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1
SOCIAL ENTREPRENEURSHIP: THE ROLE OF INSTITUTIONS
Mukesh Sud
Augustana College
639 38
th
Street
Rock Island, IL 61201-2296
p 309-794-7399
f 309-794-7605
Craig V. VanSandt
Augustana College
639 38th Street
Rock Island, IL 61201-2296
p 309-794-7334
f 309-794-7605
Amanda M. Baugous
Augustana College
639 38th Street
Rock Island, IL 61201-2296
p 309-794-7340
f 309-794-7605
2
SOCIAL ENTREPRENEURSHIP: THE ROLE OF INSTITUTIONS
Mukesh Sud – Dr. Sud is currently an Assistant Professor of Management at Augustana College
in Rock Island, Illinois. An engineer by profession, he has been an entrepreneur in the Thermal
Spraying field. After exiting from his business he completed a Ph.D. in 2006, from the Indian
Institute of Management, Bangalore. Dr. Sud’s doctoral work has been in the field of corporate
entrepreneurship and emerging markets. Besides social entrepreneurship his research has focused
on the impact of failure both at the individual and firm level. Dr. Sud has published papers in the
Academy of Entrepreneurship Journal and IIMB Management Review.
Craig V. VanSandt – Dr. VanSandt obtained his Ph.D. from Virginia Tech, and is currently an
Associate Professor of Management at Augustana College in Rock Island, Illinois. He has
authored papers that have appeared in Law & Policy, Business and Society, Journal of Business
Ethics, International Journal of Organization Theory and Behavior, Journal of Management
Education, and a book chapter in Systematic Occupational Health and Safety Management. Dr.
VanSandt’s research interests include organizational climate’s effect on employee behavior, the
role of business in society, and ethical issues of corporate governance.
Amanda M. Baugous – Dr. Baugous obtained her Ph.D. in Industrial/Organizational
Psychology from the University of Tennessee, Knoxville, and is currently an Assistant Professor
of Management at Augustana College in Rock Island, Illinois. She has authored papers that have
been presented at Society for Industrial and Organizational Psychology, Industrial/
Organizational Psychology & Organizational Behavior, and North American Management
Society conferences. Dr. Baugous’s research and consulting interests include the design,
evaluation, and implementation of employee selection and performance management systems.
3
SOCIAL ENTREPRENEURSHIP: THE ROLE OF INSTITUTIONS
ABSTRACT
A relatively small segment of business, known as social entrepreneurship (SE), is
increasingly being acknowledged as an effective source of solutions for a variety of social
problems. Because society tends to view “new” solutions as “the” solution, we are concerned
that SE will soon be expected to provide answers to our most pressing social ills. In this paper
we call into question the ability of SE, by itself, to provide solutions on a scope necessary to
address large-scale social issues. SE cannot reasonably be expected to solve social problems on
a large scale for a variety of reasons. The first we label the organizational legitimacy argument.
This argument leads to our second argument, the isomorphism argument. We also advance three
other claims, the moral, political, and structural arguments. After making our arguments, we
explore ways in which SE, in concert with other social institutions, can effectively address social
ills. We also present two examples of successful ventures in which SEs partnered with
governments and other institutions.
4
SOCIAL ENTREPRENEURSHIP: THE ROLE OF INSTITUTIONS
“We can't solve problems by using the same kind of thinking we
used when we created them.” (attributed to Albert Einstein)
There is no question that the world today faces numerous and severe problems. One need
not expend much time or effort to encounter them in the popular press—global warming,
poverty, increasing economic inequality, famine, potential pandemics, ethnic cleansing,
terrorism, etc. In addition to the specific problems we face, the virtual collapse of communism
and the effects of unbridled capitalism have exacerbated social injustices (Wolman and
Colamosca, 1997). Finding and implementing solutions to these problems is becoming critical to
our continued survival as a species (Carson, 1962; Gore, 2006).
Business, particularly a relatively small segment known as social entrepreneurship (SE),
is increasingly acknowledged as an effective source of solutions for a variety of social problems
(Mair, Robinson, and Hockerts, 2006; Nicholls, 2006). Because society tends to view “new”
solutions as “the” solution, we are concerned that SE will soon be expected to provide
comprehensive answers to our most pressing social ills. In this paper we call into question the
ability of SE, by itself, to provide solutions on a scope necessary to address large-scale social
issues. Certainly, there is anecdotal evidence that social entrepreneurs have addressed and
helped resolve many social problems (e.g., Bornstein, 2004; Leadbeater, 1997; Nicholls, 2004;
Nicholls, 2006; Nicholls and Cho, 2006). They have done so by being innovative, market-
oriented, and socially focused (Nicholls and Cho, 2006). But, to date, these successes have been
achieved locally and on a relatively small scale.
