True Social Entrepreneurship
eighty years, the need for change in economics has not been greater. Businesses too big to fail have done just that, and those small enterprises that are too small to succeed must. At least 50% of the U.S. economy is generated by
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small business. Today’s entrepreneurs and emerging enterprises make up the lion’s share of the economic output of this nation. It is imperative that today’s entrepreneurs and emerging enterprises succeed at any cost. Our nation and the world are dependent on these sectors’ future profitability.
We all know that the fate of the economy rests on the backs of entrepreneurs of all occupations. What is not very evident is that there must be a fervent attempt to create new business, products and services that not only produce output, but also provide a lasting impact on today’s economic climate.
Disrupted relations between countries of the first, second and third world have placed a stressful need for improvement of global relations, and simply put, requires entrepreneurial investment on a global scale along with improvement at home. The survival of the global marketplace, as well as the future of the planet itself create the need for a new form of entrepreneurship; True Social Entrepreneurship of a new order.
If one were to review the absolute lowest income earning countries and populations, that group constitutes more than 4 Billion low-income consumers, which is a majority of the world’s population. This group is known as the Base of the Pyramid (BOP). According to the World Resources Institute in their work titled, “The Next 4 Billion,” this BOP and the empirical measures of their aggregate purchasing power and their behavior as consumers suggest significant opportunities for market-based approaches to:
• Better meet their needs,
• Increase their productivity and incomes, and
• Empower their entry into the formal economy.
It is estimated that the BOP market is more than $5 Trillion.
As defined by Wikipedia,
Social entrepreneurship is the work of a social entrepreneur. A social entrepreneur is someone who recognizes a social problem and uses entrepreneurial principles to organize, create, and manage a venture to make social change (a social venture). Whereas a business entrepreneur typically measures performance in profit and return, a social entrepreneur focuses on creating social capital. Thus, the main aim of social entrepreneurship is to further social and environmental goals. However, whilst social entrepreneurs are most commonly associated with the voluntary and not-for-profit sectors , this need not necessarily be incompatible with making a profit. See also Corporate Social Entrepreneurship.
I would like to go on record that I do not completely agree with the above stated definition. Social entrepreneurs can and do measure performance in profit and return, but the social capital aspect is another metric for performance. One is not exclusive of the other, nor does it need to be categorized as Corporate Social Entrepreneurship. Regardless, if the creation of new products and or services makes people’s lives better without negative effects on the global environment, it qualifies as True Social Entrepreneurship in my humble opinion.
Again, citing more work of the World Resources Institute, the BOP makes up more than 72% of people recorded by available national household surveys worldwide. An overwhelming majority of the population in the developing countries of Africa, Asia, Eastern Europe, and Latin America and the Caribbean- home to nearly all of the BOP.
This large segment of humanity faces significant unmet needs and lives in relative poverty: in current U.S. dollars their incomes are less than $3.35 a day in Brazil, $2.11 in China, $1.89 in Ghana, and $1.56 in India. (Most recent world survey is 2005 U.S. dollars)
A key issue in understanding BOP markets is informality.
The International Labor Organization (ILO 2002) estimates that more than 70% of the workforce in developing countries operates in the information or underground economy, suggesting that most BOP livelihoods come from self-employment or from work in enterprises that are not legally organized businesses.
Quote from WRI.org: Four billion low-income people, a majority of the world’s population, constitute the base of the economic pyramid. New empirical measures of their behavior as consumers and their aggregate purchasing power suggest significant opportunities for market-based approaches to better meet their needs, increase their productivity and incomes, and empower their entry into the formal economy.
The 4 billion people at the base of the economic pyramid (BOP)—all those with incomes below $3,000 in local purchasing power—live in relative poverty. Their incomes in current U.S. dollars are less than $3.35 a day in Brazil, $2.11 in China, $1.89 in Ghana, and $1.56 in India.1 Yet together they have substantial purchasing power: the BOP constitutes a $5 trillion global consumer market.
