Audretsch et al., 2020).

SEs are not necessarily new phenomena. For example, in the United States, Goodwill Industries International, an organization that provides job training for people who face barriers in their employment, has been operating for more than a century. Smaller SEs, often at the micro-level with revenues of under $5 million, have evolved over the past 20 years to be an integral part of addressing employment among the hardest-to-serve populations (Cooney and Williams Shanks, 2010). Newer entities continue to enter the market, and older organizations face challenges to adapt to changing economies and expectations for the role that they may play in addressing broader societal needs.

In the US, as in other Anglo-Saxon countries, SE is strongly linked to the concept of social innovation (Nicholls and Murdock, 2011; Brandsen et al., 2016; Anheier et al., 2018). As state, market and society are seen as distinctive realms very much apart from each other here, resulting in a strict dichotomy between public and private, SE can help to bridge the divide. In Europe, the situation is different. Here, precursors of SEs have been part of the social fabric since the Middle Ages (European Commission, 2020), as state, market and society are traditionally more intertwined with each other. For example, in corporatist-conservative welfare states such as Belgium, Germany and the Netherlands (Karré, 2021), calling on the state for help traditionally is the very last resort based on the principle of subsidiarity (Sirico, 2014). This led to the development of organizations we might now call SEs well before the term was officially invented in the early 1980s by an American management consultant turned social entrepreneur (Light, 2009).

Today, SE is a truly global phenomenon (Kerlin, 2010, 2017, 2020). Besides the United States, SEs can be found in Central and Eastern Europe (Defourny and Nyssens, 2021a), Western Europe (Defourny and Nyssens, 2021b), Asia (Defourny and Bidet, 2019), Latin America (Gaiger et al., 2019) and Africa (Farhoud et al., 2023). How they are organized and manifest themselves is very much due to the context or ecosystem they originated in. SEs “can vary significantly depending on the place, space, culture or political or legal frameworks in which they are undertaken” (Roy and Hazenberg, 2019, p. 13) and the “variations in social enterprise around the world are due, in large part, to the highly idiosyncratic nature of the context in which they operate” (Roy and Hazenberg, 2019, p. 13). This can make comparisons difficult. What all SEs have in common, though, and what is often seen as their main asset (Powell et al., 2019), is their hybridity.

What does the hybridity of social enterprises mean for their governance and management?

As alluded to before, there is a huge diversity with regard to SEs, and as a result, there is also much confusion and ambiguity about what a SE is precisely. However, what most scholars agree upon is that SEs are hybrid organizations. This has led to the curious situation that, at the moment, most publications on hybridity and hybrid organizations yield from that field (Krlev and Anheier, 2020).

In order to mix economic and social value creation (Mair and Martí, 2006), SEs have to combine the institutional logics of the public, private and nonprofit sectors (Battilana and Lee, 2014; Doherty et al., 2014; Ebrahim et al., 2014; Mair et al., 2015; Woodside, 2018). In other words, they mix the characteristics of the realms of state, market and community/third sector and of the organizational forms that can be found in each of them on several dimensions: ownership, activities, funding, values, strategy and autonomy (Karré, 2022):

1. Ownership refers to who the proprietor of the organization is Dahl and Lindblom (1953), Wamsley and Zald (1973), Perry and Rainey (1988), Billis (2010), Grossi et al. (2017), Alexius and Furusten (2019) and Vakkuri et al. (2021). Organizations that are hybrid on this dimension have mixed ownership. In the private sector, organizations are commonly owned by private shareholders. In the public sector, organizations are owned by the state (and in extension citizens). And community/third-sector organizations are mostly owned by their members.

2. Activities concern what the organization does day in and day out and who the main customer is for the goods and services it produces (Fottler, 1981; Battilana and Lee, 2014; Grossi et al., 2017; Powell et al., 2019). Organizations that are hybrid in this dimension mix activities traditionally ascribed to public, private and community/third-sector organizations. Public organizations serve citizens on behalf of government and mostly provide statutory tasks based on laws and regulations. Private organizations deal with customers and provide them with commercial services. Community/third-sector organizations provide goods and services that are specifically aimed at the needs of their members or a specific target group, i.e. a specific societal group or the inhabitants of a geographically demarcated area.