5
We will argue that as attempts are being made to scale up the field, SE by itself, is
inadequate to address the extent and complexity of the social problems we currently face; nor
should it be expected to do so. We do not make these arguments because we do not believe that
SE should address social issues. We are certainly not Friedman disciples, of the mind that the
sole social responsibility of business is to increase its profits (Friedman, 1970)—with one
exception, as we will explain later.
WHY SOCIAL ENTREPRENEURSHIP IS NOT ENOUGH
SE cannot reasonably be expected to solve social problems on a large scale for a variety
of reasons. The first we will label the organizational legitimacy argument. This argument is
closely related to, but separate from, (and, in many ways, a basis for) our second argument, the
isomorphism argument. We will also advance three other claims, the moral, political, and
structural arguments. These are depicted in the following model as forces restraining the
effectiveness of social entrepreneurship to solve wide-scale social problems.
---------------------
insert model here
---------------------
Our legitimacy argument is based on the fact that the very existence of certain types of
organizations depends upon the consent of the society in which they are embedded. This
acquiescence is based on the perception that a type of organization serves some sort of useful
purpose. For example, for-profit corporations are embraced by American society today, but were
highly discouraged and limited during the founding of the United States (Kelly, 2003; Nace,
2003; Grossman and Adams, 1993). Christian churches were all but obliterated in the USSR,
6
while they thrive in the United States. Private colleges are common in the United States, but
virtually non-existent in western European countries.
Organizational legitimacy, in the context of this argument, is a generalized perception or
assumption that the actions of an entity are socially desirable, proper or appropriate within some
socially constructed system of norms, values, beliefs and definitions (Suchman, 1995). From an
institutional perspective, legitimacy is the means by which organizations obtain and maintain
resources (Oliver, 1991).
Social enterprises are the most recent organizational form, and as such, are still seeking
the legitimacy already accorded their predecessors. Historically, markets (i.e., private, for-profit
enterprise) have sometimes failed to provide certain goods or service. In contexts where
governments have not stepped in to resolve or ameliorate such failures, non-profits have
functioned as a vehicle to make these services available to citizens, thus gaining legitimacy for
the non-profit sector. It is important to be aware that the non-profit sector, by definition, has not
been driven by monetary profit and is solely concerned with filling the fissures that neither for-
profits nor governments have satisfied.
Social enterprises, which represent a fundamental innovation in the non-profit sector,
differ from non-profit organizations in terms of their strategies , structures, norms, and values
(Dart, 2004) and are considered a rational and functional alternative to public sector funding and
philanthropic resource constraints (Dees, Emerson & Economy, 2001). Just as non-profits
originated to address market and government failures, social enterprises are now being formed to
address the issues that for-profits, government, and non-profits miss. Scholars have viewed
social enterprises and social entrepreneurship as an “encompassing set of strategic responses to
7
many of the varieties of environmental turbulence and situational challenges that non profit
organizations face” (Dart, 2004).
Early definitions of the field suggest that social entrepreneurs play the role of change
agents in the social sector by adopting a mission to create and sustain social value, not just
private value (Dees, 1998). Although definitions in this emerging field remain fuzzy (Boschee,
1995; Dees, 1998), more recently there has been a broad acceptance of social entrepreneurship as
being an innovative use of resources to explore and exploit opportunities that meet a social need
in a sustainable manner. These classifications are closely related to widely accepted definitions
of entrepreneurship as the pursuit of opportunities without regard to resources under control
(Stevenson, 1985) and the scholarly examination of how, by whom and with what effect
opportunities to create goods and services are discovered, evaluated, and exploited
(Venkataraman, 1997).
The authors of this paper suggest that the similarities in the accepted definitions of these
fields are, in themselves, an indication that social enterprises are closer ideologically to for-profit
enterprises than to non-profits. The early emphasis of social entrepreneurs seems to have been
targeted towards innovation and using opportunities to create a social impact. However, as the
field has gained increasing recognition (i.e., legitimacy), and social entrepreneurs attempt to
scale their efforts, the lack of adequate resources increasingly will be felt. The ability to attract
and maintain resources is a key element in the search for legitimacy.