The BOP is characterized not only by low income – below $3,000 per capita per year – but also by several other shared characteristics:
• Significant unmet needs. Most of those in the BOP have no bank account or access to modern financial services – if they borrow, it is typically from local moneylenders at very high interest rates. Most do not own a phone. Many live in informal settlements and have no formal title to their dwelling. And many lack access to water and sanitation services, electricity, and basic health care.
• Dependence on informal or subsistence livelihoods. Most of those in the BOP are poorly integrated into the formal economy, which limits their economic opportunities. As producers, they often lack good access to markets to sell their labor, handicrafts, or surplus crops and have no choice but to sell to local employers or to middlemen who exploit them. As subsistence and small-scale farmers and fisherman, they are uniquely vulnerable to destruction of the natural resources they depend on but are powerless to protect. In effect, informality and subsistence are poverty traps.
• Impacted by a BOP penalty. Many of those in the BOP, and perhaps most, pay higher prices for basic goods and services than do wealthier consumers – either in cash or in the effort they must expend to obtain them – and they often receive lower quality as well. For some services BOP consumers lack access altogether. The high cost of being poor is widely shared: it is not just the very poor who must walk long distances for water or firewood, or who often pay more for the transportation to reach a distant hospital or clinic than for the treatment, or who face exorbitant fees for loans or for transfers of remittances from relatives abroad.
While it is admirable to consider one’s actions as a social entrepreneur to work within the non-profit environment, I contend that if not as important, it is more valuable to work within the framework of for profit social entrepreneurship. Profit is NOT a dirty word! Such dedication to profit generating enterprises will cause a more lasting impact on the population, the economy and the sustenance of the globe as well. After all, it’s better to teach a man to fish than it is to give a man a fish. Charity and good deeds, while noteworthy have limited and time sensitive impact on the recipient and marketplace. While it may feel good to do good works of charity handing out food, providing shelter or funding social works repeatedly, the recipient may be better off learning a skill that can provide sustainable income to remove him from economic hardship. Why not focus on how to improve people’s lives for the long term, rather than “getting them through the week.” By merely providing short-term charity, consider long-term time investment in the betterment of society through entrepreneurship, and the creation of jobs.
When an entrepreneur develops new technology that can produce twice the output of an existing product or service, he or she is creating a Greening of the industry they are working in. By using the same or less energy to produce additional products or services, it creates a positive impact on the marketplace by driving consumption; it also minimizes the negative effects on the planet by using the same or less energy to produce the improvement.
We must ask ourselves whether it is better to maintain a scarcity mentality toward the use of the available resources of this planet, or if it is better to seek ways of creating abundance through technological advances. It is easy to take a stance as one to “do with less;” any traditional environmentalist can utter those words. What I say is “Do More with Less, Through Technology!” In my opinion, that is true Social Entrepreneurship.
That is to say, create better ways of using the resources; making people’s lives better today than they were yesterday, and use less resources and create jobs at the same time. Our economy has been built on scarcity, and should convert to an abundance mentality instead. Remember the vinyl record? What once was a tremendous industry was snuffed out by the Compact Disc industry, which has been sidelined by the digital download of the internet. Remember the oil shortage of the 1970’s? There were predictions that the world would run out of the known oil reserves within a forty-year period; along came the fuel injector. That technological advance doubled the reserves through improvement in fuel consumption of vehicles. New reserves have been identified, and once-third world countries, India and China, are consuming oil at un-thought of levels of oil, yet there is an abundance, through technology. Making people’s lives better through technology, rather than “the sky is falling” mentality: Social Entrepreneurship at work.
By not applying entrepreneurial principles to our actions, we pay a cost not unlike what we as a nation and world have already experienced. Poverty still ravishes the world at large, including right here at home. Unemployment is at near record highs, slightly short of the Crash of the 1930’s unemployment rates. Charities are having a harder time finding and securing donations from both individual and corporate donors, regardless of their “humanitarian missions.”
