Social enterprise in Australia: Lessons from Israel

Nathan attended the 2013 VC and Entrepreneurs Trade Mission to Israel, run by AICC in Tel Aviv, where he represented Monash University's Faculty of Arts. He is currently studying a Bachelor of Commerce and Arts and is the international students officer at the Monash Students Student Society.

Abstract

Founded only 65 years ago, Israel has been at the forefront of innovation across the developed world. With a population of a little over eight million, it is hard to believe that Israel has the third highest number of companies listed on the NASDAQ exchange and also the highest density of start-ups in the world. At the same time, Israel is also home to over 34,000 non-governmental organisations (NGOs) and it is estimated that over 1/3 of Israelis are volunteers. It is of little surprise then that Israel is a natural home for social entrepreneurship. Political, cultural and social factors in Israel have created an environment conducive to social entrepreneurship and there is potential for development in Australia.  

Recommendations

  1. Due to limited public awareness of social entrepreneurship and its benefits to both the social entrepreneur and the general public, the government of Australia should launch a national awareness campaign promoting the value of social enterprise. The campaign should make the average Australian aware of the government’s new funds for social enterprises (Recommendation 2) and show the Australian public that business and social benefit can be combined to deliver gains to all Australians.  

  2. The federal government has begun to realise the importance of entrepreneurship in general and recently announced a $200 million Innovation Investment Fund (IIF) for Australian start-ups. However, to date, the government has only invested $10 million in seed funding to Social Enterprise Finance Australia (SEFA). Funding to SEFA should be increased to support and develop social enterprises.1 

  3. The federal government should work to promote increased ties between universities and social enterprises. This would enable knowledge sharing and the pooling of resources to deliver social benefits. This could be achieved by implementing an internship program whereby the government would subsidise university students while they gain work in an early stage social enterprise. In this scenario, both parties benefit. The university student gains invaluable experience and the social enterprise gains by having another team-member whose labour they employ at no cost. 

Introduction

At the heart of social enterprise lies innovation. To find innovation, one must look no further than the State of Israel. Israeli innovations span many industries and have improved the lives of millions of the world’s citizens. The reasons behind Israel’s success in innovation and as a result, its success in fostering social entrepreneurship will be explored. In addition, the social enterprise scene in Israel and Australia will be analysed with a view to unlocking Australia’s social enterprise potential. 

What is a Social Enterprise? 

A social enterprise is a relatively new form of business construct that has developed over the last twenty to thirty years.2 It has been difficult for scholars to define what exactly a social enterprise is and as a result the term ‘social entrepreneurship’ means different things to different people and researchers.3 For example, Lasprogata and Cotton define social entrepreneurship in terms of charitable non-profit organisations that seek to sustain themselves financially through revenue-generating activities.4 This definition is rather limiting as it stipulates that social entrepreneurship can only take place in non-profit charitable organisations.  

 

Other scholars have demanded that for an enterprise to be considered a social enterprise, it must stand on three clearly defined major bases:  

1. A social or environmental purpose, which is the raison d'être for its existence. 

2. A commercial sale of products or services in order to secure profits that will ensure the economic sustainability of the enterprise. These sales are based on three principles: 

  • The products or services and/or the processes of their production/ provision must express the social goals of the entity 

  • The profits are invested towards advancing the mission of the enterprise that was created. The owners/investors are entitled to receive back their initial investment, allowing for a limited profit 

  • The enterprise pays its employees reasonable salaries, provides them with proper working conditions and does not engage in abusive practices vis-à-vis its workers, customers or suppliers along the whole business chain. 

3. A system of governance that involves different stakeholders in the process of decision-making so as to highlight the social and community orientation of the enterprise.5

The above definition is very clear-cut in its demarcation of what enterprises constitute a social enterprise. However, at the other end of the spectrum, some scholars are more flexible in their definitions of a social enterprise and embrace a ‘big-tent’ approach. For example, Mair and Marti stress that social entrepreneurship cannot be concretely defined and emphasise that social entrepreneurship takes on diverse forms depending on socioeconomic and cultural circumstances.6 A point of contention that exists amongst scholars is regarding the income earned from a social enterprise and whether those funds must be reinvested in the project for the enterprise to be counted as a social enterprise or whether the investor is entitled to pocket the profits from a social enterprise. 

The definition proposed by Mair and Marti is most useful in exploring social enterprises. 

