For-profit and non-profit collaboration proposal for Ukraine

By | April 15, 2015
People-Centered Economic Development UK (P_CED) is an autonomous social enterprise which has been engaged in Eastern Europe since 1999. Jeff Mowatt from P_Ced has written this article for the blog. The approach taken and described below, of cross-sector collaboration for community benefit, is the theme of our conference 1-3 Sept 2015, in York, UK

Research in Eastern Ukraine began in October 2004, as the Orange Revolution unfolded. With the assistance of local activists from the NGO Maidan it would uncover profound social injustice, of which perhaps the greatest was the treatment of disabled children abandoned to the state.

With the collaboration of Kharkiv National University, in February 2007, P-CED delivered a strategy paper described as a ‘Marshall Plan’ for Ukraine to government channels.

A national social enterprise development centre was one of four main components.

Definitions of social enterprise models were taken from Kim Alter’s Social Enterprise Typology 2006. Among these was private sector partnerships:

“The Private-Sector Partnership Model represents a mutually beneficial relationship between a for-profit company and a nonprofit social enterprise. Relationships are forged on commercial grounds, whereby each partner is a contributor to the commercial success of the venture. The partnership adds value or enhancesthe nonprofit social enterprise by increasing its viability, and hence its social impact, either directly by reaching more clients through its business model, or indirectly by generating funding for social programs. The private partner also benefits vis-à-vis improving goodwill, increasing customer loyalty, penetrating new markets, attracting more socially conscious consumers, etc., which subsequently translates into higher sales and more profit.
“The private-nonprofit partnership model of social enterprise is a mutually beneficial business partnership or joint venture between a for-profit company and a nonprofit organization. The partnership may occur with an existing social enterprise, or may result in the creation of a new entity or a profit center. The social enterprise may or may not be mission-related and leverages the nonprofit organization’s assets, such as relationships with their target population, community, brand, or expertise. For the for-profit, the partnership yields one or more of the following benefits: lowers costs (cheaper labor/lower research and development costs); reduces restrictions (no strict regulatory oversight); improves community relations or public image; enables new product development; penetrates new markets; or increases sales. Partnership benefits for the nonprofit are financial return, marketing and brand equity, and in cases where the activity is mission-related, social impact. The market is most often external–the public, but examples exist where the paying customer and the client are one. The private-nonprofit relationship may be structured as a joint venture, a licensing agreement, or formal partnership.”
In earlier work P-CED had argued that capitalism could be redirected to serve the interests of community rather than maximise shareholder returns. This point was reiterated in the ‘Marshall Plan’
“Enterprise is any organizational activity aimed at a specific output or outcome. Once the output or outcome – the primary objective – is clear, an organization operating to fulfill the objective is by definition an enterprise. Business is the most prominent example of enterprise. A business plan, or organizational map, provides a reference regarding how an organizational scheme will operate to produce a specific outcome: provision of products or services in a way to create profit. Profit in turn is measured numerically in terms of monetary gains, the “bottom line.”
“This is the function of classic capitalism, which has proven to be the most powerful economic engine ever devised.
“An inherent assumption about capitalism is that profit is defined only in terms of monetary gain. This assumption is virtually unquestioned in most of the world. However, it is not a valid assumption. Business enterprise, capitalism, must be measured in terms of monetary profit. That rule is not arguable. A business enterprise must make monetary profit, or it will merely cease to exist. That is an absolute requirement. But it does not follow that this must necessarily be the final bottom line and the sole aim of the enterprise. How this profit is used is another question. It is commonly assumed that profit will enrich enterprise owners and investors, which in turn gives them incentive to participate financially in the enterprise to start with.
“That, however, is not the only possible outcome for use of profits. Profits can be directly applied to help resolve a broad range of social problems: poverty relief, improving childcare, seeding scientific research for nationwide economic advancement, improving communications infrastructure and accessibility, for examples – the target objectives of this particular project plan. The same financial discipline required of any conventional for-profit business can be applied to projects with the primary aim of improving socioeconomic conditions. Profitability provides money needed to be self-sustaining for the purpose of achieving social and economic objectives such as benefit of a nation’s poorest, neediest people. In which case, the enterprise is a social enterprise.”
The primary focus was placing children in loving family homes:
“In this case, for the project now being proposed, it is constructed precisely along these lines. Childcare reform as outlined above will pay for itself in reduced costs to the state. It will need investment for about five years in order to cover the cost of running two programs in parallel: the existing, extremely problematic state childcare scheme, and the new program needed to replace it for the purpose of giving children a decent life. The old program will be phased out as the new program is phased in. After this phase transition is complete, the state will from that time forward pay out less money for state childcare. Children will have a better life, and will be more likely to become healthy, productive assets to the nation rather than liabilities with diminished human development, diminished education, and the message that they are not important – the basis for serious trouble. There is no need whatsoever to give these children less than a good quality of life as they grow and mature. The only problem is reorganization of existing resources.”
In conclusion, the plan put the case for support from forward thinking businesses:
“Project funding should be placed as a social-benefit fund under oversight of an independent board of directors, particularly including representatives from grassroots level Ukraine citizens action groups, networks, and human rights leaders.
“This program provides for near-term social relief for Ukraine’s neediest citizens, most particularly children who normally have least possible influence and no public voice. Over a few years time, the net cost financially is zero. Every component is designed to become financially solvent, through mechanisms of cost-savings and shared revenue with other components. One component, Internet, provides essential communications infrastructure as well as a cash surplus to be used to offset any lingering costs of other components such as childcare, and otherwise goes to a permanent social benefit fund under oversight of the aforementioned independent, citizens-based non-government board of directors.
“Any number of other social enterprises can be created. Furthermore, any number of existing for-profit enterprises are entirely free to contribute any percentage of profits they wish to increase the proposed initial $1.5 billion social investment fund. If for example the total fund comes to $3 billion, that amount would generate at least $300 million per year in a hryvnia deposit account at any one of several major Ukrainian banks, to provide ongoing funding to continue to create and expand social enterprises.
“This strategy places adequate funding for social benefit under control and management independent of government and the very obvious vicissitudes and conflicts inherent therein.
“This is a long-term permanently sustainable program, the basis for “people-centered” economic development. Core focus is always on people and their needs, with neediest people having first priority – as contrasted with the eternal chase for financial profit and numbers where people, social benefit, and human well-being are often and routinely overlooked or ignored altogether. This is in keeping with the fundamental objectives of Marshall Plan: policy aimed at hunger, poverty, desperation and chaos. This is a bottom-up approach, starting with Ukraine’s poorest and most desperate citizens, rather than a “top-down” approach that might not ever benefit them. They cannot wait, particularly children. Impedance by anyone or any group of people constitutes precisely what the original Marshall Plan was dedicated to opposing. Those who suffer most, and those in greatest need, must be helped first — not secondarily, along the way or by the way.”

