The Case for Research on Regulatory Neutrality Toward Various Shades of Social Entrepreneurship
32 Pages Posted: 5 Jun 2016 Last revised: 15 Jun 2016
Date Written: December 1, 2015
This working paper discusses the case for research on regulatory policy toward social entrepreneurship and specifically pertains to regulatory policy toward social ventures. The main theme of this working paper is the regulatory neutrality toward various shades of social entrepreneurship and its secondary subject is the convergence of policies toward THE private and public sectors. As such, this working paper touches upon company law, tax law and commercial aspects of the regulation of activities conducted by charities, NGOs, etc.
In recent decades, the charitable landscape worldwide has undergone a significant transformation first with respect to using business methods in support of social missions (social enterprises) and, second, with regard to combining social missions with make-money paradigm (social ventures). The austerity measures in the Western hemisphere, commercialisation/privatisation of state-owned enterprises in post-communist countries and an economic slowdown in Asian “tiger” nations all necessitated a rise of private charity self-supported by social entrepreneurship as a substitute for governmental action. Social ventures have been proliferating in this environment, yet have suffered from public-policies (fiscal environment, inflexibility of the design of business organisations) confined to not-for-profit social enterprises, and lawmakers everywhere have largely failed to address this problem.
The time is therefore ripe for revisiting representative policy models, and to defend the claim that efficient regulatory policies can be neutral toward various shades of social entrepreneurship and well integrate social ventures to the overall benefit of society. A dogma (that not-for-profit social enterprises can better substitute for governmental action than their for-profit counterparts because only the former can enjoy specific governmental supports and receive private donations) shall be dispelled by offering a number of flexible mechanism allowing rewarding private mission-driven business organisations according to the scope of their mission and regardless of their not-for-profit status.
Such research essentially demands perusal of policy and legislative documents produced roughly in the post-2005 period in a number of jurisdictions (mostly Anglo-Saxon like the UK, Vermont followed by other states, British Columbia, but also South Korea) where lawmakers took on the issue of social ventures but, all as one, adopted only fragmentary solutions which did not disenchant the for-profit or not-for profit binary mindset. Identified problems (definition of charity, limits of the scope of business operations of social enterprises, non-distribution constraint etc. on the side of not-for-profits and non-deductibility of mission-related expenses etc. by for-profits) need to be deconstructed one by one toward a complex system reflecting the entire spectrum of social entrepreneurs and based on the principle that the more mission the more governmental privileges, yet more supervision.
Such a complex system would include a number of novel solutions. The commonly accepted general profit-tax exemption for not-for-profits shall be discarded in favour of wider deductibility of charitable expenses combined with exemption of donations (including charitable price premiums in excess of market prices paid by donors for commercial goods or services). The non-distribution constraint (banning dividends or equity rights in dissolution) shall strictly reflect paid-in donations thereby balancing the interests of investors and donors. Finally, a simplistic supervision system requiring periodical reporting to public authorities shall be discarded in favour of a system balancing interests of public and private (donors) stakeholders in the fashion of corporate governance in public companies.
Such solutions could be universally applicable and could be used not only for private social entrepreneurship but also for preserving the social functions of gradually privatised state-owned enterprises.
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