Russia and social enterprise – beyond oligarchy and philanthropy

Any comparison of the development of social enterprises across different countries always runs into the same problem: what do social enterprise and entrepreneurship actually mean? For the post-industrial economies of Europe and North America, the social enterprise is essentially a hybrid, an attempt to harness the market's power for rewarding efficiency and discipline while using it to advance social goals rather than pure profits, whether through a "triple bottom line" or some other yardstick.

The UK and other EU states also emphasise collective ownership and distributed decision-making among key stakeholders, regardless of their financial stake in the enterprise. In the US, meanwhile, the emphasis is on the needs addressed by the activities of the enterprise, and the reinvestment of any profits, rather than ownership and decision-making.

So how well does the concept travel? Is a "true" social enterprise only possible after an economy has grown to the point where profitability no longer needs to the yardstick of business? Russia and the other former Soviet states are an interesting place to test this hypothesis. Social enterprises of a sort were incorporated into the centrally planned economy. Rapid industrialisation involved the creation of entire cities around huge industrial concerns, particularly in resource-rich but sparsely populated Siberia. These concerns were responsible for providing creches, medical care, housing and other social services for their workers through subsidiary organisations, later termed "social assets".

The collapse of communism created a generation of Russian entrepreneurs (or less kindly, oligarchs) who embraced capitalism with the fervour of the convert. The new philosophy was summed up in Mikhail Khodorkovsky and Leonid Nevzlin's 1992 tract, Chelovek's rublem (Man with a Rouble), which exalted the profit motive. Social assets were divested from state enterprises prior to privatisation, in theory to continue operation under the direction of and with funding from local government. A weak state, corruption and indifference meant the theory never became practice. A small group of men (and one or two women) became billionaires from sweetheart deals that allowed them to buy Russia's most valuable industrial assets for pennies on the dollar.

Vladimir Putin began his first presidency by curbing the power of the oligarchs and presenting them with a new social contract, which has often been summarised as "pay your taxes, stay out of politics and you can keep your assets". But in this case "taxes" not only meant revenues collected by the state, but revenues "freely" used by the oligarchs to pursue certain social goals – from buying up Russian objets d'art for return to the state, to sponsoring sporting and literary organisations, and even good old-fashioned charities (mainly for the veterans, orphans and pensioners who were hit hardest by the collapse of the Soviet welfare state.) The fact that this was all excellent PR for a class of people resented by most of their compatriots didn't hurt either.

Roman Abramovich famously poured more than a billion dollars into Chukotka, a province on the border with Alaska, when he was its governor from 2000-08. A distant, inhospitable but resource-rich land, Chukotkans were compensated handsomely for living there under Soviet power (as the US still compensates Alaskans). The sudden suspension of subsidies in the chaotic 1990s was so devastating that its native Inuit population largely reverted to a hunter-gatherer lifestyle. Abramovich's money was invaluable in revitalising Chukotka's schools, hospitals, local government and other "social assets".

But this is hardly what we think of as "social enterprise" – it looks more like a kind of feudalism, run on tithes and tributes and grudging sense of noblesse oblige. Most of the oligarchs have stuck to more traditional means of showing their charitable nature – Ukraine's Rinat Akhmetov funds a development focused thinktank, The Foundation for Effective Governance, and earlier this year banker Vladimir Potanin pledged half his fortune to charity as part of Bill Gates's Giving Pledge.

One of the few exceptions has been LUKOil president Vagit Alekperov and his Fond Nashe Budushee (Our Future Foundation.) The foundation provides interest-free loans and support to socially oriented enterprises across Russia. Since its foundation in 2007, OFF has distributed loans worth more than $6m, and there are signs that Alekperov sees this as more than just good publicity. OFF took part in the first Social Impact Investment Conference and has sought to build contacts with social enterprise leaders in the UK to make use of their experience. The chronic corruption in Russia's bureaucracy makes it difficult for ordinary citizens to found and operate ordinary profit driven enterprises.

This doesn't indicate that Russia isn't fertile ground for social enterprise or that won't be in future, but it does mean there is work to do. At the moment, there is no hope of forming or sustaining social enterprises without powerful patrons. But ordinary Russian people themselves maintain a strong sense of communal values and identity. The concept of the social enterprise probably has fewer barriers to acceptance among Russia's first truly post-Soviet generation than it did among their US peers, given how deeply the capitalism of Adam Smith (or Gordon Gekko) is ingrained in US culture.

So, is social entrepreneurship just for developed countries, a luxury that is available to societies only when the accumulation of wealth ceases to become an end in itself? A means to soothe the consciences of well-fed westerners? Or does it present a genuinely different, more just and socially focused model of economic development. Russia certainly has the resources, the human capital and cultural heritage to make social enterprise work. Whether or not it succeeds will go some way to answering these questions.

Daragh McDowell is a London based analyst and consultant, specialising in Russian foreign and domestic policy.

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