A Treatise on The Need for Social Entrepreneurship


Today I watched a video presentation by Steve Blank and the UCLA Anderson School of Management on different entrepreneurship types. Blank had many good ideas I agreed with about entrepreneurship. For example, Blank said when a founder finds a model that works, investors act quickly to take over and replace the founders because founding entrepreneurs’ role is to create value by finding new models. Investors look to manage successful models by recruiting corporate planners to maximize profits for owners and managers in these newfound wealth creating enterprises. Blank also claimed social entrepreneurship has no value because it creates no new wealth (LeanStartupCircleLA, 2011, October 16).

I take exception to this shortsighted view because I believe all enterprises should take some social responsibility. Further, sometimes, I believe social issues belong in social enterprises rather in commercial ones because social enterprises better serve consumers’ social needs and commercial businesses place more value on serving themselves. What is wrong with just earning a decent living instead of channeling all wealth to the elite? Can social entrepreneurs gain more value from satisfying more than their personal wealth and by serving society’s needs? If government fails to address social issues who should?

Different worldviews on social entrepreneurship.

Various worldviews exist about social entrepreneurship. One view comes from the protectors of social entrepreneurship, who believe in the effectiveness of social organizations. Another view comes from the doubters, who demand empirical proof of social entrepreneurs effectiveness  (Pärenson, 2011).

Trexler (2008) reasoned both people and business enterprises have hybrid needs consisting of both social and commercial parts. Trexler rationalized business managers encode the thinking burdensome laws in, “the DNA of our for-profit corporate entities, yet business leaders persist in reducing corporate identity to the material enrichment of its executives and shareholders” (p. 80).

Bull, Ridley-Duff, Foster, and Seanor (2010) argued the current social setting directs itself toward self-interest and eroding moral values. Bull et al. claimed social entrepreneurship has great value to look beyond existing missions and values and maximize ethical virtues.

Defining social entrepreneurship.

Pärenson (2011) found some scholars define social entrepreneurship as any action helping solve social issues, while others see social entrepreneurship only when it serves both a social cause and fulfills a commercial need. Pärenson found other definitions about social entrepreneurship strictly about nonprofit corporations, but most definitions view social entrepreneurship mainly focusing on social needs and less on commercial concerns.

Alvord, Brown, and Letts (2004) defined social entrepreneurship as providing sustainable solutions to great social problems using economic, political, and social means by applying market-based skills to the nonprofit area. Noruzi, Westover, and Rahimi (2010) defined the social entrepreneur as a person, group, or alliance seeking sustainable solutions through break-through changes and ideas in how business, governments, and nonprofit organizations should do business.

Who decides where an enterprise fits?

Should government, commercial enterprise, or society decide the best place to deal with social issues? Should corporate profit making behaviors eclipse social values? Traditionally, governments decided because people of the world organized governments to represent their interests, but with global markets companies aim to tear down the walls of governments. Who then deals with social issues?

Soros (1998) argued autocratic governments find it easier to amass capital, but their power causes corruption and ignores the glue holding the shared values of society together. Soros explained the weaknesses of global capitalism emanating from uneven benefit distribution, unstable financial systems, threats to competition by monopolies and oligopolies, the unclear and confusing role of governments, and the lack of social unity. Without government is the social landscape falling to autocratic interests of big companies? What say should people have about their values?

When does “creative destruction” begin and creativity die?

Without the voice of consumers represented by government the place to deal with social issues best comes from entrepreneurs close to the customer. If monopolies and oligopolies make it difficult for entrepreneurs so they cannot compete who is responsible for creating new and improved products and services to fill the gaps needed by consumers?

Pichler (2010) explained entrepreneurs act as the villain to market economies by averting market tendencies in accord with what Elliot (1983) viewed as Schumpeter’s theory of creating new combinations. Without such new combinations economic conditions become static and fail to foster conditions ripe for creativity. Entrepreneurship drives creativity and when crowded out by monopolies and oligopolies exposes the economic conditions leading to “creative destruction.”

Society needs entrepreneurs to drive creativity and fill gaps exposed by monopolies and oligopolies that fail to consider social needs. Monopolies and oligopolies foster preserving the wealth of the elite with little consideration for social needs. Without entrepreneurship creativity dies and leaves a hole in market for needs direly needed by consumers.

Global markets and unfilled social gaps in the market.

Where do issues like education, healthcare, housing, and alternative energy fall in global markets? Are these not social issues? Should the private companies strictly deal with such issues or should society deal with these issues as social issues. Are such issues best dealt with by government or nonprofit organizations? Does one size fit all?

I do not believe all these issues rightfully belong with private companies because they are beyond the control of the consumer who needs some help. For example, should everyone who wants an education have the opportunity to get one or should education depend solely on those who can afford to pay for a good education?

I would also argue putting such issues in the private companies makes the cost rise and reduces the efficiency of the market in delivering such services to members of the public. Although private enterprises like to espouse their efficiency, sometimes markets become less efficient with the profit incentive. Costs rise because merchants involved add their markups on top of all the ingredients in the product or service causing costs to spiral. In government and nonprofit enterprises companies put less focus raising prices and more focus on buying efficiently. Molina-Martinez and Martinez-Fernandex (2010) and Zhang and Fung (2006) argued social entrepreneurs contribute to improved economic performance, and Granovetter (1992) made the case that social entrepreneurs outperform nonsocial entrepreneurs.