The evolving definitions of social entrepreneurship indirectly acknowledge this by
emphasizing the sustainability of their efforts. Traditionally non-profits have been funded by a
mixture of member fees, government funds, grants and user fees (DiMaggio & Anheir, 1990).
Social enterprises, on the other hand, are attempting to broaden this funding model by making
8
“strategic moves into new markets to subsidize their social activities either by exploiting
profitable opportunities in the core activities of their for profit subsidiaries or via for profit
subsidiary ventures and cross-sector partnerships with commercial corporations” (Nicholls,
2004). The number of stakeholders that social enterprises engage with is hence likely to be larger
than those for non-profits. The diverse expectation of these multiple stakeholders and the desire
to be self-sustaining is likely to further complicate these relationships. Significantly,
philanthropy is becoming more strategic in its largess, with donors calling for objective
performance metrics and financial transparency.
The preceding paragraphs describe a typical process—as social enterprises seek to scale
their efforts to address social problems, they need to acquire legitimacy as a class of
organization. However, in their efforts to bridge the traditional field of for-profit operations and
fill in the gaps left by governments and markets (the non-profit sector’s accustomed role),
financial results tend to subsume the social mission, if not in the social entrepreneur’s mind,
certainly in the reporting requirements for investors and donors (Bruck, 2006).
An early exemplar of this transition can be observed in the microfinance field. With the
arrival of private investment into the sector there have been calls to broaden its scope and
multiply its impact. Simultaneously, attempts are being made to reduce its dependence on
donors and government funding.
Citigroup, the world’s biggest bank, started a microfinance division in 2005. The
division’s global director commented, “[T]wo and a half billion people ha[ve] never used a bank.
Forty percent of the world is beyond the world we know” (Bruck, 2006: 68). As a financial bank,
the focus is likely to be on “financial inclusion” [gaining new customers for the bank’s services]
rather than reducing poverty. Mouhammed Yunus the founder of Grameen Bank and recent
9
Nobel Peace Prize winner, observed that the traditional goal of business—maximizing profit—is
inappropriate when dealing with the poor. In discussions with Pierre Omidyar of Ebay, who has
supported microfinance but called for a self-sustaining profitable model, Yunus said, “[W]hy do
you want to make money off the poor people? When they have enough flesh and blood in their
bodies, go and suck them, no problem. But, until then, don’t do that. Whatever money you are
taking away, keep it with them instead, so that they can come out more quickly from poverty”
(Bruck, 2006: 3).
We are concerned that the desire to gain legitimacy and avoid dependency on donors may
result in unintended consequences in a field still in its infancy. As a hybrid model emerges, we
see a blurring of the factors that have traditionally distinguished non-profits from for-profits,
such as goals, values, motivators, clientele, and types of clientele focus (Van Til, 1988;
DiMaggio and Anheir, 1990). Such a hybrid model may have the drawbacks of both
organizational forms with none of their individual advantages. This lateral movement from a
pro-social mission to a double (or triple) bottom line, accompanied by a desire to gain legitimacy
by emphasizing economic outcomes, may ultimately lead to the premature discrediting of a
promising field. Hence, we suggest that the role of institutions becomes critical to ensure that, as
the field expands, the desirable outcomes of SE are met, without compromising the essential
building blocks on which it has been founded and achieved early success.
Our second assertion is the isomorphism argument. Institutional isomorphism, as
originally defined, is “…a constraining process that forces one unit in a population to resemble
other units that face the same set of environmental conditions” in which “[o]rganizations
compete not just for resources and customers, but for political power and institutional legitimacy,
for social as well as economic fitness” (DiMaggio and Powell, 1983: 149-150). In other words,
10
organizations in similar fields tend to become more homogeneous over time. Note that the
isomorphism argument goes beyond that of the legitimacy argument—not only do organizations
need society’s approval to exist, but once they obtain that approbation, they are subject to
pressures to conform to existing modes of structure and operations.
DiMaggio and Powell (1983) go on to identify three mechanisms through which
institutional isomorphism operates: 1) coercive isomorphism—political or social pressures, 2)
mimetic isomorphism—responses to uncertainty, one of which is imitation of best practices, and
3) normative isomorphism—processes of rationalization through professional structures. These
mechanisms may result from either formal efforts or unofficial, even casual expectations.