3. Funding relates to how the organization finances itself and its activities (Wamsley and Zald, 1973; Fottler, 1981; Perry and Rainey, 1988; Billis, 2010; Anheier and Krlev, 2015; Grossi et al., 2017; Alexius and Furusten, 2019; Vakkuri et al., 2021). Organizations that are hybrid on this dimension mix public, private and community revenue streams. Private organizations generate their funding through earnings from commercial activities and public organizations receive money government has levied through taxation. Community/third-sector organizations finance themselves not only through contributions by their members but also through private donations and government subsidies.

4. Another dimension on which hybrid organizations between state, market and community/third sector can mix the characteristics of ideal typical public, private and community/third-sector organizations concerns their values (Jacobs, 1992; Wal and Hout, 2009; Battilana and Lee, 2014; Powell et al., 2019). Organizations that are hybrid in this dimension mix these different and ideally supplemental but often also contradictory values. There are values that are traditionally seen as pertaining to the institutional logic of the public sector (based on values such as public service motivation, bureaucracy and rules), that of the private sector (based on values such as profit motive, innovation and efficiency) and that of the community/third sector (based on values such as solidarity, trust and reciprocity).

5. Strategy refers to the organization’s main purpose or organizational priorities and their translation into a plan for action (Joldersma and Winter, 2002; Billis, 2010; Anheier and Krlev, 2015; Grossi et al., 2017; Alexius and Furusten, 2019; Vakkuri et al., 2021). Organizations that are hybrid in this dimension mix different strategic outlooks and visions. Public organizations focus on politics, administration and the service of public benefits. Private organizations focus on profits and dividends to shareholders. And community/third-sector organizations focus on the needs of their members and/or specific target groups.

6. The last dimension on which a hybrid organization mixes the characteristics of state, market and community is autonomy or the freedom those in charge of the organization have to make decisions on its present and future without having to consult a higher authority (Bozeman, 1987; Rainey and Chun, 2007; Grossi et al., 2017; Vakkuri et al., 2021). Public organizations operate on behalf of the government and are under political scrutiny and influence. Their managers therefore do not have much autonomy to devise their own strategy, whereas in private sector organizations, managers have higher degrees of autonomy to decide on strategic issues. In community/third-sector organizations, members decide themselves where to take the organization.

Hybrid organizations can mix the institutional logics of the three sectors on all of these dimensions or only on some of them. That means, that the “perfect” hybrid, which is hybrid in all six dimensions, does not exist. On the contrary, each hybrid organization has a specific hybrid thumbprint (Karré, 2022). This also means that there is not one ideal type of SE. Rather, based on which sectoral characteristics they mix, there are at least four types of SE: (1) public sector social enterprises (PSEs), (2) ENP, (3) SBs and (4) social cooperatives (SC). These four types were first identified and described by Defourny and Nyssens (2017). The description below builds and elaborates on their work by examining each of the four forms through the lens of the six dimensions of hybridity identified before.

PSEs mainly combine the characteristics of agencies and enterprises as public/private hybrids and originated as more traditional public sector organizations, e.g. in the field of work integration or care services. These organizations have developed into SEs by being spunout of the public sector and by also generating income on the marketplace. These SEs are hybrid with regard to their activities, as they combine public tasks with commercial activities. An example would be work reintegration social enterprises (WISE), originally established by the state, that provide work experience for specific groups in a commercial setting. Other examples include local public bodies providing social services on quasi-markets or public agencies providing social housing. By combining tasks for the state with activities on the market, PSE combines public and commercial funding and will also have to adhere to commercial values and a commercial strategic outlook, next to public sector values and a strategy defined by politicians. The managers of PSE often have more autonomy than the managers of traditional public sector organizations, akin to the autonomy stakeholders grant the managers of commercial companies.