Should society distribute social services to the highest bidder or do all people have a right to certain basic services? Who decides where best to deal with basic social needs? Do the people have a say in a global market that has torn down the walls of government or have we digressed to “the survival of the fittest?”

Deregulation and its effect on social needs.

Loss of government funding from deregulation places more demands for meeting social needs on entrepreneurs (Gliedt & Parker, 2007). Entrepreneurs need better conditions to deal with emerging social needs, but monopolies and oligopolies with notable political influence detract from making conditions more favorable for social entrepreneurs. Social enterprises now face dwindling support from donations and public funds (Craig, Taylor, & Parkes, 2004).

Without government playing a role, social entrepreneurs have a responsibility to deal with social needs, but need improved conditions to do so. Foster (2010) argued for a mixed economy because markets are not perfect and the inability of big companies to deal with certain issues. Foster called for needed government policies to deal with promoting entrepreneurship. These policies include a commitment to education and training, public guarantees of financing for entrepreneurs, public support for research and development in emerging industries, and regulatory changes promoting entrepreneurship through networking. How can conditions improve to provide better conditions for social entrepreneurs without government intervention?

Examples of some of the unmet needs.

Alternative energy, housing, healthcare, and education offer examples of issues social entrepreneurs can play a part in. Green energy focuses on environment problems besides solely profit-making ambitions, but threaten conventional energy source providers with competition (Gliedt & Parker, 2007). Does threatening conventional energy source providers offer enough reason not to develop energy alternatives? What happens when shortages exist in conventional sources? Should society just accept paying more? How does society deal with environmental issues like global warming?

Society can apply the same thinking to housing, healthcare, and education. Are these not at least in some part social issues needing solutions encompassing more than profit-making? Do social entrepreneurs have value in solving these problems?

We would like to hear more from you about what you think? Please leave a comment or let us know if you would like to learn more.

References

Alvord, S. H., Brown, L. D., & Letts, C. W. (2004). Social entrepreneurship and societal transformation: An exploratory study. Journal of Applied Behavioral Science, 40(3), 260-282. doi: 10.1177/0021886304266847

Bull, M., Ridley-Duff, R., Foster, D., & Seanor, P. (2010). Conceptualising ethical capital in social enterprise. Social Enterprise Journal, 6(3), 250-264. doi: 10.1108/17508611011088832

Craig, G., Taylor, M., & Parkes, T. (2004). Protest or partnership? The voluntary and community sectors in the policy process. Social Policy & Administration, 38(3), 221-239. doi: 10.1111/j.1467-9515.2004.00387.x

Elliott, J. E. (1983). Schumpeter and the theory of capitalist economic development. Journal of Economic Behaviour and Organisation, 4(4), 277-308. doi: 10.1016/0167-2681(83)90012-4

Foster, J. (2010). Productivity, creative destruction and innovation policy: Some implications from the Australian experience. [Article]. Innovation: Management, Policy & Practice, 12(3), 355-368. doi: 10.5172/impp.12.3.355

Gliedt, T., & Parker, P. (2007). Green community entrepreneurship: creative destruction in the social economy. International Journal of Social Economics, 34(8), 538-553. doi: 10.1108/03068290710763053

Granovetter, M. S. (1992). Problems of explanation in economic sociology. In N. Nohria & R. G. Eccles (Eds.), Networks and organizations: Structure, form, and action (pp. 29-56). Boston, MA: Harvard Business School Press.

LeanStartupCircleLA (Producer). (2011, October 16). Steve Blank on customer development: The second decade. Retrieved from http://www.youtube.com/watch?v=6t0t-CXPpyM

Molina-Morales, F. X., & Martínez-Fernández, M. T. (2010). Social networks: Effects of social capital on firm innovation. Journal of Small Business Management, 48(2), 258-279. doi: 10.2307/2393553

Noruzi, M. R., Westover, J. H., & Rahimi, G. R. (2010). An Exploration of Social Entrepreneurship in the Entrepreneurship Era. Asian Social Science, 6(6), 3-10.

Pärenson, T. (2011). The criteria for a solid impact evaluation in social entrepreneurship. Society and Business Review, 6(1), 39-48. doi: 10.1108/17465681111105823

Pichler, J. H. (2010). Innovation and creative destruction: At the centennial of Schumpeter’s theory and Its dialectics. Nase Gospodarstvo/Our Economy, 56(5-6), 52-58. doi: http://www.ng-epf.si

Soros, G. (1998). Toward a global open society. The Atlantic Online, 281(1), 20-32. Retrieved from http://www.theatlantic.com/past/docs/issues/98jan/opensoc.htm

Trexler, J. (2008). Social Entrepreneurship as an Algorithm: Is Social Enterprise Sustainable? Emergence : Complexity and Organization, 10(3), 65-85. doi: 10.1207/s15327000em0101_2

Zhang, Q., & Hung-Gay, F. (2006). China’s social capital and financial performance of private enterprises. Journal of Small Business and Enterprise Development, 13(2), 198-207. doi: 10.1108/14626000610665908

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  1. #1 by Cliff Hurst on May 14, 2012 - 12:42 pm

    Thanks for writing this. It’s gives some clarification to what is sometimes a vague concept to me.
    Cliff

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