First, we view social entrepreneurship as a process of creating value by combining resources in new ways. Second, these resource combinations are intended primarily to explore and exploit opportunities to create social value by stimulating social change or meeting social needs. And third, when viewed as a process, social entrepreneurship involves the offering of services and products but can also refer to the creation of new organisations. Importantly, social entrepreneurship can occur equally well in a new organisation or an established organisation.7

Put simply, social enterprises are organisations driven by a social purpose and employ market-based strategies to achieve their purpose. For the sake of inclusiveness and to allow greater exploration and adoption of the term ‘social enterprise’, an all-encompassing definition has been chosen.  

Mair and Marti’s focus on ‘creating value by combining resources in new ways’, emphasises innovation as a key ingredient for any social enterprise. 

Israel’s geo-political landscape

Israel is situated in one of the most arid and hostile regions of the Middle East. Since its establishment in 1948, Israel has been involved in warfare virtually without cessation. To engage militarily, Israeli has had to find cutting edge technological solutions. As it remains isolated in the region, Israel has also had to look further afield and become a player on a more global scale.  

The landmass of Israel is about 1/7 of the size of the state of Victoria and 70% is made up of desert. Until very recently, with the discovery of two large natural gas fields off the coast of Haifa, Israel had no natural resources to exploit and export like the Arab states of the region.8 Consequently, the Israeli government made a decision decades ago to invest in its people. It made a calculated choice to make science and human capital the cornerstones of its economy and the investments in science and people can be clearly seen in the government’s policies.  

Israel’s domestic landscape

Office of the Chief Scientist (OCS) 

The Ministry of Industry, Trade and Labour’s Office of the Chief Scientist (the OCS) has been responsible for much of the country’s innovation and oversees a significant portion of the Israeli government’s support for research and development (R&D). It operates through a number of domestic and international programs, agreements and collaborations. The R&D Fund is the main instrument by which the OCS provides its support. Its annual budget is approximately NIS 1.5 billion (AUD $415 million), and is spent to support the R&D projects run by hundreds of Israeli companies. According to the Organisation for Economic Co-operation and Development (OECD), the gross domestic expenditure on R&D in Israel in 2012 was 4.25% of GDP, almost double the OECD average of 2.33%.9 Another program administrated by the OCS is the Technological Incubators Program, which was established in 1991. It currently has 25 technological incubators, with the incubator’s primary goal being to transform viable start-up companies that, after the incubation period (typically 18-24 months), will be capable of raising additional money from the private sector and operating on their own. The main support provided by the Technological Incubators Program is in the form of financial assistance of between $500,000 to $800,000 USD depending on the specific enterprise.10

The OCS's MAGNET program encourages collaboration among industrial companies and between these companies and researchers from academic institutions. The OCS also operates other domestic programs such as TNUFA (assisting entrepreneurship and innovation at pre-seed stage) and the Life Science Fund, as well as various international programs for cooperation in R&D. In addition, Yozma (meaning ‘initiative’) was a successful government initiative offering attractive tax incentives to foreign venture capital investments in Israel and promising to double any investment with funds from the government. The Technological Incubators Program that was established in 1991 was initiated, in part, to leverage the strengths of approximately 750,000 scientists, engineers and physicians who had immigrated after the fall of communism in the former Soviet Union. The OCS’s investment has paid off. Today, 30-40% of the OCS budget is derived from royalty payments from companies that initially received government support through its grant program.11

Immigration 

Israel is often referred to as a ‘melting pot’ and has experienced mass immigration like few countries in the modern world. Israel has absorbed over 3 million citizens since 1948 and is home to many different cultures and backgrounds. There are immigrants from over 120 countries, bringing with them approximately 90 different dialects and languages.12

The 750,000 immigrants from the former Soviet Union brought their skills, knowledge and innovation to Israel and in response, the Israeli government helped integrate the newcomers with local talent to foster early stage technology developments. Today, there are relatively lucrative immigration incentives that help people immigrate to Israel and begin their new lives. Some of these benefits include a lump sum of cash on arrival, three years of free university education, six months of Hebrew language classes, and tax breaks. It is estimated that the value of these benefits equates to NIS 100,000 (AUD $28,000) for a single unmarried immigrant.13 These incentives have been successful in attracting young students who instead of beginning their lives in debt from university fees are instead able to study with relative freedom. 

