Traditionally, each of the three sectors maintained distinct roles and approaches—with the private sector focused on profitable markets, the public sector solving market failures, and the nonprofit sector engaging citizens in meeting societal needs.

Recently, however, several trends have reduced these distinctions, increasingly blurring the social and economic roles that businesses, government agencies, and nonprofits are playing.

In the private sector, businesses and their employees are increasingly engaging in activities that previously fell under the domain of nonprofits and government. For instance, private-sector companies have begun competing in fields such as education and social services, which were once considered core government activities. 

The public sector, too, has seen a shift in practices. As Reinventing Government authors David Osborne and Ted Gaebler describe, government is increasingly steering rather than rowing and emphasizing cost-effective results over bureaucratic rules.   According to Stephen Goldsmith, professor at Harvard’s Kennedy School of Government and director of its Innovations in American Government Awards Program, “New Deal-style initiatives, in which government assumes the dominant service-delivery role, have become increasingly rare, especially for newly developed programs.” 

For the nonprofit sector, pressures are growing to fill gaps in public service delivery, ensuring that citizens can get the services they need even when government is unwilling or unable to provide it. In providing essential services, nonprofit leaders are striving for sustainability to ensure that they will continue to be able to meet the needs of those they serve. Following the national scandal at a major nonprofit in 1992, and as many foundations adopt outcomes-driven approaches to funding, nonprofits also face demands for accountability.

As each sector has entered the territory of the others, the blurring between them has given rise to a host of new phenomena. An increase in public-private partnerships has involved more businesses and nonprofits as collaborators in government projects. At the same time, the increased popularity of earned-income ventures has led many nonprofits to develop business-like ventures to generate revenues.  Lastly, corporate social responsibility movements have entered the mainstream, motivating businesses to account for their community, environmental, and labor practices along with their profits.

By blending some of the social and economic responsibilities traditionally associated with each of the three sectors, social entrepreneurship may take the form of a nonprofit, business, or government initiative. No matter what organizational form it takes, social entrepreneurship tends to exhibit characteristics of all three. Like business, social entrepreneurship utilizes markets to drive innovation and productivity. Like government, social entrepreneurship responds to market failures by providing public goods and services. Like nonprofits, social entrepreneurship engages individuals in action to achieve social goals. Alex Nicholls of Oxford University’s Skoll Centre concludes, “The organizational mechanisms employed are largely irrelevant: social entrepreneurs work in the public, private, and social sectors alike, employing for-profit, not-for-profit, and hybrid organizational forms (or a mix of all three) to deliver social value and bring about change.”  Social entrepreneurship, then, is the practice of responding to market failures with transformative and financially sustainable innovations aimed at solving social problems. Next, we examine the three essential components of this definition.

 

Next Week: Definition Part I: Response to Market Failures

Among President Bush’s honored guests at the 2007 State of the Union address was Julie Aigner-Clark, founder of the profitable children’s video company, Baby Einstein, and current producer of child safety videos with the National Center for Missing and Exploited Children. The president praised her, saying: “Julie represents the great enterprising spirit of America. And she is using her success to help others…we are pleased to welcome this talented business entrepreneur and generous social entrepreneur.”

That the president of the United States honored a “social entrepreneur” in his State of the Union address exemplifies the growing recognition social entrepreneurship has received in recent years. The boom of the field and its promise as a means of addressing America’s daunting social problems is of particular importance for policymakers. By far, the largest sources of services and funding to help solve these problems are federal, state, and local governments. In the domestic budget alone, the federal government spends over $1 trillion each year providing direct benefits to constituents, awarding service grants and contracts, and employing government agency staff.  State and local governments raise and spend their own funds to benefit their constituents—creating an even larger pool of governmental spending and activities to solve social problems.

Government funding dwarfs the amount spent by the nation’s largest foundations, which together donate $16.4 billion annually to nonprofits,  as well as the giving by individuals, who donate $163.5 billion each year to social causes.  Of the nation’s 144 largest and fastest-growing nonprofits—all of which have $50 million or more in annual revenue—more than 40 percent rely on government as their primary funding source. The next most common funding comes from service fees, which are paid at least in part by government agencies in 90 percent of cases.

Given both the magnitude of needs and the scope of spending, government leaders constantly face tough decisions about how to improve the lives of their constituents while most effectively using tax dollars. As elected officials and government agency staff approach these tough choices, social entrepreneurs offer a new source of assistance. Government leaders and social entrepreneurs share an interest in identifying efficient, effective, and sustainable ways to solve difficult social problems.

Although collaboration thus far between social entrepreneurs and government has occurred in isolated incidents, working together more strategically represents a yet-to-be harnessed opportunity for government leaders working to resolve social problems. By adapting some of the same levers that have successfully encouraged U.S. entrepreneurialism, government leaders have a similar opportunity to support social entrepreneurship—and thereby generate transformative, financially sustainable solutions to social problems facing the nation. As Roger Martin and Sally Osberg state in a recent article for the Stanford Social Innovation Review, “Social entrepreneurship, we believe, is as vital to the progress of societies as is entrepreneurship to the progress of economies, and it merits more rigorous, serious attention than it has attracted so far.”  Just as government support of private markets and entrepreneurship has fueled growth in the U.S. economy, so too can government’s support of social entrepreneurship accelerate the solving of social problems.