We see clear evidence of all three of these mechanisms operating in SE. The rapid
proliferation of the field in academia and the emergence of numerous citizen organizations all
over the globe will gradually lead to social and political imperatives for conformity. This
process will be further accelerated, especially in the context of larger organizations, in their
desire for legitimacy and funding to promote their objectives. This point is an integral
component of both the legitimacy and isomorphism arguments.
Ashoka, a nonprofit entity organized in 1980, is dedicated to helping social entrepreneurs
build networks that will allow dissemination of approaches to resolving social problems.
Between 1990 and 2004 its operations spread from eight to forty-six countries, while increasing
the number of “Ashoka Fellows” from 200 to 1,400 (Bornstein, 2004). This is a clear example
of a formal effort to promote mimetic isomorphism within the SE field. This desire is prompted
by the reality that the field is in an initial phase of existence, with few successful models to
follow, and a plethora of problems to solve. Finally, normative pressures are now beginning to
exert themselves through professional structures within the SE field. Ironically, this pressure is
11
emanating primarily from large corporations, which, as they dedicate themselves to the field of
SE, are demanding greater accountability in their stated desire to achieve a higher impact (the
Bill and Melinda Gates Foundation is probably the best known example). Financial markets are
also beginning to play a part in forcing conformity within the SE field, as efforts to establish
structured investment exchanges are being developed (Bruck, 2006; Marketplace, 2007). Thus,
the theory of institutional isomorphism anticipates that social entrepreneurship initiatives will,
over time, increasingly resemble each other.
Nicholls and Cho, however, express concern that isomorphic pressures, inevitable in the
scaling process, may hinder the work of SE.
…[C]an social entrepreneurs adopt modes of rationalization and professionalization consistent
with the need to escape these [the tendency toward institutional isomorphism] pressures?
…[T]here is an ongoing process of antithesis that is a function of how social entrepreneurs
challenge existing, dysfunctional, social welfare delivery structures. Indeed, contra Marx and
Hegel, there seems to be no evidence that the move to a final synthesis is either desirable or likely.
The more social entrepreneurs continue to avoid institutional isomorphism and sectoral
assimilation by defying the logic of Hegelian-Marxian synthesis,…and the more systemic and
sustainable social impact they are likely to achieve (Nicholls and Cho, 2006: 116-117).
Although we anticipate that isomorphic forces will, as Nicholls and Cho (2006) predict,
inhibit the effectiveness of SE, we also recognize that certain factors will mitigate those forces.
These mitigating factors will help SE maintain effectiveness, but they will also limit the scale
upon which SE will operate. One such factor mitigating the general operation of institutional
isomorphism in the SE field is the very nature of what social entrepreneurs do. SE has been
characterized as a form of Schumpeterian entrepreneurship, a disruptive force that acts as
“…change agents for society, seizing opportunities others miss and improving systems,
inventing new approaches and creating sustainable solutions to change society for the better”
(Skoll Foundation, 2005). Certainly, Schumpeterian entrepreneurs are not inherently immune to
the forces of institutional isomorphism (e.g., witness the railroad, pharmaceutical, and computer
industries; or the multinational firm). All were disruptive agents of “creative destruction”
12
(Schumpeter, 1942), but are now relatively homogeneous factors in the economy. However, SE
operates in a wide variety of cultures, geographic locales, and social problems, implying that it
may not be as susceptible to the forces of institutional isomorphism as are many other industries
and organizational forms. “As a consequence, social entrepreneurs can avoid many of the
coercive isomorphic pressures typically experienced by other organizations from outside
forces.…[T]he bespoke diversity of much successful social action plays against mimetic forces
and embodies a focus on social objectives rather than organizational form….Using a legitimacy
framework to explore the dynamic effectiveness of social entrepreneurship reveals not only their
[sic] resistance to institutional isomorphic pressures…” (Nicholls and Cho, 2006: 114-115).
Social entrepreneurs, virtually by definition, are attacking social problems caused by
shortcomings in existing markets and social welfare systems (Mair, Robinson, and Hockerts,
2006; Nicholls, 2006). The institutions that comprise these markets and social welfare systems
are part of the structure that created those very social problems (refer back to Einstein’s quote at
the beginning of this paper). Those market and welfare institutions are also clearly much further
along in the process of institutional isomorphism than are social entrepreneurs. Their existing
power and legitimacy will tend to resist the widespread isomorphism of SE, if for no other
reason than to protect their own status.
