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Last October, Walmart CEO Doug McMillan pledged that his mammoth corporation intended to “be in a situation where we don’t pay minimum wage at all.” At a January conference on “social capital” held in Alexandria, Virginia, the mention of the Walmart pledge by Walmart Foundation president Kathleen McLaughlin drew applause from the assembled social entrepreneurs. In February, as announced in a letter and video from McMillan, Walmart released new details of its plan to restructure wages, raising minimum wages for its current employees (“associates”) to $9 an hour beginning in April 2015 and to $10 an hour by February 2016. Starting wages for department managers were also raised, to $13 an hour beginning in the summer of 2015 with plans to boost it to $15 an hour by sometime next year.
The Social Capital conference participants applauded this progressive stance from the Walmart company, but how progressive was it, really? And how much progressivity, so to speak, did it reveal of the conference’s invitation-only participants? The nation and the nonprofit sector have been attentive to social entrepreneurship, to corporations pledging to raise social goals to positions purportedly equivalent to their commitments to shareholder priorities. Judging by the language, there has been progress, with attention paid to corporate impacts on the environment, health, workplace conditions, and in some instances worker compensation and benefit issues. But there has been little examination of whether these social capital advances reflect political advancement—movement of the business sector, whether that means mainstream businesses like Walmart or alternatives such as those “fourth sector” or “for-benefit” businesses with benefit corporation certifications, toward a more progressive role in society.
Labels like “progressive” are usually defined so abtrusely as to be virtually meaningless, something that everyone from Sarah Palin to Al Sharpton could sign on to. The American Values Project, according to John Halpin and Ruy Teixeira, summarizes the progressive ethos as “Everyone gets a fair shot, everyone does his or her fair share, and everyone plays by the same rules.” Inclusion in the progressive tent becomes narrower when the test is against specific policies like taxation, providing health insurance coverage and controlling health costs, public education, immigration, climate change, and labor and wage policies, even though the Project tried to describe some of these issues with porous enough boundaries to keep many people and interests who think of themselves as progressives largely comfortable with the cumulative policy articulation. What constitutes progressive policy leads to questions about whether Walmart should have been applauded by the social entrepreneurs or questioned about why the employer of 1.3 million people isn’t doing more.
Alternative Explanations of Walmart
For Walmart and wages, the Social Capital audience might have found the boosts to $9 and $10 an hour welcome, but that’s below the $10.10 minimum wage proposed by some members of Congress and by President Obama and well below the minimum wages recently enacted in some states and localities on their own initiative. Walmart’s decision might not have been simply a flash of progressive thinking resonating through the Benton, Arkansas headquarters, but a reading of the trends as Costco, IKEA, and Amazon boosted their minimum wages—and, following Walmart, Target and T.J. Maxx did the same. Walmart’s motivation might well have come from an entirely different perspective: to reduce the increasing rate of retail worker churn at the lower end of the labor market. The national average in retail is 5 percent turnover a month. For Walmart, that could mean cycling through a substantial part of its workforce every year unless it comes up with mechanisms to attract workers to stay, such as higher salaries and prospects for advancement within the company.
But equally plausible is the idea that Walmart’s pay hike may have been due to progressive government policies such as the new state and local minimum wage laws now covering 60 percent of the U.S. labor force, all the result of political activism by labor and community organizations. Even within Walmart, the $9 and $10 an hour pay minimums fall short of the $15 an hour wage that workers have been demanding before and after the McMillan announcement, some of it by Walmart workers organized in the “Our Walmart” campaign. The assembled Social Capital conference participants who applauded the Walmart wage increase announcement didn’t comment on the company’s policy in 2014 to cut health benefits for 30,000 of its part-time workers and to raise premiums on its lowest-cost employee health plans by 19 percent.
Social Capital Conundrums
When Walmart sneezes, the economy shudders, but when it comes to the small social entrepreneurs that typically show up at programs like the Social Capital conference in February or the “Mapping the Fourth Sector” conference in January this year, their actions affect the economy and society, to the extent that they do, in the aggregate. The language that clothes “fourth sector” organizations such as B Corporations reflects many of the same progressive notions that filter through the Americans Values Project’s definition. For example, at the Mapping the Fourth Sector conference, co-sponsored by the Federal Reserve Board’s Division of Consumer and Community Affairs and the Urban Institute’s Center on Nonprofits and Philanthropy, Rajiv Joshi, a managing director of the B Team, cited the fourth sector’s ability to address and solve problems ranging from income inequality to global warming.
