Social Entrepreneurship as an Antidote to State and Market Failure

Social entrepreneurship aims to solve social problems using methods of market and models of business, with an intention to generate social value to the society or targeted groups over rewarding entrepreneurs with profits.

The intent of this article is to discuss and critically evaluate the claim that the presence of social entrepreneurship (SE) in a society is the evidence of its progress. SE is relatively a new term, and it is still evolving in terms of definition. But, this article will not wage a war on the definitions, or to distinguish it from associated terms such as entrepreneurship, non-profits, and charities, etc. There are two reasons for this. First, there is a broad agreement on its conceptual building blocks. That is, it aims to solve social problems using methods of market and models of business, with an intention to generate social value to the society or targeted groups over rewarding investors or entrepreneurs with financial benefits.[1] In other words, a social mission is central to such an entrepreneurship, and markets are the means towards that end. 

Second, the discourse has moved away from defining SE, and the contemporary debate is steered towards the real challenge: to study its impact on social problems that the world faces today, and how it could effectively contribute to social progress. The task is how to measure social progress and its role as a corrective force.  

Interplay between SE and the Market

The emergence of SE in the world is set in the context of the growth of neoliberalism from the 1980s and the rise of large welfare states.[2] Together, the welfare state and the neoliberal economic order were meant to provide a fair and equal opportunity to citizens. To achieve this, the state relied on the market to fuel economic progress with the hope that it would trickle down in bringing about social progress. But, what emerged was a realisation that a “perfect” market is an ideal, which does not exist in reality due to many distortions in the society. It is in this context as the state failed to address the shortcomings of the market, SE has begun to emerge as an alternative and/or supplementary force to correct the markets.

SE creates “Schumpeterian new combinations”[3] (Swedberg 2011: 101–02) and results in “creative destructions”[4] that reset the market equilibrium either by disrupting it or helping it to attain one, having more productive efficiency and more importantly, allocative efficiency,[5] the latter being critical for equity. So, the Clinton Foundation could rewire the markets and reduce the price of HIV drugs for greater social good (Rauch 2007). SE could even lead to the emergence of a whole new market as demonstrated by the microfinance experiment of the Nobel laureate Muhammad Yunus in Bangladesh that gave the poor access to credit to their transform lives. Thus, it corrects markets “to meet needs that would not otherwise be met and to create value that would not otherwise be created” (Phills et al 2008).

On the other hand, the critique against SE is that though it engineers social progress, it does not, however, addresses deep structural issues in the society. It does not look beneath the veneer of markets and overlooks core social issues, and hence remedial action is delayed. Therefore, this can result in a feeling that nothing much has changed. For instance, although Kailash Satyarthi’s Rugmark label[6] can assure buyers that their carpets have been made without employing child labourers and can reset the markets, but it does not address or remove the conditions that led to child labour in the first place (Martin and Osberg 2007: 38). Secondly, in doing so, it allows the problems to persist and fizzle out the critical mass that could have led to public action or social movement. Therefore, in addressing the failings of the market, the response of SE is mixed. On the positive side, it serves as a watchdog and a corrective force to enable markets to behave properly, bringing relief to the poor even if it is at a smaller scale. However, on the negative side, SE as medicine of the market fails to address the underlying social disease. Besides, due to the “neoliberal takeover of SE” (Sharma 2016), it has become very much the part of the market that it aims to correct.     

Reversing Inequalities to Usher in Social Change

Every age has its central problems, and inequality could be described as the “problem of our times.” A 2016 Oxfam study (BBC 2016) claims that the richest one percent of the world has as much wealth as the rest of the world combined. Though there could be a variation in terms of figures from different sources, one cannot, however, contest the stark inequalities in wealth, entitlements, and opportunities that lead people to suffer in “unjust equilibrium”[7]. It is here the role of SE is vital as it bridges the gap among people of different income levels, and promotes a “behaviour that leads to social change” (Swedberg 2011: 100). It brings visibility to the problem, focuses on needs and values, creates feedback loops to stay focused on problems, brings skill and technology, cost-effective innovative solutions, forms coalitions and dovetail resources. Social change is inherently a slow process, it has to sustain over a period time for the change to come about. Social entrepreneurs work closely with communities and people on the ground, and have a “heightened sense of accountability” (Dees 1998). Though profit-making is not the intention of SE, however, regular and healthy financial returns are necessary for the sustenance of change. The microfinance innovation in Bangladesh is built on this understanding, and it has the potential to bring about a social change over the years.