A second type of SE according to Defourny and Nyssens are ENP that combine the characteristics of community/third-sector organizations, enterprises and agencies as community/third-sector/public/private hybrids. These SEs developed when general interest associations, which originally were quite close to the state as they generated most of their income through government subsidies, also started to acquire market income through commercial activities. Examples include WISE run by charities and NGO providing training to migrants. These organizations are hybrid, as they organize activities for specific groups funded through government subsidies and income from commercial activities (for example, letting jobseekers gain on-the-job training through providing services to commercial enterprises). ENP have to adhere to the values and strategic decisions taken by governments, as they depend on their subsidies, and also to those of commercial companies, as they depend on them being customers for their commercial activities.

A third type of SE is SBs, which combine the characteristics of enterprises and agencies as private/public hybrids. They were established by socially minded entrepreneurs and hence originated from the realm of the market, but mix market income with nonmarket resources, e.g. by working at the behest of governments as well as for commercial customers. Examples include residential care institutions launched by entrepreneurial social professionals or SME active in fair trade. SB are hybrid, as they are owned and run by entrepreneurs (i.e. private individuals) who have commercial values and an entrepreneurial strategic outlook but who also have to take the values into account of government or other public organizations, which often are their main customer and provider of funding. This limits their autonomy as entrepreneurs.

The fourth and last type of SE described by Defourny and Nyssens are SC, which combine the characteristics of community/third-sector organizations and agencies as community/third-sector and public sector hybrids. They are rooted in the community/third sector but differ from traditional mutual interest organizations (cooperatives and associations) in that they combine the mutual interests of members with the general interests of the community at large and use hybrid resources to achieve this goal. Examples include cooperatives of healthcare professionals and citizens’ cooperatives promoting organic and local food. SCs are in essence community or third-sector organizations, which are subsidized by the state. Therefore, they have to adhere to public values and are dependent on decisions by public officials, which limit their freedom. In many Western European countries, these SEs form the backbone of the welfare state.

Hybridity is often seen as heads-and-tails issue, in the sense that combining the institutional logics of different sectors and organizations can both have beneficial as well as detrimental effects for an organization and its stakeholders on three dimensions: funding, culture and control (Brandsen and Karré, 2011; Karré, 2020). This is also the case with the hybridity of SEs (Doherty et al., 2014).

With regard to its benefits, hybridity is at the core of the SE business model, as it grants SE access to new markets and resource streams previously untapped. It also allows them to combine various sources of funding. From a cultural perspective, their hybrid mission is the raison d’être and unique selling point of SEs as they work on social innovation. They do this by combining the best of both worlds, for example by providing on-the-job training in a commercial setting. By doing so, clients who struggle on the regular and competitive labor market due to their background (e.g. ex-convicts or recent immigrants) develop new skills in a real-life setting by conducting commercial activities, which help the organization stay afloat, while also receiving support and personal attention. The organization can do this by employing staff with different but complimentary backgrounds, working under a unifying mission of social innovation. As SEs work for different customers and have different stakeholders, their hybridity can also be seen as positive in terms of control, as it forces the organization to be open and transparent in order to keep their custom and support.

But there are also always potentially negative effects due to SE hybridity. These are most severe when hybridity leads to corruption and other unethical practices, e.g. SEs distorting the market through their use of subsidized labor. Another risk is that entrepreneurial activities might turn from a means into an end, with the effect of money intended for the organization’s social mission leaking away in instances of mission drift. From a cultural perspective, combining different and essentially contradictory institutional logics and values also often leads to ambiguity, confusion and even value clashes. This can make it more complicated for SEs to access funding, as subsidizing agencies might not be aware of or fully understand what they are doing or trying to achieve. Also, commercial investors might see the social mission of the organization as detrimental to its economic activities and their ability to recuperate their investments and hence might be hesitant to invest. With regard to control, the hybridity of SEs might lead to problems in the accountability relation, as the organization has to achieve different and often contradictory values and goals for different stakeholders. Doing different and, at least at first sight, contradictory or even conflicting things for a variety of different stakeholders with each their own vision, interests and values is always a challenge.