Many of the Fourth Sector program participants are concerned with the kinds of issues that political progressives often raise—but believe that business entrepreneurship, specifically socially responsible entrepreneurship, has the answers. During her comments on the first panel of the Fourth Sector conference, Jean Case of the Case Foundation told participants, “We are big believers in the power of business and the power of entrepreneurs to change the world.” She added that for “too long, business has been on the sidelines of addressing problems,” and it was now “time to bring them in and give them a seat at the table.”
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Whether it comes from the participation of Walmart and other big corporations like Samsung, Starbucks, Caterpillar, American Express, and JPMorgan Chase extolling the power of business to create social capital, or the power of B corporations, low profit limited liability corporations (L3Cs), and flexible purpose companies supported by the ecosystem described by Heerad Sabeti, the “co-founder and convening trustee” of the Fourth Sector Network (said “ecosystem” including the Case Foundation, the Skoll Foundation, the Omidyar Network, Google, the Social Stock Exchange Asia, Investors Circle, RSF Social Finance, and the W.K. Kellogg Foundation; see page 15 of Sabeti’s presentation slides at the Fourth Sector mapping conference), there is increasing faith in the power of business to serve and even prioritize social purposes while earning profit. Sabeti’s oral remarks at the Mapping conference made it clear that he views business as the engine of social progress, that profit-driven business is how the economy grows, which generates resources for government and philanthropy. Presumably, with a Fourth Sector values overlay, the challenge is to harness that engine for social good as well as for the profits of owners, entrepreneurs, and shareholders.
If there were an American Values Project effort exploring the core beliefs of Fourth Sector acolytes, it would probably start with the observation of Ross Baird, the CEO of Village Capital, who told the Fourth Sector conference participants that 40 percent of young people (which means people under 40) believe that the top “purpose of business is to improve the planet” and that the majority of young people do not want to work for employers that do not reflect their values. Businesses that aim to improve the planet, Baird contended, actually end up becoming increasingly competitive in the market. Panelists throughout the conference cited models of successful social enterprises. Case called National Geographic “a brilliant example of a social enterprise” in what she said was its use of business models to drive the nonprofit to make money.
Like the specific issue of Walmart’s wage increase, politics makes strange and sometimes uncomfortable bedfellows of the Fourth Sector adherents whose approach to business is to save the planet. In both Case’s comments and a Skype presentation by Sir Ronald Cohen, the famous venture capitalist, Social Impact Bonds were extolled as bringing “rigor and data” to the public sector as an alternative to the propensity of government to “continue to fund programs that cannot and do not show efficacy,” without referencing other significant criticisms of SIBs other than one that Cohen cited, that some people in the UK apparently thought that SIBs could only work when applied to prison recidivism projects. Cohen cited the expansion of SIBs to different kinds of projects and topics generating healthy returns for investors. At a minimum, despite the presence of Rep. John Delaney as a keynoter at the conference, pitching the legislation he has introduced to subsidize the expansion of social impact bonds (which he described as combining “ the best ideas of the progressive movement and the best idea of the conservative movement” as a recipient for “build[ing] bipartisan success”), the jury is still out on whether SIBs bring private sector innovation to the public sector or serve as a new means of funneling tax revenues from the public sector to private corporations and wealthy investors.
Potential difficulties for political progressives buying into the notion of the inherently progressive nature of the Fourth Sector also arise in the sense of who the players might be. Speakers referenced a national commission on how social enterprise can build the middle class, co-chaired by philanthropist Steve Case and former Hewlett Packard CEO Carly Fiorina. A former candidate for the U.S. Senate in California, Fiorina is much discussed as a potential Republican candidate for higher office. Fiorina recently denounced social welfare programs as creating a “web of dependence” for people who need help and recently spoke on a CPAC conference panel titled, “Lies Told to You by Liberals,” neither the typical position of progressives. The Case/Fiorina commission’s recommendations included modifying the Community Reinvestment Act to support entrepreneurship, making foundation program related investments more available to entrepreneurs, and establishing a website that through “naming and shaming” would identify and call out government regulations that are seen as unnecessarily burdensome to businesses.