Although social entrepreneurs may be able to address specific social problems more
effectively if they resist the forces of institutional isomorphism, they will also be less likely to
bring about the broad and comprehensive reforms needed to bring about widespread solutions to
those problems. “They [social entrepreneurs] defy the traditional isomorphic forces that often
constrain and categorize organizational innovation…preferring instead constantly to challenge
13
the status quo by reconfiguring accepted value creation boundaries (public/private, for-profit/not-
for-profit, and economic/social)” (Nicholls, 2006: 11).
Our third argument why SE will be unable to resolve social problems is the moral
argument. To fully understand this argument, it is necessary to trace some facets of Western
history. The amoral theory of business (Shepard et. al., 1995) is currently the dominant
paradigm in our society, one in which the economic institution is viewed as somewhat separate
from the other institutions and immune to some moral regulations. This paradigm is the result of
the shift, beginning in the seventeenth century, from the “moral-unity” theory of business to the
“amoral theory of business” (Shepard et. al., 1995). The moral-unity theory of business
postulates that the economic institution is viewed as an integral part of the overall society, and
that it is subject to all of the same norms and moral regulations as all of the other social
institutions. In contrast, the amoral theory of business sees the economic institution as separate
from other social institutions, largely insulated from all of the moral norms followed in the rest
of society. It is imperative to note that the moral-unity theory of business, as well as the amoral
theory of business, pertain to how people view the economic institution and how they behave—
not whether the economic institution is, in fact, normative or amoral.
In this shift, the economic institution has been separated morally in certain significant
ways from other social institutions such as the church, the state, the community, and the family.
As a result, the economic institution has come to be exempt from some generally accepted
norms. Or, as some have stated, the economic norms have become the only ones that matter.
You may prefer to think it’s just a leftist structural theory that labor and export market stability are
often the underlying reasons for various U. S. sanctions, military actions, and other foreign
policies. Or you can just read Investor’s Daily Business and the like, when such things are often
spelled out explicitly by the players themselves, with remarkably little concept that any other
paradigm for human behavior might exist (Harris, 1999: 122-123).
14
Shepard et. al. (1995) point to several factors in this shift from the moral-unity to the
amoral theory of business. From the earliest Western civilizations, the dominant ideology was
uniformly communitarian. In ancient Greece, the prevailing view was that individuals existed
only within the context of the overall society and that economic activity was a necessary evil,
useful only to provide the necessities of life. Early Christians held views similar to the Greeks
on the relation between the individual and economic activities. With the birth of Jesus and the
establishment of the Christian church (then the Catholic Church), most Western societies were
unified under the domination of the church, clearly representing the moral-unity theory. A
significant turning point came with the Protestant Reformation, and its notion that individuals
could have a direct relation with their God, without the intervention of the church. This novel
idea laid the groundwork for the first true recognition of the individual as an entity separate and
apart from society. Calvinism and its revolutionary idea of predestination inadvertently provided
further impetus for the acceptance of economic activity, and for the first time, approved the
accumulation of individual wealth—albeit towards the end of communitarian purposes.
Although neither Luther nor Calvin intended to do so, both of their doctrines promoted
the acceptability of a more individualistic ideology. This in turn provided fertile ground in
which the spirit of capitalism could grow, as documented by Weber (1904-05/1958). Weber
viewed the development of rationalism as an integral component of the development of the spirit
of capitalism. Along with the Enlightenment’s conviction that humans could, through reason
alone, solve the puzzles of the universe, it was a short road to the belief that man was his own
master (a notion completely foreign to Luther and Calvin). This notion reduced the influence of
the church, and gradually, economic activity was placed in a special domain somewhat removed
15
from moral rules associated with other social institutions; this separation constitutes the amoral
theory of business.
Two major themes arise from this intellectual history. The first is the rise of the
individual as an entity separate from the society in which she is situated. Nisbet (1993) refers to
this as the process of individualization, or the separation of individuals from communal social
structures. The new societies heralded the rise of moral egoism and social atomization. The
second theme is the separation of the economy from other social institutions. Beginning with the
ancient Greeks, Western civilization had viewed society as composed of unified institutions,
including the family, the state, the church, and the economy. However, because of the forces just
outlined, people came to see the economy as separate in some ways from other institutions. Both
of the processes described by these themes have been instrumental in the rise of the amoral
theory of business. In turn, this paradigm is quite possibly a major contributor to the expectation
that SE can, by itself, solve many of our current social problems.