Furthermore, in celebration of its 60th year of independence, the Israeli government decided to grant full tax exemptions to returning citizens and new immigrants on foreign investments, offshore companies and income earned overseas.14 As of 2011, it is estimated that over 10% of Israel’s PhD students left to pursue academia overseas. Alarmingly, nearly 18% of graduates from Israel’s prestigious Weizmann Institute have also left Israel in search of other opportunities.15 These benefits have been instrumental in luring Israelis who had moved overseas back to Israel and addressing the ‘brain-drain’ about which the country was and is still concerned.16  Immigration policies implemented by the government have ensured that smart, driven and successful citizens have innovated in Israel and contributed to the building of the start-up nation.  

Military 

At 18, all Israelis are conscripted to the Israel Defense Forces (IDF). Males serve for three years and females for two. Often, when one thinks of military culture, one imagines rigidity, acceptance of rank and file and unflinching discipline, yet the IDF is not a standard army. Due to limited resources and partly by design, critical responsibilities are thrust upon young soldiers. According to military historian Edward Luttwak, ‘the IDF is deliberately understaffed at senior levels. It means that there are fewer senior officers to issue commands … Fewer senior officials means more individual initiative at the lower ranks’.17 It is not uncommon to see young company commanders responsible for large-scale operations that in other country’s militaries would be left to older and more senior army generals.  

Unit 8200 is an Intelligence Corps unit responsible for collecting signal intelligence and code decryption. Unit 8200 is also responsible for some of Israel’s greatest innovations and many of its graduates have gone on to create successful enterprises. Unit 8200 graduate Shvat Shaked, who sold his Fraud Sciences business to Paypal for USD $169 million, used the skills and knowledge gained from tracking down terrorists.18 The most successful business built by young Unit 8200 alumni is Checkpoint. Checkpoint is listed on NASDAQ and is valued at over five billion dollars. Most national governments and the majority of the largest multi-national companies use Checkpoint’s firewall systems. The experience gained and the skills sharpened by Unit 8200 has given graduates the platform to innovate on the world stage.  

The Israeli Army sometimes known as ‘The People’s Army’ is also characterised by its unique reserve system. Most militaries around the world use reserve forces as an addendum to the serving army. From the outset it was clear that Israel’s small serving forces would never be powerful enough to defend the country in the event of a full-scale war. Israeli leaders therefore decided to create a reserve system with units comprising only reserve soldiers to be commanded by reserve officers. In other armies with a reserve system, reserve soldiers are commanded by serving officers. According to Dan Senor and Saul Singer, ‘Israel’s reserve system is not just an example of the country’s innovation; it is also a catalyst for it.’19 Many close bonds and friendships are created during active service and then maintained through yearly reserve duty. As a result of sleeping in tents, sharing the same food and long hours on patrol, soldiers develop bonds that transcend their army experience and flow on to their civilian lives where business ideas are formed and partnerships created. Having an army faced with continuous challenges has, counter-intuitively, been instrumental in creating Israel’s culture of innovation. 

University 

Israel has the second highest rate of university attendance in the world with 46% of the adult population having attended university (behind only Canada with 51%).20 Israeli universities and research institutes are world class and have developed successful links with their international counterparts. Israel has been tremendously successful in research and development and subsequently commercialising its innovations. In 1959, the Weizmann Institute of Science, offering only graduate and post-graduate studies in the sciences, founded ‘Yeda Research and Development Company Ltd.’, which promotes the innovations stemming from its inventions. Since then, Yeda has registered over 1,400 patents and established 42 different companies.21 Inevitably, other Israeli universities have followed suit by commercialising their research and development activities. Israel’s commitment to education through its higher learning institutions has been a key factor in many of the country’s innovations. 

Social Values 

Israel’s commitment to innovation is matched by its commitment to values of social justice and equality. The principle of Tikkun Olam – actively striving to make the world a better place, or translated literally as ‘repairing the world’ – has a fundamental role in Jewish tradition and thought and has become an important principle in the modern state of Israel.22 It is estimated that one third of the population spend time working as volunteers.23 Moreover, Israel is home to over 34,000 NG0s, the highest per capita rate in the world.24 At the same time, the Jewish principle of Tzedakah, loosely translated as ‘charity’, not dissimilar to the Muslim principle of Zakat (charity), has also become an important part of Israeli society. However, according to some scholars, the term Tzedakah can be translated not simply as charity but as social justice and implies a responsibility for people to ensure that no human being should be without the basic requirements of existence.25  

The social justice protests in the summer of 2011 in Israel, where almost 350,000 people filled the streets with the chant ‘the people demand social justice’ in response to rising poverty rates (almost twice the OECD average) is emblematic of the Tzedakah mentality that permeates Israel.  