One of the Fiorina/Case recommendations was to provide “entrepreneurial ecosystems-in-a-box” packages for localities that want to encourage social enterprise. In a Fourth Sector overview sponsored by the Aspen Institute and the Kellogg Foundation, Sabeti as the prime author outlined elements of what a supportive ecosystem should contain, including legal and regulatory changes in corporate and nonprofit structures to accommodate and facilitate Fourth Sector enterprises, new tax laws that would “reward For-Benefit organizations for desirable behavior or outcomes,” and new mechanisms of dispute resolution for the stakeholders in Fourth Sector entities. In Sabeti’s map of the Fourth Sector, the core members are Social Enterprises, Community Development Corporations, Civic/Municipal Enterprises, Sustainable Enterprises, Co-ops, Mission-Driven Businesses, Social Businesses, and, interestingly, Faith-Based Enterprises. Classified as “other stakeholders,” outside the inner circle of the Fourth Sector, are Nonprofits/NGOs, Governments, Philanthropy, Labor Markets, and Citizens and Consumers, among others (see figure 4 in the report). It is a complex, value-laden concept that doesn’t lay out easily into political categories.
Nonprofits, in or out of the Fourth Sector
Those of us who always thought of nonprofits as socially entrepreneurial down to their cores, making a go of serving people in need despite inconsistent and insufficient funding from government and philanthropy, have an odd and sometimes uncomfortable place in this scenario of entities building social capital or encompassing something called the “fourth sector.” At the Mapping the Fourth Sector conference, Victoria Bjorkland from Simpson Thatcher & Bartlett LLP advised the budding social entrepreneurs in the audience to start out as for-profits rather than as nonprofits. In her view, once you’re a nonprofit, it’s a one-way street; you stay there. But, if you’re a for-profit and you discover you can’t make it, you can always switch to become a nonprofit. The notion of nonprofit organizations as the economy’s second-string benchwarmers is discomfiting. But it does raise an interesting challenge for nonprofits.
Are nonprofits comfortable with the notion of governments providing tax advantages to social enterprises because of their social goals? Do they think foundation PRIs should be opened up to for-profit entrepreneurs like L3Cs whose primary motivation in creating that legal structure was to tap foundations for PRIs? Should the Community Reinvestment Act be modified to give some increased priority to bank investments in for-profit social enterprises or to be measured in terms of the job creation of CRA-qualifying investments? Can nonprofits be seen and appreciated as powerful economic engines in their own right?
At the Social Capital conference, where we were not permitted to quote from conference presentations, we nonetheless got to interview some of the conference presenters to delve into their politics—not as much left or right or, worse, Republican or Democrat, but more toward the kinds of principles of progressivism that Halpin and Texeira described: the freedom that comes from economic security that is enhanced through adequate incomes, guaranteed health care, and other social provisions; political and economic opportunity through mechanisms such as labor rights, decent jobs, a secure retirement; responsibility, such as public investments in schools, transportation, and ecological and social sustainability supported by progressive taxation; and cooperation at the community, national, and global levels. There is little question that the individuals involved in some of the entities at that conference, and undoubtedly at the Fourth Sector conference as well, want to see society—and their own institutions—move toward those “pillars” of progressivism.
However, what is striking is that government, or perhaps, the public political arena, got relatively little attention in the Fourth Sector and Social Capital conferences other than as venues that have to be modified to make the work of for-benefit business entities easier. They see the business enterprise, whether large businesses brought to the tables that they have somehow been excluded from, as Jean Case indicated, or small social enterprises that are being established as benefit corporations, as the vehicles and arenas for social change. And they see profit as an entirely acceptable component of the process. They don’t seem to connect to the notion that nearly everything that social entrepreneurs talk about achieving through for-profit business structures can be accomplished through nonprofits that abjure shareholder profit but reinvest their surplus in social programs. And they relegate the nonprofit realm to the bench.
The voices with influence over business, whether Walmart or small benefit corporations, are still primarily business owners, investors, shareholders, and CEOs. In some manner or another, to have a voice with the social and environmental solutions devised by for-profit social enterprises and purportedly socially responsible businesses, you have to have the money to buy a seat at their table as entrepreneurs, investors, or shareholders. When it comes to Walmart’s conception of systemic change, it is still something devised by Walmart business owners, affected by its employees primarily through organizing, protest, and supportive government action. Progressive politics arise through more than just outcomes. They involve the process, giving voice to the communities that will be affected by business and government. The progressive politics of social enterprise is, for all its good intentions, governed by the interests and priorities of the people creating and running the businesses that purport (or actually try) to be socially responsible.
But in the end, they lack two important characteristics that social enterprises need to be held to their social benefit task—that is, a requirement to serve first and foremost in the interests of the public they claim to benefit without the intervening considerations of private inurement, and governance systems to make them directly accountable to the public they are meant to benefit. For now, it may be left up to nonprofits to keep these new creatures honest to their socially responsible missions. Otherwise, the trajectory of social enterprise, social entrepreneurship, and the Fourth Sector will be dependent on self-regulation and self-policing to stay true to its progressive-sounding values, and we all know the sorry history in this country of business self-regulation.