The Catalytic Impact of Entrepreneurship on Local Economies and Social Progress
Authored by By Greg Wixted founder of the Tastes Good Does Good Greg, Co professor of entrepreneurship at the University of North Carolina, London campus,
This report examines the significant role of entrepreneurs, particularly those employing straightforward business models, in driving economic growth and fostering positive social change within local communities. The analysis underscores that entrepreneurial activities, ranging from traditional small businesses to innovative social enterprises, generate jobs, stimulate innovation, enhance competition, and optimise resource utilisation, thereby strengthening the economic fabric of local areas. Furthermore, social entrepreneurs are instrumental in addressing unmet societal needs, empowering marginalized groups, building community resilience, and promoting sustainable practices. The effectiveness of social investing in channelling capital towards ventures with dual social and financial objectives is also highlighted, alongside the crucial role of strategic public funding and well-designed public-private partnerships in amplifying the impact of entrepreneurial initiatives. While social enterprises increasingly adopt self-sustaining models, often reducing the reliance on conventional public funding, targeted government support and collaborative partnerships are essential for fostering robust entrepreneurial ecosystems that lead to lasting local prosperity and enhanced social well-being. The report concludes with policy recommendations aimed at creating an enabling environment for entrepreneurs to thrive and maximise their contributions to their communities.
Introduction: The Entrepreneurial Engine for Local Prosperity and Social Well-being
Entrepreneurship, broadly defined as the creation and growth of a new business enterprise 1, encompasses a spectrum of activities, from launching entirely new ventures to expanding existing businesses into new markets or developing innovative products and processes 1. It is useful to distinguish between different types of entrepreneurs. "Schumpeterian" or transformational entrepreneurs are those who develop new products, processes, or markets, driving innovation and often challenging established norms 1. In contrast, "lifestyle" or replicative entrepreneurs typically operate businesses like local retail stores or service providers, primarily to provide income for themselves and their families, often without introducing significant innovation 1. Both types, however, play crucial roles in the economic landscape.
There is a growing recognition that entrepreneurship serves as a vital engine for both economic growth and social progress at the local level 1. In economies where entrepreneurs can operate flexibly, develop their ideas, and reap the rewards, the benefits to society are substantial 2. Particularly noteworthy is the potential of social entrepreneurship, which places the addressing of social challenges at the forefront of its mission 4. These ventures not only aim for commercial success but also prioritize creating social value and impact, offering innovative solutions to societal problems while simultaneously fostering economic development within their communities 4.
This report aims to explore the multifaceted impact of entrepreneurship on local economies and social well-being. It will examine the critical roles of social investment and public funding in supporting entrepreneurial endeavours, including the capacity of social enterprises to lessen the demand for traditional public funding and the efficacy of collaborative ventures between public and private entities. Furthermore, the report will delve into research studies and business case studies from various locations, including London, and England, to provide a comprehensive understanding of how entrepreneurship can be a catalyst for local transformation. Finally, it will propose policy levers that can be implemented to maximize the benefits of entrepreneurship for local communities.
The Dual Impact of Entrepreneurship on Local Communities
Entrepreneurship exerts a powerful dual impact on local communities, acting as a significant driver of economic growth while simultaneously fostering positive social change.
Economic Growth Drivers
One of the most immediate impacts of entrepreneurship is job creation. Startups and small and medium-sized enterprises (SMEs), often at the heart of entrepreneurial activity, are substantial contributors to employment in local economies 1. Research indicates that newly founded firms generate a significant number of jobs in their initial years 1. Social enterprises, with their focus on serving communities, also play a vital role in creating employment opportunities, particularly for individuals from marginalized groups who may face barriers to accessing the formal labour market 4. Even small businesses with straightforward models are crucial for local employment, forming the backbone of many community workforces 3.
Entrepreneurs are also key drivers of innovation and market expansion. They identify unmet needs and develop novel products, services, and business models to address them, often leading to the creation of entirely new markets and industries 1. Social entrepreneurs specifically focus on developing innovative solutions to tackle pressing social challenges, aiming for both social betterment and economic viability 4. Throughout history, radical innovations introduced by entrepreneurs have been a primary engine of economic progress 2.
The establishment of new entrepreneurial ventures leads to increased competition within the market 1. This heightened competition benefits consumers through lower prices and a wider array of product and service choices. Moreover, the pressure from new entrants often compels existing firms to become more competitive and efficient, ultimately raising the overall productivity of firms and the broader economy 2.