Emile Durkheim, like other early sociologists, had seen the effects of the profound
disruption of society engendered by the shift just outlined, including the growing separation of
the economy from the rest of society: “For two centuries economic life has taken on an
expansion it never knew before. From being a secondary function, despised and left to inferior
classes, it passed on to one of first rank” (Durkheim, 1937/1996: 11). In Professional Ethics and
Civic Morals, Durkheim explored the problems of an advanced, complex society in which the
economy had become so detached from other social institutions that it became an end in itself.
He wrote that in Western societies neither government nor society held moral sway over the
economic institution; a state of anarchy within the economic sphere was therefore inevitable. He
made several references to “the anarchy of the economy” in this work (a concept virtually
16
identical to the amoral theory of business.) According to Durkheim, “We can give some idea of
the present situation by saying that the greater part of the social functions (and this greater part
means to-day the economic—so wide is their range) are almost devoid of any moral influence…”
(Durkheim, 1937/1996: 29). Durkheim would argue that social institutions external to business
must provide effective moral guideposts for SE.
As Victor and Stephens (1994) note, for all intents and purposes, everything and nothing
has changed since Durkheim, over one hundred years ago, gave the lectures that now comprise
Professional Ethics and Civic Morals. In some ways the milieux are eerily similar. Instead of
the Industrial Revolution, we are now undergoing the Information Revolution, and instead of
shifting from an agrarian society to an industrial one, we are in the midst of the transition from
industrial society to a post-industrial society. Durkheim saw the effects of the transition from an
agriculturally based economy to an industrial one, and we are seeing the shift to a service and
information-based economy. Finally, we, like Durkheim, are still looking for an institution that
can instill morals into the economic institutions; Durkheim was correct when he observed that
the market in a capitalistic economy has difficulty imposing a set of moral rules on the
participants in that market. As Turner notes, “The problem facing modern Europe [and the
United States] is the separation of the economy from society and the absence of any effective
regulation of the market place” (Turner, 1996: xxxi). Society today is undergoing many of the
same types of social upheavals, with the same types of effects that Durkheim witnessed a century
ago. Francis Fukuyama has termed this the “Great Disruption” in the social values that had
prevailed in the industrial-age society of the mid-twentieth century.
This period, roughly the mid-1960s to the early 1990s, was also marked by seriously deteriorating
social conditions in most of the industrialized world. Crime and social disorder began to rise,
making inner-city areas of the wealthiest societies on earth almost uninhabitable. The decline of
kinship as a social institution, which has been going on for more than 200 years, accelerated
sharply in the second half of the twentieth century. Marriages and births declined and divorce
17
soared; and one out of every three children in the United States and more than half of all children
in Scandinavia were born out of wedlock. Finally, trust and confidence in institutions went into a
forty-year decline (Fukuyama, 1999:55-56).
Durkheim’s concern over the social chaos in his time is clearly still relevant today.
Within the economic sphere, one of the common indicators of this condition is the continued
prevalence of unethical business practices. To expect that any business institution, even SE, can
provide the moral leadership needed to resolve multiple, large, complex social problems is
simply unreasonable.
In essence, Durkheim anticipated our argument over one hundred years ago. His concern
about the effects of the removal of moral constraints on economic behavior mirrors ours. To the
extent that the good of all parties is not considered pertinent to economic activities (as is the case
under the amoral theory of business), the growth of SE will be retarded.
The fourth reason that SE, as it scales up, is not likely to be an effective solo agent to
resolve social problems we refer to as the political argument. Albert Cho (2006) makes the
highly relevant point that the “social” in SE is vacuous unless and until it is defined—and the
process of definition is, itself, fraught with tensions. Existing definitions of SE are clearly
approbative—but they fail to delineate what social ends are being pursued. Until the social end
is specified, Cho maintains that it is impossible to make value judgments about the benefits of
SE. For example, consider the social end of providing access to abortion procedures. If one
happens to be “pro-choice,” the existence of a social venture to ensure access to abortion
procedures is probably a good thing; but if one is “pro-life,” it is anathema.
He also points out that the process of establishing social ends is political, and that the
political process is entangled in values; and those values may be different depending on whether
they are conceived of in the private or public sphere. Thus, unless the social end pursued by a
18
social entrepreneur has been determined through a public political process, that end is simply one
person’s conception of “the good” (Cho, 2006).