3 thoughts on “For-profit and non-profit collaboration proposal for Ukraine

  1. Maureen Coffey

    “… capitalism could be redirected to serve the interests of community …” Well, this is an astonishing statement. So, looking at how even urban sprawl has made more people live in healthier environments than ever before, are these not communities? If a decision is made by the head of a family or the chairperson of a, say, sports club, to invest in something (like a new car for the family or a stadium for the club) – who but “capitalism” is doing the heavy lifting? That things might not look so favorable in Ukraine may have a lot to do with oligarchic and undemocratic structures and ethical strife. But what are these other than fall-out of a former non-capitalist agenda? Or how would we define the service to the communities in e.g. Switzerland or Singapore – other than “capitalistic”?

  2. Jeff Mowatt

    An astoinshing statement indeed. Within a few short years however, Bill Gates, Sir Richard Branson and Paul Polman of Unilever would be making much the same argument for doing business differently.
    Our starting point was to acknowledge the impact of capitalism for community benefit which can be read in the white paper for people-centered economic development and this interview transcript from 2004:

  3. Jeff Mowatt

    Readera may be even more astonished to learn that the same concept of a social investment fund is now being publicised by Bono, who is now singing from the same hymn book

    “Capitalism is going up on trial, and I think that it’s clear that putting profit before people is a nonsustainable business model,” Bono said. “I think giving those two equal time is the way forward, and I think that in the present climate, we need to rethink, reimagine what it is. It’s not that capitalism is immoral; it’s amoral. And it’s a better servant than master.”

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