How Germany's politicians can grow social enterprise

by Dieter Janecek | Bundestag - German government
Thursday, 4 October 2018 09:00 GMT

A street artist performs with soap bubbles in front of the Brandenburg Gate in Berlin, Germany, August 3, 2018. REUTERS/Fabrizio Bensch

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German politicians can help businesses that work to improve society and the environment by offering support and funding

There are numerous problems facing the world today: the fragility of our environment due to climate change, the mass migration of people across borders and growing economic inequality to name just a few.

Yet the situation is not irredeemable! Indeed: despite the scale of the problems and challenges, the extent of human knowledge has never before been so great. Technological innovation has never been so prevalent, but rapid social innovation is also bringing many changes in patterns of mobility and consumption. 

Social entrepreneurs will not be able to save the world by themselves or halt climate change, yet they could play a decisive role in helping to modernise our economy and society along social and ecological lines. So what must policymakers do to to create incentives for social start-ups?

In contrast to most new firms, which are set up for purely economic reasons, social entrepreneurs are focused on different kinds of goals when they start their businesses: they want their firms to benefit society in some way – so profit maximisation is not their core activity. This means that social entrepreneurs often need different framework conditions to other firms.

According to the European Commission, one in four start-ups in Europe are social enterprises but the support for social entrepreneurs differs amongst European countries.

In the UK, for example, there are tax breaks for those investing in social entrepreneurs. Germany, in contrast, is one of the few EU countries which does not even have an official definition of social entrepreneurship.

The current German coalition government agreement merely promises additional support for social start-ups, but provides no information on when this can be expected or what resources are to be used.

The Green parliamentary group at the Bundestag is therefore calling for clear responsibility for the issue to be given to the Federal Ministry for Economic Affairs and Energy, which needs to develop a coordinated strategy to support social enterprises.

It is precisely the non-profit nature of social enterprises that makes it so difficult for them to find suitable financing. Hardly any forms of venture capital exist for the experimental initial phase of a social company, when a great deal of support and advice is needed.

What about public sources of finance? This is difficult for social entrepreneurs, mainly because their companies are normally hybrids between classic start-ups and non-profit organisations. At present, however, many programs are designed to support only one or other of these. These programs must be extended to explicitly include social start-ups.

We believe it is important to improve the business environment for companies focused on ecological and social sustainability.

Opportunities should be created for them to finance their projects by means of unbureaucratic loan applications, a new venture-capital law, the strengthening of crowdfunding and more advice for new social entrepreneurs, including discussions on possible funding.

In this context, improved e-government provision is urgently needed, since this would spare entrepreneurs many visits to government agencies and a great deal of paperwork. In addition, tax breaks should be provided for all research and development expenditure in small and medium sized enterprises in the social sector. 

Many programs provide financial support to those companies which can be expected to generate high profits or allocate support based on cost-saving criteria.

More resources should therefore be made available to measure the effects of social entrepreneurship, taking this into account to a greater extent when allocating funding.

In many cases it is difficult for entrepreneurs to accrue financial reserves, either because of their legal status, or because funding programs force them into shortfall financing, meaning that they are obligated in the first instance to use their returns to cover shortfalls. A specific form of follow-up funding for successful enterprises is thus needed for such cases.

If the German government chooses to support social enterprises, it will be backing businesses that want to improve society and the environment. That should be something all parties in the Bundestag can get behind.

Dieter Janecek is a German politician for the Green Party