On the other hand, the critique against SE is that it does not “guarantee” social change. Notwithstanding its earnest efforts, many factors determine the outcome: sociopolitical context, resistance to change, conflict or synergy with advocacy coalitions, appropriateness of social innovations, resource inadequacy, overambitious goals, and duplication of efforts. These could well delay or impede social change with fewer or no tangible benefits over time. Among these, innovation is, perhaps, the most critical and the “best construct for understanding and producing lasting social change” (Phills et al 2008). But it merely focuses on the market-based responses to rely only on revenue generation and self-sustainability, which does not address the real genesis of the social problem (Grenier 2011: 177–78). Consequently, the progress is only cosmetic and devoid of real change, and in effect, delays or averts a social movement.

Like in the case of addressing the failures of the market, the role of SE to upturn inequalities is also mixed. On the positive side, it acts as an originator, catalyst, and a force for a sustainable social change. It also brings together inputs from experts, skills, resources, technology, and social innovations. But, it fails to match the challenge, and the change is scattered, incremental, and largely fragmented.  According to Grenier, “SE did not result in radical transformation of sectors or society as had been claimed” (2011: 196). Further, SE does not have its own theory of social change (Dacin et al 2011).

Reconfiguring Power Dynamics

Power is the capacity to direct or influence the behaviour of others or the course of events. It also means a person or organisation that is strong or influential within a particular context.  A modernist view [8] of social progress is that the axes of power are symmetrically distributed such that human beings have the opportunity to shape their destiny and realise their potential. The presence of social enterprises has a significant effect on the dynamics of power. Let us try to decode the mechanism. They attempt to democratise the existing power relations among individuals/institutions, state and markets. On the state side, they try to drive the state from “government” to “governance.” Governance is a “new method by which society is governed” (Rhodes 1997:46). It values networks and collaborations more than the hierarchies and controls to deliver social good. On the market front, they influence traditional for-profit ventures to additionally focus on greater public good, and to democratise the market-access to increasing number of people.

Due to its potential to change power relations, SE ushers in paradigm shifts in the direction of social progress to bring “unjust equilibrium” to the centre of the policy. This is because “SE speaks a compelling language of pragmatism, cooperation and hope” (Cho 2006: 34). The new story is of equilibrium change towards social progress, coalitions for inclusivity, perseverance in the face of odds, and self sustenance.

Like in the preceding sections, the critique against SE is that it is marked by an incremental change in the power axes, overarching influence of the neoliberalism, and symptomatic treatment of structural peaks of power centres in the state or market. Another criticism is against the way social enterprises are perceived. They are on the side of neoliberal forces of markets and in sync with the political economy of our times. This perceived conformity and alignment with expected values of our time give them the moral and pragmatic legitimacy (Dart 2004). It is not necessary that the rewards and recognition that it accrues from such legitimacy result in a substantial social change.

The role of SE has been important in “changing the frame and framing the change” (Osberg 2009). The role of social enterprises may not be the norm for social progress, but they have been succeeding in making social change a norm. So, we have witnessed the emergence of the Social Progress Indicatorwhich Michael Porter developed at Harvard University in 2015to measure the progress of countries purely on social indices (Levis 2015). This kind of new framing to measure progress by social indices is a marked shift from the trickle-down approach. As regards the markets, for instance, the Fortune magazine has begun listing companies on their social responsibility from 2005 (Demos 2006). Even for traditional for-profit companies, such rankings affect their standing in the market. On the issue of democratisation of power among individuals/institutions, state, and market, the effects of SE are not wholesome. This apart, the changes ushered in by SE are incremental, and there is an underrepresentation of women changemakers in the sector (Teasdale et al 2011).

Way Forward: A Journey of Hope

The discussion so far has brought to the fore two challenges. As SE strives to change the unjust equilibrium, the true impact is evident only after a long time, often after decades. 

In order to understand the effects of SE, an ex post analysis is more appropriate than an ex ante analysis. In the case of the former, the impact is visible due to the passage of a certain amount of time. On the other hand, in the ex ante analysis, only efforts of SE are visible, and not the impact. In both cases, success is celebrated while failures may get buried in the sand. The running thread, however, through success and failure is hope. It is an aspiration from both individuals and groups to bring about a change in the lives of people to usher in inclusivity, justice, and prosperity. As the saying goes, more than where you stand, it is more important to know where you are going. The presence of SE may not, in some instances, bring about social progress, but it represents a march and an aspiration from the society in that direction.

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