The relevance of Cho’s concerns in the current context is that, absent some method of
reaching agreement about the desirability of particular social ends, SE is subject to varied
degrees of approval and support from entities external to the social entrepreneur. If general
support from external bodies is limited (due to disagreement with the social end or alienation
from the process of determining the end), SE will not be as effective as it otherwise could be.
Thus, at the very least, social entrepreneurs are dependent on processes external to them to set
generally approved social goals. “Yet the act of defining the domain of the social inevitably
requires exclusionary and ultimately political choices about which concerns can claim to be in
society’s ‘true’ interest. These choices reveal that, despite its protestations to the contrary, SE by
its very nature is always already a political phenomenon” (Cho, 2006: 36, author’s emphasis)
The final argument we advance here is the structural argument. Simply put, this argument
states that the very structure of a capitalistic economy works against the idea of SE. The crux of
this argument is contained in the inherent tension that all business enterprises face: competitive
advantage (i.e., self interest) versus corporate social responsibility (i.e., interest in others’
welfare). In more detail, this argument is that the current way we view competition in the
marketplace makes it unlikely that business people, even social entrepreneurs, will pursue
socially beneficial ends.
The premises and conclusion of the argument are:
• The structure of the American economy has evolved into a bifurcated system of
large, powerful companies and relatively small, powerless organizations
(Galbraith, 1967).
19
• Because of this division in the economic system, the original meaning of
competition, as envisioned by Adam Smith (1776/1986), has been bastardized
into “winning” or “maximizing profits.”
• The emphasis on winning causes self-interested behavior—adherence to ethical
egoism.
• Acting in an exclusively self-interested manner (often referred to as ethical
egoism) renders integrity impossible (McFall, 1987).
• Therefore self-interested behaviors by business practitioners are more likely to
occur than are socially beneficial behaviors (VanSandt, 2002).
The emphasis on “winning” is a cultural phenomenon that is prevalent in the West,
especially in America. Alfie Kohn characterizes winning as “a capsule description of our entire
culture” (Kohn, 1992: 3). Winning and losing are the central components of structural
competition. “To say that an activity is structurally competitive is to say that it is characterized
by what I will call mutually exclusive goal attainment….This means, very simply, that my
success requires your failure” (Kohn, 1992: 4).
The nascent field of SE studies implicitly recognizes this propensity toward self interest
and winning, and the dichotomy between self interested behaviors and other-directed behaviors.
“[U]nlike business entrepreneurs who are motivated by profits, social entrepreneurs are
motivated to improve society” (Skoll Foundation, 2005). We must acknowledge at this point
that we realize that, in some ways, we are calling into question the most basic assumptions about
capitalism. Adam Smith is popularly thought to have argued in Wealth of Nations that self
interest is the basis upon which an economy creates wealth for all. “It is not from the
benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their
regard to their own interest. We address ourselves, not to their humanity but to their self-love,
and never talk to them of our own necessities but of their advantages” (Smith, 1776/1986: 26-
27).
20
Smith’s supposed reliance on self interest to guide economic activity is understandable
when one focuses on personal gain; but the title of his book, Wealth of Nations, reveals his true
purpose. Smith hoped to show how an economy could be structured so that it benefited everyone
in the nation, not just a few lucky (or hard-working) individuals (Muller, 1993). Unfortunately,
he did not provide much in the way of an explanation about how that would work. Instead, he
relied on the now famous “invisible hand” explanation to show how self interest would work to
benefit all.
But the annual revenue of every society is always precisely equal to the exchangeable value of the
whole annual produce of its industry….As every individual, therefore, endeavours as much as he
can both the employ his capital in the support of domestic industry, and so to direct that industry
that its produce may be of the greatest value; every individual necessarily labours to render the
annual revenue of the society as great as he can. He generally, indeed, neither intends to promote
the public interest, nor knows how much he is promoting it. By preferring the support of domestic
to that of foreign industry, he intends only his own security; and by directing that industry in such
a manner as its produce my be of the greatest value, he intends only his own gain, and he is in this,
as in many other cases led by an invisible hand to promote an end which was no part of his
intention….By pursuing his own interest he frequently promotes that of the society more
effectually than when he really intends to promote it (Smith, 1776: 265).