Many social enterprises prioritize resource optimization and sustainability by integrating environmentally friendly practices into their operational models 4. These practices not only align with growing consumer demand for sustainable products but also result in cost savings through efficient resource management. The reduced operational costs can then be reinvested back into the enterprise, fostering further growth and resilience within the local economy 4.
Furthermore, the success of social entrepreneurs in achieving their dual social and financial objectives often attracts investment and capital from impact investors, philanthropic organizations, and even traditional investors seeking socially responsible ventures 4. This influx of investment capital provides the necessary resources for social enterprises to scale their operations, enter new markets, and amplify their social impact, directly contributing to economic growth in the local area 4.
Fostering Positive Social Change
Beyond their economic contributions, entrepreneurs, particularly social entrepreneurs, are significant catalysts for fostering positive social change. They often focus on addressing unmet needs and empowering marginalized groups within their communities 4. By providing resources, skills, and employment opportunities to traditionally underserved populations, these ventures empower individuals to become self-sufficient contributors to the economy, thereby playing a pivotal role in poverty reduction and promoting more inclusive economic growth 4.
Entrepreneurship at the local level contributes to enhancing community resilience 1. By diversifying the economic base through the establishment of various businesses, communities become less vulnerable to economic downturns affecting specific industries or major employers 3. Moreover, entrepreneurs often demonstrate a deep commitment to their communities, reinvesting their profits locally and actively contributing to social causes, which in turn fosters greater social cohesion and sustainable development 3.
Promoting entrepreneurship within a community can also lead to the retention of local talent 3. By offering opportunities for individuals to build fulfilling careers and realize their ambitions within their own communities, rather than seeking opportunities elsewhere, entrepreneurship helps to maintain a skilled local workforce and nurtures a sense of pride and ownership within the community 3.
Social entrepreneurship, by its very nature, aims at improving the living conditions of communities by proactively finding solutions to social issues 6. This can range from providing access to essential services to advocating for social justice and equality. Furthermore, many social enterprises are at the forefront of promoting sustainable practices, integrating environmentally responsible methods into their business operations and advocating for greater environmental awareness within their communities 4.
The interconnectedness of economic and social impact suggests that supporting entrepreneurs with a social mission can create a beneficial cycle of local development. When businesses prioritize the social and environmental well-being of their communities alongside profit, they are more likely to earn the trust and loyalty of local residents. This can translate into increased local support, attracting more customers and talented employees, which in turn strengthens the local economy and enables the business to expand its positive social influence.
Simplicity as a Strategy: Case Studies of High-Impact Entrepreneurs with Straightforward Models
Straightforward business models in entrepreneurship are characterized by a clear and easily understandable value proposition, streamlined operations, and a direct pathway to achieving their intended impact, whether economic, social, or both. These models often focus on addressing fundamental needs or leveraging existing resources in innovative ways without requiring complex technologies or intricate organizational structures.
Several entrepreneurs have demonstrated that significant contributions to local economies and positive social change can be achieved through such simple and direct approaches.
The Antioch Business Collaborative (ABC) in the USA exemplifies this strategy 13. Operating on a hub-and-spoke model, the ABC integrates eight partner organizations to provide crucial support to local businesses in Antioch. Their straightforward approach focuses on three key areas: funding, technical training, and ecosystem mapping. By clearly dividing responsibilities among expert partners, the ABC offers a comprehensive suite of services to small businesses, enhancing their growth and success. In just one year, this collaborative effort supported 91 businesses, facilitated the creation of 162 jobs, and generated a remarkable $307,000 increase in reported sales. Notably, a significant portion of their impact was on women-owned and minority-owned businesses, highlighting the effectiveness of a community-focused approach with clear and direct support mechanisms. The success of ABC demonstrates that a well-organized network providing fundamental business assistance can yield substantial economic and social benefits for a local area.
Bikeworks CIC in East London, UK, provides another compelling case 14. This social enterprise utilizes a common product – bicycles – as a vehicle for tackling environmental, social, and economic challenges within its local community. Their model is straightforward: they recycle and refurbish second-hand bikes, offer cycling training to the public, and create training and employment opportunities for disadvantaged individuals within the burgeoning cycling industry. Bikeworks’ approach is easily understandable and directly addresses local needs for sustainable transportation, skills development, and job creation. By focusing on a tangible product and a clear set of community benefits, Bikeworks has established a strong local presence and achieved a significant positive impact.