Mr. Ron Coase wrote several well known articles and essays on the subject of economics, and received the prestigious “Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 1991” commonly referred to the Nobel Prize for Economics. Mr. Coase wrote The Nature of the Firm, which garnered the award, in 1937; he celebrated his 100th birthday on December 29, 2010.
Excerpt notes from The Nature of the Firm – 1937
Since modern firms can only emerge when an entrepreneur of some sort begins to hire people, Coase’s analysis proceeds by considering the conditions under which it makes sense for an entrepreneur to seek hired help instead of contracting out for some particular task.
The traditional economic theory of the time suggested that, because the market is “efficient” (that is, those who are best at providing each good or service most cheaply are already doing so), it should always be cheaper to contract out than to hire.
Coase noted, however, that there are a number of transaction costs to using the market; the cost of obtaining a good or service via the market is actually more than just the price of the good. Other costs, including search and information costs, bargaining costs, keeping trade secrets, and policing and enforcement costs, can all potentially add to the cost of procuring something with a firm. This suggests that firms will arise when they can arrange to produce what they need internally and somehow avoid these costs.
There is a natural limit to what can be produced internally, however. Coase notices a “decreasing returns to the entrepreneur function”, including increasing overhead costs and increasing propensity for an overwhelmed manager to make mistakes in resource allocation. This is a countervailing cost to the use of the firm. Coase argues that the size of a firm (as measured by how many contractual relations are “internal” to the firm and how many “external”) is a result of finding an optimal balance between the competing tendencies of the costs outlined above. In general, making the firm larger will initially be advantageous, but the decreasing returns indicated above will eventually kick in, preventing the firm from growing indefinitely.
He felt that eventually firms such as General Motors and General Electric would some day be employing as many as one million workers, thereby lowering transaction costs to its minimal level. We now know differently. Corporate inefficiency, redundancy, greed and mismanagement are just some of the reasons why those too big to fail have done just that.
The following are excerpts from Mr. Ron Coase’s definitive work entitled “The Problem of Social Cost, 1960.”
A New Approach to Understanding Social Costs
This paper is concerned with those actions of business firms which have harmful effects on others. The standard example is that of a factory, the smoke from which has harmful effects on those occupying neighboring properties. The economic
analysis of such a situation has usually proceeded in terms of a divergence between the private and social product of the factory, in which economists have largely followed the treatment of Pigou in The Economics of Welfare. The conclusions to which this kind of analysis seems to have led most economists is that it would be desirable to make the owner of the factory liable for damage caused to those injured by the smoke; or to place a tax on the factory owner varying with the amount of smoke produced and equivalent in money terms to the damage it would cause; or, finally, to exclude the factory from residential districts (and presumably from other areas in which the emission of smoke would have harmful effects on others). It is my contention that the suggested courses of action are inappropriate in that they lead to results which are not necessarily, or even usually, desirable.
The traditional approach has tended to obscure the nature of the choice that has to be made. The question is commonly thought of as one in which A inflicts harm on B and what has to be decided is, How should we restrain A? But this is wrong. We are dealing with a problem of a reciprocal nature. To avoid the harm to B would
be to inflict harm on A. The real question that has to be decided is, Should A be allowed to harm B or should B be allowed to harm A? The problem is to avoid the more serious harm…
It is my belief that the failure of economists to reach correct conclusions about the treatment of harmful effects cannot be ascribed simply to a few slips in analysis. It stems from basic defects in the current approach to problems of welfare economics. What is needed is a change of approach. Analysis in terms of divergences between private and social products concentrates attention on particular deficiencies in the system and tends to nourish the belief that any measure which will remove the deficiency is necessarily desirable. It diverts attention from those other changes in the system, which are inevitably associated with the corrective measure, changes which may well produce more harm than the original deficiency….
It would clearly be desirable if the only actions performed were those in which what was gained was worth more than what was lost. But in choosing among social arrangements within the context of which individual decisions are made, we have to bear in mind that a change in the existing system which will lead to an improvement in some decisions may well lead to a worsening in others.
