HK’S so­cial en­ter­prises ex­hibit new en­tre­pre­neur­ial flair

China Daily (Hong Kong) - - HK COMMENT - LI KUI- WAI The author is as­so­ciate pro­fes­sor of the Depart­ment of Economics and Fi­nance at City Univer­sity of Hong Kong.

Hong Kong has al­ways been a dy­namic city but does not have an agri­cul­tural sec­tor to fall back on. The Hong Kong econ­omy has no choice but to move ahead, even in re­ces­sion­ary times. For­merly known as “pos­i­tive non-in­ter­ven­tion”, the “big mar­ket, small govern­ment” pol­icy is still the key to solv­ing eco­nomic ills through the mar­ket sys­tem. There is the Chi­nese say­ing that “cri­sis brings op­por­tu­nity”, mean­ing that though there is much com­plaint, busi­nesses and peo­ple in Hong Kong do not rely too much on the govern­ment. In­stead, they look for new op­por­tu­ni­ties, a con­stant re­ju­ve­nat­ing fac­tor in the econ­omy. Hence, the dif­fi­culty of a re­ces­sion grad­u­ally pushes peo­ple and busi­nesses to look for new op­por­tu­ni­ties to sur­vive, in­crease em­ploy­ment and make prof­its us­ing their in­ge­nu­ity, knowl­edge and co­op­er­a­tion.

It is against such an eco­nomic back­ground that a grow­ing num­ber of “so­cial en­ter­prises” have been set up in the city since mid-2000. They have a num­ber of com­mon eco­nomic fea­tures. One is that it has a so­cial con­tent, mean­ing that it does have a “wel­fare” el­e­ment in the busi­ness, and that the ex­is­tence of the so­cial en­ter­prises does serve cer­tain “so­cial in­ad­e­quacy” in the mar­ket econ­omy. Sim­ply put, a nor­mal profit-mak­ing busi­ness may not be in­ter­ested in es­tab­lish­ing a so­cial en­ter­prise. Thus, a so­cial en­ter­prise is ba­si­cally a quasi-wel­fare in­sti­tu­tion that aims to ful­fill some wel­fare as­sis­tance in the mar­ket sys­tem.

Since a so­cial en­ter­prise is non prof­it­mak­ing, its economics work on the “aver­age cost equals aver­age rev­enue” prin­ci­ple. As such, the so­cial en­ter­prise will have no profit as its to­tal cost is cov­ered by to­tal rev­enue, and there is no sur­plus in the­ory. How­ever, be­cause of this “zero-profit” equa­tion, a so­cial en­ter­prise could make an eco­nomic loss, even though it pro­vides a so­cial ser­vice. The ques­tion then be­comes how much a so­cial en­ter­prise can go into the red be­fore a cri­sis of its own will emerge, and who will come to its res­cue fi­nan­cially? Of course, a so­cial en­ter­prise can also make a sur­plus over a “busi­ness cy­cle” in or­der to bal­ance its books.

On the con­trary, it is equally pos­si­ble that a so­cial en­ter­prise can be prof­itable. Like any other busi­ness, it may not have too much com­pe­ti­tion at the out­set. Even though it is not profit driven, it could be some­what “mo­nop­o­lis­tic” in the mar­ket at an ini­tial stage. As such, so­cial en­ter­prises will end up like any pri­vate busi­ness and face the eco­nomic out­come in the mar­ket.

An­other fea­ture of so­cial en­ter­prises is that their busi­nesses tend to be small, mi­nor and may not be at­trac­tive to prof­it­max­i­miz­ing busi­nesses. Var­i­ous re­pair­ing busi­nesses, per­sonal ser­vice to the el­derly, food banks for those on low in­come, col­lec­tion of re­new­able ma­te­ri­als, are ex­am­ples. Even though they are es­tab­lished as so­cial en­ter­prises, th­ese are ac­tu­ally new ar­eas of busi­ness in Hong Kong.

Be­cause of the eco­nomic re­ces­sion and lit­tle op­por­tu­nity in main­stream busi­nesses, cer­tain so­cial en­trepreneurs found that so­cial en­ter­prises would give them a hand­some start as the cost of run­ning the busi­ness was low, and the wel­fare im­age of the busi­ness could be at­trac­tive as it meant pro­vid­ing “care” to the less priv­i­leged groups in the re­ces­sion econ­omy. There is thus the psy­cho­log­i­cal ad­van­tage in set­ting up so­cial en­ter­prises.

So­cial en­ter­prises are a new form of busi­ness in Hong Kong. They may ap­pear not to be profit-max­i­miz­ing, but they none­the­less in­volve costs paid and rev­enue re­ceived. As such, they are no dif­fer­ent from any nor­mal busi­ness en­ter­prise. They may serve as pi­o­neers in new busi­nesses, which is good as it shows peo­ple or busi­nesses in Hong Kong have looked to new chan­nels of busi­ness which can help widen and di­ver­sify the city’s econ­omy.

The pop­u­lar­ity and growth of so­cial en­ter­prises have ex­panded busi­nesses that oth­er­wise would not be pro­vided by main­stream busi­nesses. Their ser­vices do cre­ate new jobs, es­pe­cially among the low-skilled work­ers and serve to al­le­vi­ate the eco­nomic hard­ship of some needy peo­ple. This is their ma­jor credit.

Li Kui-wai

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