Kibbutz 

The kibbutz movement had begun before the establishment of the state of Israel and managed to lay the foundations for the socialist attitudes still being felt today. A kibbutz (plural kibbutzim) is a ‘voluntary collective community, mainly agricultural, in which there is no private wealth and which is responsible for all the needs of its member and their families’.26 Today, approximately 143,000 people live in 275 kibbutzim across Israel.27 The kibbutz movement has now changed, with many of the kibbutzim privatising and no longer focusing on agriculture. Amikam Osem, a member of Kibbutz Afikim for over fifty years argues that the principle of kibbutz life is ‘mutual help and responsibility for each other … like an orchestra with people playing different parts but together we create something meaningful’.28 These feelings of equality are evident not only within the kibbutz movement but indeed resonate in other spheres around the country.   

Chutzpah  

The feelings of equality between people lead to situations that would be considered rude in other countries but in Israel, are simply accepted as chutzpah. Chutzpah is often defined as insolence or audacity and can be considered a negative character trait. In Israel, however, chutzpah is a way of life. From the soldier who challenges a company commander on matters of strategy, to the university student who stands up in a lecture and argues with the professor, Israel is full of chutzpah. The culture of chutzpah is possible due to having ‘a society with fewer class differences than most’29 and the general appreciation of the idea rather than its source.  

Social Entrepreneurship in Israel

The powerful combination of Israel’s culture of innovation and its commitment to social values has led to Israel standing at the forefront of social entrepreneurship. The social enterprises range from charitable non-profits that trade to sustain themselves all the way to for-profit social enterprises. Thousands of small, local social enterprises benefit those in the immediate surrounding areas and other larger projects are having an impact on a world stage, such as Better Place, the electric car company.30 Unsurprisingly, the trading purposes of the social enterprises in Israel attempt to address many different social, cultural and political imbalances in Israeli society and the world at large.  

Established in 1986, Yvel jewellery is a brand well known across the world with 650 international stores.31 What is less well known is that the brand is owned and founded by an Israeli couple, Orna and Isaac Levy. Since 1986, 90% of the workers employed at Yvel have been new immigrants. In May 2010, the Levys decided to take this commitment to new immigrants one step further with the creation of a ‘business within a business’, the Megemeria School of Jewellery. In its first year, the Megemeria School accepted 21 Ethiopian immigrants to learn the art of making jewellery. In addition to jewellery instructors, staff members available to the new immigrants include a professional director, mathematics and Hebrew teachers, and an Israeli history and heritage instructor. The curriculum includes taking students on trips all over Israel to learn about Israeli culture. A social worker is also on staff and helps students with a range of issues, from fitting in as a citizen to interpersonal relationships with spouses or children. These additional services proved to be integral for the students as 57% of the first-year students were women, and most were married or the breadwinners for single-parent families.32

The school covers the tuition costs and each student also receives a monthly stipend of NIS 4000 (AUD $1200) to focus on their classes. The Megemeria School is also assisted by Yedid, a non-profit organisation that helps Israelis become self-sufficient, as well as by private donors from around the world. The Israeli Ministry of Industry, Trade and Labor also provides some financial aid for the school.  

The Megemeria School operates as a social enterprise and the jewellery is sold at Yvel stores around the world. The word ‘megemeria’ is from the Ethiopian language Amharic and translates as ‘genesis’ and the jewellery made is inspired by the immigrants’ journeys from Ethiopia to Israel. Profits are reinvested in the school and the program is currently in its third year. 