Which challenges underlie the relationship between social enterprises and public organizations?

A last question this editorial touches upon is what this all means for the relationship between SEs and public organizations. Can they indeed be or become allies or will the hybridity of SEs make that difficult? As stated earlier, public administration scholars have not paid much attention to the SE phenomenon in the past. In the field of SE, which mostly seemed to be trying to grasp the essence of social entrepreneurship in relation to other ways of dealing with social problems, there was also not much interest in how SEs could relate to government and public organizations. However, based on research by Karré and Van Meerkerk (2023) in the Dutch city of Rotterdam, several potential challenges in the relationship between SEs and public organizations can be identified with regard to the following: (1) awareness and recognition, (2) funding and procurement, (3) fragmentation and (4) accountability and impact. These issues might be especially prevalent in the European context and here again in conservative-corporatist welfare states, but they are indicative of the challenges SEs face in their relationship with the public sector in general.

1. Awareness and recognition: especially in the European context, there is a lack of awareness that SEs exist and what they are and a lack of recognition for the work they do (hence the recent activities by the European Union to change this). Organizations mixing economic and social activities have always existed, but they have not been called SEs until very recently. Also, here, this term is often only used to describe SBs, while other SE types (PSE, ENP and SC) are not described as such. Governments already have plenty of experience working together with ENP and SC and with creating PSE, though they are often not aware of them as SEs. The idea of helping people as a business is still rather alien to the European context, and as hybrid organizations, they often find it hard to explain their motivations, so SB are not well understood or recognized for what they are doing. They also often have to deal with prejudices and criticism about “social washing” or the exploitation of vulnerable individuals for financial gain.

2. Funding and procurement: many public authorities are used to funding activities in the sectors in which SEs are most active (health and welfare and work integration) by providing subsidies to more traditional third-sector organizations such as foundations or associations. Due to SEs’ hybridity, they are often not yet used to buying services from what they are seeing as more or less commercial entities. Procurement rules that are put in place to guarantee the most effective and efficient use of public money also often make it difficult to grant government contracts for the provision of public services to SEs. Because of their hybridity, i.e. the combination of social and commercial goals, SEs effectively price themselves out of the market for many government contracts if price is the only variable taken into account.

3. Fragmentation: SEs and their activities are often innovative; for example, they work in an “integrative” manner, crossing the boundaries of government “silos” and policy domains. But government regulation and financial streams are often not yet organized in that way. Because of this, regulations often thwart the plans of SEs, for example, when policies from different domains contradict one another.

4. Accountability and impact: Because of their hybrid character at the interface of the state, the market and society, SEs often find it more difficult than “normal” companies to demonstrate their accountability. SEs have different and often contradictory goals, and measuring their impact is often complex and expensive. This poses a problem for public authorities willing to make use of their services, as accountability requirements linked to the spending of public funds demand more hard and structured information than many SEs can provide.

In general, it can be said that the cultural and institutional logics of SEs and governments often do not match; they are speaking different languages. On the one hand, this is due to the hybridity of SEs, which means that they do not fit neatly into the legal and procedural categories thought up by governments in search for partners for the provision of public goods and services. But SEs also often find it hard to understand and appreciate what the government is saying and doing. This is, according to Karré and Van Meerkerk (2023), an effect of what they call “double hybridity”. Not only SEs are hybrid. Many governments are hybrid too, as they today have to combine at least three different institutional logics: traditional public administration (TPA), new public management (NPM) and new public governance (NPG). This often makes it difficult for SEs to understand their actions, and they often have the feeling of being forced to jump through many different hoops at once (conform to all the rules while being efficient and effective and operating in close connection with all societal groups).

