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Thoughts on the Meaning and Field of Social Enterprise

Thoughts on the Meaning and Field of Social Enterprise

Professor Raymond Horton,
Founder of the Social Enterprise Program

Here's how I define social enterprise: behaviors that add social value beyond what private enterprise normally provides. By behaviors I mean the acts of individuals, most of whom are embedded in organizations of one kind or another. The remainder of the definition rests on two assumptions I'd like to discuss briefly.

The first is that the market doesn't meet every social need, that is, fails to provide certain public goods. I'm pretty confident of this assumption, partly because I don't know anyone who disagrees with it, including every economist I've ever known or read.

The second, that social enterprise can add value, is shakier. It's one thing to assume that the market isn't perfect, but another to assume that social enterprise can make things better in all cases. The evidence on the second assumption is all too mixed. We can cite many examples where social enterprise provides an important public good, but we have to acknowledge many failures too.

So social enterprise provides, or tries to provide, things that society values but which for one reason or another are not usually provided by private enterprise. In most cases, this is because the social value of an activity is not easily captured by the price or financial return for the service or good offered. Social enterprise seeks to apply business principles and skills to create greater social value. In this sense social enterprise sounds like a very good concept, but it shouldn't be romanticized.

Doing it successfully is a hard, demanding business requiring tough choices and compromise. The field is littered with well-intentioned and costly failures.

But I certainly don't mean to put social enterprise down. Far from it. Civil society doesn't work in places where ordinary people fear they will be hurt by scourges like criminals, land mines, and unscrupulous leaders. Nor does private enterprise. Free enterprise and social enterprise go together and I don't think you can't have one without the other.

The Field of Social Enterprise

With that conceptual framework in mind, here's what I think we'd see if we were able to stop the world long enough to identify who practices social enterprise and, very generally, how. Think of the following as a series of plausible hypotheses that apply in the US and also in varying degrees internationally.

First, we'd see many individuals operating from established vantages in the public sector, including sub-national governments, national governments, and international governments (with special-purpose and general-purpose governments at each level). Given the nature of government, these individuals would be clustered around the performance of two basic functions. One is regulation, often but not always of the market or business sector. The other is delivery of services the market doesn't provide (either at all or insufficiently).

Second, we'd see many people operating from established vantages in the nonprofit sector. They would be engaging in somewhat different behaviors than their compatriots in the public sector owing to differences between the two sectors. For example, because nonprofits lack the power to coerce, relatively fewer representatives from this sector would be involved in regulatory activities than in the public sector. But the representatives of nonprofit organizations would be relatively more involved than public officials in the delivery of services, advocacy, research and development, and innovation.

Third, we'd see a large number of persons operating from established positions in the business or corporate sector. I know there is some debate over what we should call "doing good" in business. The labels corporate social responsibility or social impact management work fine for me. In any event, here's what I think we'd see social enterprisers in business doing.

Many but not all of the business people would be contributing to social enterprise as organizational ethicists. By this of course I don't mean a job title but, rather, a function or role. The public good they provide is moral behavior, a contribution desirable in its own right but one that also makes the market work better. The ethicists wouldn't necessarily be interested in advancing any given profit-threatening social issue on the corporation's radar screen, but they would be a persistent force against lying, cheating, stealing and other moral turpitudes "inside" the firm that blow up on the "outside" world.

Any notion that ethical behavior in business is not a public good is dispelled by the devastating social consequences inflicted by the many immoral senior managers we've seen post-Enron. Whether these miscreants are all crooks in the eyes of the law is unclear, but they behaved unethically without a doubt. One might deduce from the scandals that there are very few organizational ethicists around, but I think a close-up look would identify many business people who behave ethically--even as they work their way to the top.

The other major group of social enterprisers in business we'd see would be people engaged in the task of loosening the concept of profit maximization enough to permit business policy to serve a given social interest. They wouldn't necessarily be organizational ethicists who always advocated truth in business, though hopefully they would. But they certainly would possess the values, skills and organizational sophistication that enable them to (at least sometimes) cause business policy to reflect social concerns-perhaps because they could demonstrate that such a policy would increase profits in the long-term and possibly also in the short term as well, improve customer and employee commitment to the mission of the company and/or have "branding" or public relations value from being ahead of the curve.

Most of the top business people I've known in New York City like to make a lot of money, but they are sophisticated enough to know that making as much money as possible is not always in the best interest of their persons or businesses. That they are not committed to profit maximization (or other equally shaky terms like maximizing shareholder return) is evidenced by, among other things, their expenditure of corporate dollars on philanthropy, service on nonprofit boards and government commissions, and engagement in other civic activities like rebuilding Ground Zero. To be sure, business leaders do not always balance competing business and social interests just as we would like, but some of them fit both considerations into their calculation of the bottom line. The growth of areas such as socially responsible investing also shows that there are those who seek to achieve both financial as well as social returns.

In addition to representatives of established public, nonprofit and business organizations we would see a fourth and smaller group that practices social enterprise from the vantage of start-ups. These are the social entrepreneurs and their funders (social venture capitalists and venture philanthropy or community development funds). Some of these new ventures are organized as "double bottom-line" businesses; some are organized as nonprofit organizations; and the nature of others is too different, or perhaps too innovative, to fit into any of our standard organizational bins. It seems to me that these entrepreneurs have an advantage over their colleagues in established organizations in that they face fewer bureaucratic constraints, but their resource bases are not as secure. Whatever their future, social entrepreneurs and their funders are in the field.

Finally, our cross-section of the world frozen in time would disclose a large and diverse number of individuals engaged in the practice of social enterprise without any organizational cover. They are the volunteers. When they play, they do so for their own purposes on their own time and with their own resources. Their donations cover a wide range, from brawn (cleaning up parks) to brain (consultation) to money (private philanthropy). While volunteers usually are part-time players, the smartest and particularly the wealthiest of them have the potential to be significant players in the field.

I want to add one more dimension to this portrait of the field. While I've offered a static description of five groups of individuals, a dynamic description borne of watching them over time would show myriad interactions, call them partnerships or alliances, within and across the different sets. And I think we would also find that those who walked the plank in the name of a given stakeholder were less successful than those who conspired with like-minded people from the same and other sectors.

In sum, representatives of established organizations in the public and nonprofit sectors play important roles in the field of social enterprise, but they do not monopolize it. Business people play an important role by not engaging in business as usual, but this public good often is obscured by spectacular failures of business policy and business ethics. Not to be forgotten are entrepreneurs and volunteers who do their own thing. Finally, while there is competition among practitioners, the most successful ones find ways to conspire and collaborate in the practice.

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