Attempting to build bridges between Israelis and Palestinians, Middle East Justice and Development Initiative (MEJDI) offers dual narrative tours of Israel and the Palestinian territories. Each tour group is guided by two tour guides, an Israeli and a Palestinian and each tells their narrative regarding the conflict from a variety of cultural, political, and religious backgrounds. Two American Jews (including one orthodox Rabbi) and a Palestinian created the social enterprise. The enterprise has been extremely successful and has expanded its operations throughout the region. In 2011, the tour group was awarded the Intercultural Innovation Award by the United Nations Alliance of Civilizations (UNAOC) and the BMW Group. Furthermore, MEJDI has partnered with the United Nations World Travel Organisation (UNWTO) to provide educational tours of the region. 33

The Liliyot Group runs a similar project in Tel Aviv. Targeting at-youth risk, the initiative provides high school dropouts with culinary training at either the Liliyot restaurant or its newer offshoot, the Liliyot bakery. The Liliyot bakery was established as a social for-profit enterprise to properly provide training places for the at-risk youth. In partnership with Elem — a not-for-profit organisation that provides support for youth-at-risk — the Liliyot Group trains and employs 15 young people a year. The youth undergo culinary training and gain paid employment for up to a year and a half.34 Interestingly, the restaurant also employs a full-time social worker to help manage the youth. Researchers from Bar-Ilan University who have followed the program’s graduates indicate that participants’ circumstances significantly improved upon completion of the program.35  

These three social enterprises are the tip of the iceberg with regard to social enterprises in Israel. Other notable social enterprises include:  

  • NU campaign – a campaign aiming to create a global community of ambassadors for important charitable causes, through unique designer t-shirts. 

  • University of the People – the world’s first tuition-free global online academic institution dedicated to the democratisation of higher education. 

  • Kol Zchut - All Rights – a wiki-based platform used to enhance citizens' access to information about their rights and the availability of related government-funded entitlements and citizen sector initiatives and services. 

There are also many external organisations assisting and encouraging social enterprises, including Ashoka, Skoll Foundation and Presentense, each an international organisations with a branch in Israel. Israeli universities have also promoted social entrepreneurship with various competitions and activities. The striking element of many social enterprises in Israel is the participation of different sectors that through their involvement show an awareness and understanding of the benefits of social entrepreneurship to society and the world at large. 

Social Entrepreneurship in Australia  

By one estimate, Australia has over 20,000 social enterprises,36 but research done by Finding Australia’s Social Enterprise Sector (FASES) suggests that there is a ‘lack of a self-identifying social enterprise movement or coalition in this country.’37 Indeed, this would appear to be one of the main barriers to Australia’s growth in social entrepreneurship. This year the only national awards for Australian social enterprise will be presented for the first time.38 While the government has provided an initial seed fund of ten million dollars with another ten million dollars promised, Australia has a relatively unengaged public in comparison with the Israeli population. A public awareness campaign initiated by the government coupled with increased spending could see Australia begin to attract citizens to set up social enterprises. 

The City of Melbourne Municipality has recently launched its financial grants and mentoring programs for social enterprises that provide employment opportunities for indigenous persons, disabled persons, homeless persons, long-term unemployed persons and former refugees.39 Furthermore, there are some successful social enterprises operating around Australia. The Sorghum Sisters was born as a social enterprise in the kitchen of Carlton Primary School in 2005. It developed from the need conveyed by the African community in Carlton Housing Estate to find new ways of surmounting their barriers to employment and social engagement. The Sorghum Sisters is a local catering service that has now expanded to include other local primary schools and has enjoyed the support of the City of Melbourne, the Department of Planning and Community Development and well-respected local businesswoman Dur-é Dara.40  Some may point to the increased range of study options in social enterprise with the University of Melbourne, RMIT and Griffiths University all offering courses in social entrepreneurship as a sign that Australia has a truly burgeoning social enterprise scene. Yet the reality is that social enterprise has not filtered down into the Australian cultural vernacular as it has in Israel.  

Conclusion

Israel’s successful social entrepreneurial culture is a result of its focus on innovation while remaining true to its social and cultural values. The social enterprise scene is vast, varied and relatively well appreciated by the Israeli population. Australia has shown some promising signs but social entrepreneurship is yet to enter the mainstream awareness of the average Australian citizen. The awareness campaign recommended would certainly help foster an understanding and appreciation of the benefits of social entrepreneurship that would help breed the next generations of social entrepreneurs. The links between various stakeholders in helping to create social enterprises in Israel highlights the need for the Australian government to promote ties between social entrepreneurs, universities and the private sector to further grow the Australian social enterprise sector. While Israelis have certain social and cultural values that are unique, there is no reason that Australia cannot lift its social enterprise participation to bring social value to all Australians. 

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