The Big Issue, launched in London and now operating across the UK, presents a remarkably simple yet highly effective business model for addressing homelessness 14. The concept is direct: homeless individuals are provided with magazines to sell, offering them a legitimate means to earn income. Vendors purchase the magazines for a small fee and sell them at a higher price, keeping the difference. This model bypasses traditional charity handouts by empowering individuals to work and earn their own living, fostering self-reliance and dignity. In the past year alone, The Big Issue generated over £5 million for its vendors, demonstrating the profound impact of a straightforward income-generating opportunity for a vulnerable population.
Artbox London, also in the UK, showcases how a simple activity – art – can be the foundation of a high-impact social enterprise 15. This inclusive art studio and gallery sells artwork created by people with learning disabilities and autism. Their model provides a direct platform for these individuals to develop artistic skills, engage socially, and earn income through the sale of their creations. Artbox London’s approach is straightforward in its focus on artistic expression and its provision of a supportive environment where marginalized individuals can build confidence and contribute to the community. The success of Artbox London underscores that impactful entrepreneurship doesn't always require complex solutions; sometimes, focusing on a basic human activity with a clear social purpose can be transformative.
Spring Community Hub in Southwark, London, UK, demonstrates a practical and evolving approach to social impact through a relatively simple model 16. Initially focused on providing food and support services to address local food insecurity, the Hub strategically shifted to incorporate trading income to enhance its long-term sustainability. By developing revenue-generating activities alongside its core mission, Spring Community Hub is building a more resilient model for tackling a fundamental community need. This straightforward adaptation ensures the Hub can continue to serve its community effectively while reducing its reliance on traditional funding sources.
These diverse examples, summarized in the table below, highlight that impactful entrepreneurship does not always necessitate complex or technologically advanced solutions. Simple, community-focused business models that directly address local needs and leverage existing resources can be highly effective in driving both economic growth and positive social change.
The Evolving Landscape of Social Investing and its Local Impact
Social investing is defined as the practice of making investments with the explicit intention to generate positive, measurable social or environmental impact alongside a financial return, This approach recognizes that capital can be a powerful tool for addressing societal challenges while also achieving financial sustainability. Social investing has proven to be an effective mechanism for driving societal change and fostering economic development at the local level 4. The global market for impact investing has been experiencing significant growth, reflecting an increasing awareness of the interconnectedness of social, environmental, and economic outcomes 17.
Various approaches fall under the umbrella of social investing. Environmental, Social, and Governance (ESG) investing considers factors related to environmental sustainability, social responsibility, and corporate governance in investment decisions 18. Community investing focuses on directing capital towards underserved populations and communities, often through investments in community development financial institutions (CDFIs), community banks, and microfinance institutions 18. Ethical investing involves avoiding investments in companies or industries that conflict with an investor's values or ethics 18.
Social enterprises are at the heart of the social investing landscape, as their core mission involves addressing societal needs through their operations, often with the goal of financial self-sufficiency 19. By generating revenue through the sale of goods or services, social enterprises aim to reinvest their profits back into their social mission, thereby reducing their dependence on traditional public funding sources like grants and donations 20. Operating a social enterprise model can provide a more reliable and sustainable funding stream compared to the often unpredictable nature of philanthropic or government grants 25.
Several self-sustaining social enterprise models exist, including nonprofit organizations that reinvest excess funds, cooperatives owned by and for their members, social purpose businesses founded on addressing a social mission, social firms that employ individuals facing employment barriers, socially responsible businesses that integrate social missions into their operations, and for-profit businesses that donate funds or raise awareness for causes 28. Examples of successful social enterprises with self-sustaining models include Cotopaxi, which sells outdoor gear and dedicates a percentage of its revenue to poverty alleviation, and Blueland, which offers plastic-free alternatives to household essentials 28. The increasing viability of these models suggests a potential shift towards market-based solutions for social problems, which can complement or, in some instances, decrease the need for conventional public funding.