Furthermore, we have to take into account the costs involved in operating the various social arrangements (whether it be the working of a market or of a governmental department) as well as the costs involved in moving to a new system. In devising and choosing among social arrangements we should have regard for the total effect. This, above all, is the change in approach which I am advocating. ■
—“The Problem of Social Cost,”
95–96, 132–33, 153, 155–56
Thus is the basis of economic theory that this country has been operating under for the past 70 years. Do his theories hold true today? Some say yes, but I say not so fast, friend. Blame the system on our shortcomings rather than take positive action. Scarcity economics; the law of supply and demand, the rationalization of the effect on social impact and whether or not our system has an alternative. The lack of thought regarding the public funding of innovation has persisted long enough.
Rather than governmental involvement in the support of the welfare state, governments should be providing innovative funding for every industry that can not only provide jobs, but also create new products and services that make people’s lives better, without damage to the environment. As for the Base of the Pyramid, government does not intervene in the lives of the population other than to unfairly tax, abuse human rights and are too poor themselves by funding dictatorships, Oligarchies and despot rulers. I contend that true Social Entrepreneurship is the only correct path toward sustainability.
It is also my fervent belief that every large corporation in the world is actively seeking a way to eliminate as many jobs as possible and supporting the output through technology. The active dismantling of the corporation is evident every time you see news of layoffs at a certain corporation. That signal is the first indicator that technological improvements in the overall management of the firm is at hand, and improved productivity and output will follow with less cost and human factors. For instance, let us say that a nation wide retailer announces that they are relocating their entire headquarters to a location across the country. In trouble you think; not at all. They have found a way to minimize costs by ridding themselves of high salaried individuals that refuse to relocate, new technologies that eliminate a large number of the workforce, and even tax advantages they might gain from the new city or town to where they are headed. Is this good for anyone other than the mega firm?
The Social Entrepreneur must arm himself or herself with the knowledge that in order to create a positive social impact, one doesn’t have to recreate the wheel, but improve on an existing product or service at less cost, or create new products and services that make people’s lives better. By doing so, new industries are created, new jobs formed and positive economic output increases.
Today’s Social Entrepreneurship is much more than a catch phrase; it is a new way of life. If society can create new products and services that enhance customer’s lives, minimize our carbon footprint and put people to work, what greater calling is there? I believe this is the true nature of the social entrepreneur, not simply working in a non-profit to help people.
A tremendous example of true social entrepreneurship comes to us from the United Kingdom, where some of the top chefs were invited to Buckingham Palace this past summer for a summit on nothing other than sustainability. With focus on potential food shortages, should some natural or man-made catastrophe occur to disrupt the food chain, alternatives have already been established within the industry. Chef Arthur Potts Dawson, of London specialty restaurants Acorn House and Water House, teaches and preaches local sustainability, including growing some of the restaurant’s goods on rooftop gardens, owning local farms, and composting behind the restaurant itself.
On a posting on the web site, www.ted.com , “Ideas Worth Spreading” shares his story of his attempt to redefine the restaurant industry through coop farming on local available space, recycling, “wormering” (active worm farms used to compost) and low voltage refrigeration.
His entire presentation at TED 2011, this past July, is available on the TED.com website.
Chef Dawson is not working to provide food to the homeless, shelter for the needy or anything of the sort. He has created a movement that improves the lives of others, jobs to employ those out of work, and a Green way to help the environment, creating lasting change; True Social Entrepreneurship at its finest.
Chef Dawson is not the only one doing good works within the True Social Entrepreneurship movement. Perhaps the quickest way to learn about what is going on around our planet in the name of social entrepreneurship can be found at:
You can find examples of social entrepreneurship in some of the most desolate and economically deprived areas on the globe, and those doing great things to bring hope and enterprise to residents there. Additionally, a list of those foundations, organizations and individuals that provide funding for appropriate social entrepreneur projects can be found at the link above.
