There is a tremendous amount of fuzzy thinking around terms like "social entrepreneurship," "social business," and "socially responsible business." When people ask me what I think about social entrepreneurship, I first say I'm not sure what social entrepreneurship means. I'm not sure what makes it deserving of its own term. Then I say I think for-profit entrepreneurship does huge amounts of social good so I'm going to stay focused on that.
Carl Schramm recently wrote an excellent short piece in the Stanford Social Innovation Review called All Entrepreneurship is Social. Nut graf:
…regular entrepreneurs create thousands of jobs, improve the quality of goods and services available to consumers, and ultimately raise standards of living. Indeed, the intertwined histories of business and health in the United States suggests that all entrepreneurship is social entrepreneurship.
He goes to succinctly expand upon this point. He notes:
Entrepreneurs typically generate a surplus benefit above and beyond the profits they reap, finds the…economist William Nordhaus. Nordhaus has calculated that entrepreneurs capture only about 2 percent of this surplus, with the remainder passed on to society in the form of jobs, wages, and value.
As Nobel Peace Prize winner Muhammad Yunus, founder of Grameen Bank, said: "Income is the best medicine.”
Any thoughts you’d be willing to share on “socialized entrepreneurship” i.e. start-ups and entrepreneures getting direct government subsidies, tax breaks…
I believe entrepreneurship becomes social when decisions are made taking into consideration more than just profit maximization (which is the legitimate goal of many businesses). Social impact may be a welcome externality, but it is the bottom line (or triple bottom line – profit, social and environmental) you are using that determines whether it is social or not.
Income isn’t the only medicine, however. There are many public goods which very few people left to their own devices would be willing to pay for, but which are nonetheless in the collective best interest. Historically, we’ve mostly provided those through government (criminal justice system, fire stations, armies, and so on), because they’re difficult to build conventional for-profit businesses around: people don’t want to pay for those goods individually. But there are a lot of potentially valuable public goods that aren’t provided by governments. I think of social entrepreneurs as being in the business of providing public goods that governments can’t or won’t. And that’s very different from what conventional companies do.
Let me clarify one point: I’m certainly not trying to deny that there is (enormous!) social benefit in what for-profit companies do. Just that there’s many valuable goods that for-profit companies have a lot of difficulty providing because while those goods have some collective value, few individuals wish to purchase. That makes them hard to build a business around.
Tax breaks in general are good. Subsidies are not.
I don't know what a "social bottom line" is.
Social Entrepreneurship indeed is a fuzzy concept, but I think Michael gets to the core of it. Additionally, Matias gets to the core of socially responsible business in his post. I also agree that traditional entrepreneurship does much good, but by concentrating solely on the products side, while paying minimal attention to the happiness levels of the workers we are sustaining an arrangement that is not utility maximizing. But I don’t blame only entrepreneurs and management for this, I see consumers as being mostly responsible for this: for the most part they pursue their highest material value while neglecting the conditions under which the products were made. So this puts huge pressure one firms to meet these demands and so makes sacrificing efficiency for higher working conditions extremely difficult (I believe this was partly what Max Weber was getting at when speaking of the Iron Cage). So what we end up with is a giant coordination problem: We all want great working condition, but we all also want the best values available; however, by pursuing the best values at all costs, we incentivize sub-optimal working conditions, and so drive down the supply of the types of jobs we would really enjoy working.
Trends to solve this problem can be seen on the supply side through certain varieties of socially responsible business models, but on the demand side, ethical consumption trends are equally, if not more significant to solving the problem.
Here is an interesting innovation in the socially responsible business field: B Corporation
Yup. All entrepreneurship is social to the point till corporations grow too big to fail and they are automatically allowed to socialize losses and capitalize profits 😉
I am not sure the Grameen Bank example fits the `social’ stratum here since it reportedly charges relatively higher rates of interest even as they loan to economically underprivileged.