This rings true when the vision, purpose and business model are aligned to solve a global social issue by addressing the underlying and fundamental factors, As the business accelerates so does the amount of funding which leads to greater outcomes and will inevitably create an unintended consequence. The model delivers social change faster than the Public Authorities, the concern is when it comes to the fine divide of “it has a statutory obligation to provide a service” versus “it's within the business model and we have the funds to do it” could be seen as the Public Authorities offloading its statutory obligation onto an enterprise it supports, which should be addressed from the outset when embarking on such ventures
Does Investing in Entrepreneurial Ventures for Shared Prosperity work?
Traditional Public-private partnerships (PPPs) have emerged as a significant mechanism for public authorities to collaborate with the private sector in order to achieve shared goals in the context of major infrastructure and economic development, PPPs involve cooperative arrangements where the public sector retains ownership and control of assets, while the private sector provides financing, construction, and/or management services 34. These partnerships hold the potential to leverage the expertise, efficiency, and capital of the private sector for public benefit, often leading to more robust solutions and potentially lower costs 34.
Less known is Social Public-Private Partnership (Social PPP) this is the reverse wiht the public sector providing the funding or infrastructure and the enterprise has control of the asset but not ownership of infrastructure but owns the business assets and the IP. The Social Public-Private Partnership (Social PPP) initiative in Malaysia exemplifies a collaborative effort that taps into the strengths of the government, the private sector, and social purpose organisations to address social disparities 32. This initiative re-examines traditional methods of delivering social services and aims to foster innovation in addressing societal challenges. Another example is the collaboration between local Public Authorities and private technology firms to enhance access to education in underserved communities, where combined resources led to the development of online learning platforms 33. Similarly, partnerships between nonprofit organisations focused on environmental sustainability and private corporations specialising in renewable energy have resulted in the launch of community solar projects, addressing both environmental concerns and creating local job opportunities 33
Public investment in entrepreneurial ventures that aim to create social impact and boost the local economy offers numerous benefits. Public Authorities can provide crucial financial support through grants, low-interest loans, tax incentives, and subsidies, helping social enterprises overcome financial barriers and scale their operations 37. By prioritising social enterprises in public procurement processes, Public Authorities can also improve market access and networking opportunities for these ventures 37. Ultimately, their backing can amplify the social impact of social enterprises by providing the necessary resources and infrastructure to expand their reach and achieve greater positive outcomes in areas such as poverty alleviation, healthcare, and environmental sustainability 37. This support also contributes to economic empowerment by creating jobs, promoting entrepreneurship, and stimulating local economies, often focusing on marginalised communities 37.
Strategic Social public-private partnerships and well-designed business models represent a powerful mechanism for accelerating both economic growth and social impact within local communities. By carefully considering the potential pitfalls and implementing thoughtful strategies, public authorities can effectively leverage the innovative spirit of entrepreneurs to achieve shared prosperity.
The Long-Term Viability of Social Enterprises and the Role of Public Support
Research increasingly focuses on the long-term sustainability of social enterprises, recognising the critical need for these organisations to balance their social mission with financial viability 21. While the primary purpose of a social enterprise is to serve society, it must also operate with sound business principles, managing expenses, generating revenue, and potentially attracting investment to ensure its long-term survival and impact 42. Achieving sustainability often involves diversifying funding sources 38, with impact investment emerging as a significant pathway for social enterprises to reach financial stability and scale their operations 43. Beyond financial considerations, the long-term success of social enterprises also hinges on strong leadership, effective management, and a deep understanding of the needs of the communities they serve 23.
Public investment plays a strategic role in ensuring the long-term success and sustainability of social enterprises 37. particularly in the early stages of development, can provide crucial capital to help social enterprises establish their operations, pilot their models, and build a track record of impact 17. Moreover, public investment can support the scaling of successful social enterprises, enabling them to reach a wider audience and deepen their impact 37. Given the significant funding gap that many social enterprises face globally 21, strategic public support can be instrumental in bridging this gap and unlocking the full potential of these organisations to contribute to sustainable development.
The interplay between earned income, social investment, and strategic public support often forms the foundation for the long-term sustainability enterprises. While the goal for many social enterprises is to become financially self-sufficient through their trading activities, initial and ongoing support from public authorities can be catalytic, particularly in addressing systemic barriers and market failures that might hinder their growth and impact. By providing targeted resources and fostering a supportive ecosystem for those enterprises with robust and sustainable business models, ultimately maximises their contributions to societal well-being over the long term, and benefits both reputationally by demonstrating the two parties are working in tandem and putting the needs of the people first,