An excerpt from The Meaning of Social Entrepreneurship by J. Gregory Dees
Original Draft: October 31, 1998 Reformatted and revised: May 30, 2001
highlights an early definition of Social Entrepreneurship.
“The language of social entrepreneurship may be new, but the phenomenon is not. We have always had social entrepreneurs, even if we did not call them that. They originally built many of the institutions we now take for granted. However, the new name is important in that it implies a blurring of sector boundaries. In addition to innovative not-for-profit ventures, social entrepreneurship can include social purpose business ventures, such as for-profit community development banks, and hybrid organizations mixing not-for-profit and for-profit elements, such as homeless shelters that start businesses to train and employ their residents. The new language helps to broaden the playing field. Social entrepreneurs look for the most effective methods of serving their social missions.”
I would argue that the limit of social entrepreneurship extends well beyond “social” causes. It includes for profit entities that not only provide products and services that create jobs for this difficult economy, enhances the life aspects of both those directly involved in the activity, but the market as well, and improves the community at large through their individual and collective efforts. While social entrepreneurship may be classified as a humanitarian effort, I believe it is much more than that. As you may note, Professor Dees’ article was written in 1998, and revised in 2001. Much has changed in the social entrepreneurship field, along with the drastic changes in our economy both domestically, but internationally.
Please do not misunderstand the terms Social Entrepreneurship and Social Enterprise. While they both dovetail quite nicely, it is this author’s belief that they are quite different. It is also my belief that non-profit or charity enterprises fall into the Social Enterprise arena, or what I would rename as Venture Philanthropy. For-profit entities that create jobs, improve lives through innovation and life improvements generally create an arena of their own, which I feel more accurately fall into the Social Entrepreneurship classification. Social Enterprises in the non-profit space that do not utilize for-profit elements are failing at their mission, because sustainability is critical for the long term. Without sufficient profits that can be utilized to grow new revenues, they are at a loss. Those entities that are non-profit that rely on donations as well as profit generation are not true entrepreneurship entities, as they only are performing in a cyclical fashion; money in, money out. While donations continue to be the natural source of non-profit revenues, they have consistently shrunk year over year. If all donations were to dry up; what then?
I would contend that Professor Pilzer’s Island Story more accurately describes what “teaching them to fish” does to a community.
A brief summation: All ten men on an island fish to provide food for the families living on the island. Along comes a missionary with a net and teaches them to fish with it. Only two men are needed to catch enough fish for the entire village, leaving eight other men to do something else. The net has created 80% unemployment. Unless the eight unemployed men think of or are taught other jobs to support themselves and their families, the net from the missionary is a negative rather than a positive impact on the village.
Jobs need to be created so that all may flourish, rather than abject poverty for eight out of ten families. The missionary thought he was doing something good for the village of ten families, but he created an economic catastrophe, until new jobs were identified and a method of currency (trading the fish for other goods or services) was created and agreed to. I am certain I do not do it justice, but I think you get the point.
If charitable work is not combined with the creation of other jobs, a community action group is destined to go back to the fund-raising well time and time again. Self-sustainability along with profit making is the only sure fired method for true success in this arena, at least which is of what I a proponent.
I must state that I owe a lot of credit to one of my great mentors, Professor Paul Zane Pilzer, one of this world’s greatest entrepreneurs. Without his tutelage, I would enjoy only a minute portion of my success. He is without a doubt the finest person I have had the pleasure from whom to learn. I have been reading his works for nearly twenty years.
Professor Pilzer’s Island is a story that is so pertinent to the Social Entrepreneur that without we might lose the point of social entrepreneurism all together. For information on the Island Story, read his definitive work, “Unlimited Wealth.”
I don’t mean to make light of social entrepreneurship as it is understood at present. My case for a re-branding of the topic to a more accurate definition is at hand. With people like Professor Pilzer, entrepreneurs such as Chef Dawson and the hundreds and thousands of others that make their living helping create an environment for social change through the new Social Entrepreneurship.