The Societal Role of Social Entrepreneurship (Blog)

The field of social entrepreneurship often takes its normative foundations for granted. Social enterprises seek to address social problems using business strategies. To know whether a social enterprise initiative is succeeding, it may seem obvious that social entrepreneurs, funders, regulators, and beneficiaries should assess its impact on the people affected by these problems. The position is not only commonsensical; it enjoys support from intellectual giants like Martha Nussbaum and Amartya Sen, whose thinking on human capabilities has inspired development work for 30 years.

Understanding how social innovation directly affects people’s lives is essential. But by focusing primarily on measurable impacts on individuals, we risk falling into familiar traps. How individual effects interact, especially over the long term, is difficult to measure and understand. Studies of social innovation are filled with unintended consequences, where well-meaning and initially promising efforts lead to neutral or harmful effects on wider ecosystems or future developments. Social enterprises driven by a desire to improve lives can also get mired in ideological conflict. They are often criticized for privatizing solutions to problems that some regard as properly public or commodifying sensitive areas where some believe market forces are inappropriate. These challenges contribute to the skepticism that social enterprises often face from funders and policymakers, who find it hard to distinguish social enterprises from other organizational forms and to appreciate their comparative advantages and limitations.

How can social entrepreneurship overcome these obstacles? We believe the answer lies in grounding the field in different foundations: the political philosophy of John Rawls. Rawls may initially seem like an odd choice. Rawls is known for producing an egalitarian theory of justice that has had a towering influence on the theory and practice of politics and law. Rawls’s influence on social innovation and program evaluation is almost nonexistent. That might be because Rawls had little to say directly about organizations. However, extracting the implications of Rawls’s work for social enterprises reveals essential resources for anchoring their efforts in sound foundations and achieving lasting impact.

For Rawls, justice is the first virtue of society and serves as the north star for the distribution of the benefits and burdens of social cooperation. Justice defines how rights, duties, opportunities, power, and respect can be fairly shared among people. It requires the creation and maintenance of public institutions that provide essential public goods, such as a legal system, a tax regime, social security, competitive markets, and health and education, as well as mechanisms to ensure access and limit destabilizing inequalities within the private sector. Principles of justice apply in the first instance to these institutions. When these institutions are underdeveloped or underperforming, private organizations and individuals are not expected to pick up the slack directly. Private entities cannot offer universal accountability, effectively coordinate strategies, or ensure that contributions and benefits are fairly shared. Instead, justice creates a duty to foster institutional capacity, strengthening the ability of a society’s major institutions to establish and maintain fair terms of cooperation.

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Working to ensure that a society’s underlying structures are robustly just provides an all-purpose objective that allows societies to secure justice across multiple dimensions. Aligning strategies with strengthening institutional capacity can also help an organization avoid duplicating or contradicting the work of parallel initiatives and imposing the values of some onto others.

While organizations can’t compensate for missing or underperforming institutions, they can make vital contributions to the development and maintenance of just institutions. Naturally, organizations can advocate for institutional reform and provide temporary relief for institutional failures. But the specific features of social enterprises, which blend social and market elements, give rise to less obvious and equally important possibilities for strengthening institutional capacity:

• Demonstrating just alternatives with proofs of concept. When markets are exploitative or exclusionary, social enterprises can model practices that vividly demonstrate the viability of fairer alternatives. Consider fair trade initiatives, worker-owned cooperatives, and low-profit cooking stoves as examples.
• Incentivizing accountability with competitive pressure. Social enterprises can put indirect pressure on unaccountable governments and firms, forcing them to rein in corruption, deliver public goods, and reduce prices. For instance, social enterprises offering affordable funeral services in Québec have reduced price gouging across the funeral industry.
• Helping just institutions achieve their aims. Social enterprises can help complete the work that just institutions seek to do. That’s the case with work integration social enterprises (WISEs), which are necessary for ensuring employment opportunities for marginalized groups, even in countries with strong disability policies.
• Expanding options outside the mainstream. Social enterprises can supplement the work that just institutions do by adding new opportunities for labor, consumption, and affiliation. Consider the Sundance Film Festival, which creates new opportunities for producers and consumers of independent movies.

Social innovation is a competitive and confusing landscape, with many organizational types and strategies claiming to advance the public good and drive social progress. Funders and policymakers struggle to identify social enterprises and to understand their potential value. Here’s how they can do it:

• Focus on institutional impact. Evaluate social enterprises and your own work based on the long-term impact on institutions rather than just short-term effects on individuals.
• Consider context. Consider the specific contexts in which a social enterprise operates to understand effectiveness. One should not expect outsized impact in settings where institutional capacity is already strong. But this impact may be valuable, nonetheless.
• Coordinate the division of labor. Establish clear boundaries and communication between initiatives to discourage redundancy and duplication of efforts and strengthen collaboration toward social justice.
• Support normative clarity. To drive impact and build trust, provide clear guidelines based on normative principles to evaluate social entrepreneurship. Scrutinize initiatives that don’t meet the bar.

While the pendulum has now swung back from a narrow focus on quantitative evaluation metrics in philanthropy interested in supporting system change, these metrics still loom large for the field of social entrepreneurship. Social entrepreneurship seeks to leverage market-based activity for social improvement precisely by adapting management tactics, like quantitative impact assessment. These tactics often focus on objectives like scale and acceleration, evaluating impact by measuring the number of beneficiaries reached, trained, or treated. But such an approach may fuel myths that an observed improvement in a trial will generally produce similar results in different contexts or grow linearly with further investment. Our view suggests these metrics fail to capture the full impact potential of social entrepreneurship—not only because they adopt unreliable metrics, but because they fail to focus on the right objects of measurement: how social enterprises can contribute to a just institutional infrastructure. Here’s how to shift the focus:

• Broaden impact goals. Move beyond immediate outputs and consider the long-term institutional impacts of social entrepreneurship.
• Target narrative reporting. Incorporate stories and qualitative data highlighting indirect contributions to social justice.
• Challenge strategic metrics. Develop new metrics that reflect the broader goals of equity and fairness.
• Embrace complexity. Acknowledge the complex context/environments in which social enterprises operate and adapt impact assessments accordingly.

By embracing insights from Rawlsian political philosophy, we can anchor social entrepreneurship in normative foundations that avoid ideological traps, strengthen impact, and earn trust. This approach provides an unambiguous and practical framework for understanding how social entrepreneurship can promote social justice. For social enterprises, it justifies a broader and longer-term approach to impact assessment. For funders and policymakers, it offers a way to distinguish social entrepreneurship from other practices and assess diverse initiatives.

Incorporating these ideas can help ensure that the contributions of social entrepreneurship are both meaningful and sustainable. By focusing on institutional capacity, we can better support the transformative potential of social enterprises in creating a fairer and more just world.

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Read more stories by Theodore Lechterman & Johanna Mair.