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Piketty and social enterprise 11 July 2014

Posted by cooperatoby in Social enterprise.
Tags: ,

big eurolittle eurotiny euroI confess I haven’t yet ploughed through all the 685 pages of Thomas Piketty’s surprise best-seller Capital in the 21st Century (I only got it for my birthday – thank you Truus). But I think I can claim that Piketty would approve of social enterprise. He argues, and seems to demonstrate thoroughly, that inequality of wealth has been steadily rising, despite a fall in the years around the two World Wars. This is because the rate of return on capital consistently exceeds the rate of growth of the economy (r > g). This means that those who possess wealth gain more of it, while those who live by their labour receive a diminishing share of the surplus society creates.
Hence the extreme relevance of the idea of limiting the return to capital invested in businesses, which is incorporated in co-operative principles and in at least some definitions of social enterprise. We should beware of its being eroded, as has happened recently with the UK’s Community Interest Company. Happily, the EU’s definition of social enterprise does contain this principle, albeit rather vaguely (“whose primary objective is to achieve social impact rather than generating profit for owners and shareholders”).
Piketty’s work seems to show what a wise principle this is if we want to build an economy that is sustainable socially as well as environmentally.
It will take a mighty effort of international co-operation to create the progressive wealth tax that he says it the best way of stabilising this trend, and international co-operation is not yet at this stage. But there are things that can be done on a smaller scale.
In his admirably succinct conclusion, he says:

The nation-state is still the right level at which to modernize and number of social and fiscal policies and to develop new forms of governance and shared ownership structures intermediate between public and private ownership, which is one of the manor challenges for the century ahead.”

That sounds like social enterprise to me!


1. Geof Cox - 12 July 2014

Hi Toby,
I agree on Piketty, but I don’t think the proposed changes to the UK CIC dividend caps should be seen simply as an erosion of the principle of limited return on capital.
The most significant limit – the aggregate cap, meaning that only about a third of profit can be distributed – will remain.
The individual caps in practice produced two serious anomalies which, although technical and perhaps for this reason rarely flagged in social enterprise forums, actually worked against social justice:
they prevented the proper reward of ‘sweat equity’, and so actually favoured those who could invest cash over those who could only put in hard work; and
they made it always preferable to buy new shares rather than existing shares, thus inhibiting the development of any kind of market – even, as in the case of sweat equity, where this would actually promote social justice.

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