A gap in our system : Neglecting the Power of Social Enterprises

The term social enterprise (SE) is far from foreign within our society and yet the legal space surrounding the sector has remained elusive. There is a need for the government to recognise social enterprises as legal business entities so that the sector can realise its full potential — SEs are often described as a hybrid of a charity organisation that operates under a positive revenue model holding fundamental aims of solving a given social issue.

To witness what we’re missing out on, all we have to do is look to our neighbouring countries with wildly successful social enterprise sectors – the success of which has been mainly credited to the fact that all these countries have in the recent years either passed or revised acts for the legal recognition of SEs. This then subsequently allowed for the ecosystem to cultivate policies that encourage and incentivise the development of even more entities.

SEs have proven to not only alleviate poverty and sustainably tackle pressing social issues, but they also contribute significantly to economic growth. Experts have expressed that SEs are commonly seen as a tool to engage more of the workforce into productive economic development that is equally sensitive to social and environmental implications. If the right policy incentives are provided, SEs could very well be used to the advantage of achieving the Sustainable Development Goals (SDGs).

Within the landscape in Malaysia, albeit relatively small, there is a handful of awe-inspiring SEs operating within various realms of social justice. Namely, EPIC Homes’ goal of alleviating poverty within Orang Asli communities, Foodbike’s primary aim of providing employment to underserved disabled communities, The Picha Project’s strides in empowering refugees and Biji-Biji Initiative’s sustainable product designs aimed at waste reduction. All of which operate on revenue-generating business models which do not rely on charity donations to sustain themselves.

Across the Asia Pacific, social enterprises have been a major source of employment — employing 62% of the national labour force and contributing to 42% of GDP. What’s more, in 2016, Global Impact Investment Network (GIIN) published a survey of 158 investors confirming that East Asia and South East Asia are key markets for impact investment activity, essentially implying that expected inflow of foreign capital into the sector is going to be high.

Indonesia, Thailand and South Korea are just a few Asian countries that illustrate just how powerful the SE sector has come to be. Take Indonesia for instance — after revising the National Entrepreneurship Bill in 2015 to include social enterprises, there was a sudden surge in SEs where more than 70% of a surveyed sample group in 2018 reported they started in the last two years. By the same token, Indonesia has experienced an increase in jobs predominantly among youth and women, where over 45% of social enterprise leaders fell under the 25-34 age group. This also proved to be a triumph for gender equality as the workforce was estimated to be made up of almost 70% women. On top of that, they also saw a near 100% increase in the number of full-time female employees nationwide.

As for South Korea, the SE sector made massive contributions to the economy — in terms of GDP, the extent has been compared to that of the amount Silicon Valley contributes to the US economy. Moreover, soon after the government established a Social Enterprise Centre in Seoul, the nation experienced a 353% growth in the number of SEs set up between 2012 and 2015.

A stark comparison can be made between the ratio of the number of SEs to citizens in Thailand versus Malaysia. In a 2017 UN ESCAP report, it was stated that Thailand had 1 SE for every 5,800 citizens. In contrast, Malaysia only had 1 SE for every 120,000 or so Malaysians.

It is commonly believed that as the sector matures over time, the gains will naturally earn itself the legal framework it requires in order to thrive. This rather reactive strategy essentially implies that the social economy should be left alone and that it will eventually pick itself up with time. Based on the goals the government set for the sector under the Social Enterprise Blueprint for 2015-2018 launched back in 2015, this ‘wait-and-see’ strategy has proven to be disappointing. With an initial aim of growing the sector to 1000 SEs by 2018, 5 times the number back in 2016, the number has unfortunately remained more or less the same. This highlights a need for proactive steps to be taken in pushing for innovative experimentation of policy to stimulate the market. For this to happen, the legal establishment of the sector must first be officiated.

It does not seem right to completely shadow the existing initiatives already taken by the government thus far. Some of these initiatives include the establishment of the SE Blueprint, short term boot camps targeted at the youth (Youth Co:Lab) as well as longer-term accelerator programs. Furthermore, the allocation of a Social Outcome Fund amounting to RM3mil alongside the issuance of a National Regulatory Sandbox attempted to assist impact-driven startups. If anything, all this serves as a worthy step in the right direction.

Nevertheless, the principal role of the government should be to develop effective policies to support and springboard the SE sector into excellence. The only way it can do so is by first and foremost, giving legal recognition to SEs. The natural progression for implementation of policies would then be to see through appropriate tax benefits for registered SEs, allow for concessionary rates for certain resources and perhaps introduce social procurement policies (such as Singapore’s Green Procurement policies) so that existing corporations can also make the move to more environmentally conscious acts.

By openly recognising their existence and addressing the monumental potential of SEs to drive social change, the government would be making a strong statement to the general public to direct attention and participation into the sector.

*Goh Le Faye (Bachelor of Science (Hons) in Management, London School of Economics & Political Science) was an intern with ASLI Centre for Public Policy Studies (CPPS), November 2018 to January 2019.