Contributions to the special issue

This special issue consists of six articles. Three deal with the relationship between SEs and public organizations in Europe, two with that relationship in Asia and one in South America. With regard to subject matter, three articles (Claassen et al., Perikangas et al. and Mathias et al.) deal with the ways in which governments can create enabling ecosystems for SEs and how this effects their relationship. The other three articles deal with specific forms of SEs and their relationship with local (Rinne-Koski et al.) and national (Lee et al.) governments and with the opportunities for SE funding through the use of social impact bonds (SIBs) (Patetta et al.).

Claassen, Bidet, Kim and Choi analyze the relationship between government-certified SEs and the public sector in South Korea. Their study employs an exploratory approach to assess the experiences of SE executives in dealing with the government. Their findings ask for a more nuanced understanding of the relationship between SEs and the public sector, taking into account the diversity of experiences and perspectives, as well as the potential for both alignment and tension. They also identify different roles the public sector can play, ranging from resource provider to collaborator.

Perikangas, Kostilainen and Kainulainen ask the question of how Finnish SEs create social innovation and in what ways the government could enable them to do so through building a SE ecosystem. They describe coproduction as the main strength of Finnish SEs and advise that an enabling ecosystem must be based on three elements in order to be effective: enabling characteristics of stakeholders, coproduction methods and tools and initiatives by the government.

Mathias, Souza and Ribeiro examine Brazil’s National Impact Investment and Business Strategy (ENIMPACTO) in their article. They are especially interested in how ENIMPACTO was created and developed and analyze this using advocacy coalitions and institutional arrangements frameworks. By doing so, they shed a light on the complexities of enhancing SEs through public policies in a developing country like Brazil.

Rinne-Koski and Lähdesmäki look at a special category of SEs, community-based social enterprises (CBSE), in service provision in rural areas. They mostly focus on the legitimacy of these organizations as service providers. Their findings indicate that unestablished legitimacy and uninstitutionalized support structures lead to mistrust between CBSE and municipalities, which undermines their collaboration and coproduction.

Lee, Brower and Fay examine WISE in South Korea. They mainly analyze how the introduction of SEPA, a national SE policy, encouraged social missions of SEs and helped promote labor equity of WISE.

Patetta and Enciso-Santocildes focus on the funding of SEs and their motivations to participate in SIBs. Based on a case study in the Netherlands, they describe that SIBs can be an option for financing SEs within a strategy of income diversification and resource dependency. SIBs renew the traditional funding relationship between SEs and the public sector by providing SEs with new options for generating funding.

As described earlier, comparisons between SEs can be difficult, as they vary widely depending on their context (Roy and Hazenberg, 2019, p. 13). The articles in this special issue nevertheless provide some interesting general insights. They show that governments can support SEs by creating enabling ecosystems, what these ecosystems should entail and the kinds of roles governments can play in them. They also illustrate the complexities of such an endeavor, which become clearer when we look at different SE types in more detail.

There are still many questions about the relationship between SEs and public organizations, which should be addressed through the lens of public administration and public management research. The following topics could be addressed in this manner:

1. Governance and management of SEs.

2. Questions concerning the awareness and recognition of SEs by public sector organizations.

3. Funding and procurement of SEs.

4. Matching public policies with SE practices.

5. Accountability and impact measurement.

6. Challenges and opportunities in the relationship between (national/regional/local) governments and SEs.

7. Various forms of partnerships between SEs and public sector organizations.

8. The ways in which governments strive to build enabling ecosystems for SEs.

9. The populations that are targeted and supported by SEs.

10. The role of SEs in crisis management, e.g. in the climate crisis.

To finish, the work done by all the authors and reviewers involved in this special issue should be positively highlighted. Also, the work done by Brian Holland at the very beginning of the journey, which ultimately led to this special issue should not go unmentioned. Let’s hope that this special issue is just the beginning of a rich and productive academic exchange between the fields of public management and SE.