Smith’s assertion is akin to the cartoon in which one sophisticated mathematician is
presenting his proof, with an intermediate step of “…then a miracle occurs,” only to be critiqued
by another, who says, “I think you should be more explicit here in step two.”
_ _ _ _ _ _ _ _
insert cartoon about here
_ _ _ _ _ _ _ _
Smith failed to provide any support for his contention, and was later contradicted by another
economist, who said, “Left to themselves, economic forces do not work out for the best except
perhaps for the powerful” (Galbraith, 1973: xiii).
Although there certainly are successful, selfless social entrepreneurs, they are a minute
minority of the population. Because these SEs so clearly stand out from the population of
21
business entrepreneurs, they are the exceptions that prove the rule inherent in the structural
argument—that individual economic gain is the primary motivation for business entrepreneurs.
Early research efforts in the field of SE implicitly recognize this by concentrating on: “profiles
of ‘hero’ social entrepreneurs” (Nicholls and Cho, 2006: 99), or by asking if they are “‘world-
historical individuals’, heroic men and women ‘with insight into what was needed and what was
timely’, whose ‘deeds and…words are the best of their time’?” (Nicholls and Cho, 2006: 106,
quoting Hegel, 1988: 32). Expecting that such a small percentage of the population, even if they
are truly heroic, can make a sizeable dent in the plethora of social problems is simply unrealistic.
It is equally unrealistic to expect, given the way markets operate, entrepreneurs to be
motivated solely to address socially beneficial issues. In one of the examples, which addresses a
pressing housing problem in Mumbai, India, an entrepreneur clearly states, “It makes a lot of
investment sense for us. We are not here just to serve a social cause” (Architecture for
Humanity, 2007). We must strike a note of caution here. Foundations like the Grameen bank
have demonstrated that providing financial services to rural communities and micro-
entrepreneurs can be achieved on a sustainable and scalable basis. This has resulted in
developments which cause us concern. As we described as part of the legitimacy argument,
existing financial institutions have begun to enter the microfinance field. We call into question
whether the traditional goal of profit maximization, that these for-profit organizations espouse, is
appropriate in dealing with the poor.
HOW THEN SHALL WE PROCEED?
If SE is not the answer to our social ills, then what is? Certainly not business in
general—many argue that it has contributed far more to social problems than it has to alleviating
them (Derber, 1998; Ehrenreich, 2001; Kelly, 2003; Korten, 1995; Nace, 2003; Shulman, 2003).
22
Governments, in all their various forms, seem almost entirely incapable of “fixing” the social
problems their citizens face. Religion appears to have virtually abdicated its influence in the
West, along with its emphasis on helping the disadvantaged. “However, the decline of organized
religion in some cultures has provided another set of social market failures” (Nicholls, 2006: 9).
It is our contention that no single social institution—an organizational system which
functions to satisfy basic social needs by providing an ordered framework linking the individual
to the larger culture (Shepard, 2005)—is capable of resolving the large-scale problems now
facing us, or those yet to come. It will take the collaborative efforts of many different sectors to
effectively address our complex social problems. As Albert Einstein is purported to have said,
“Everything should be made as simple as possible, but not simpler.” If our social problems cut
across institutional boundaries (as they all do), Einstein would tell us that all of those institutions
must be involved in the solutions.
Although collaborative efforts among social institutions sounds good on paper, the
current imbalance of power may impede their ability to do so. Business, or the economy, is
clearly the dominant social institution in the West, and has been for more than two centuries
(Durkheim, 1937/1996: 11; Etzioni, 1991). This fact, by itself, is not necessarily indicative of
anything. However, problems arise when the “currency” of one social sphere gains influence in
another sphere (Walzer, 1983). As an example, consider the influence that money (the currency
of the economy) has gained in the political sphere (whose currency ideally includes ideas,
justice, and morality). Money’s influence in other spheres often manifests itself in the form of a
single criterion for decision-making—that of profit, or other form of monetary gain.
SE scholars are fond of talking about the “double” or even “triple” bottom line. We
agree with the desirability of such an approach. However, until we acknowledge that only one of
23
those lines—monetary profit—really matters to a large majority of decision makers, our calls for
more social justice will remain largely unanswered. Other social institutions, especially
government, religion, and education must be intimately involved in finding solutions to our
social problems. The current imbalance is built into our social structures, as one legal scholar
notes, “I realized that the many social ills created by corporations stem directly from corporate
law. It dawned on me that the law, in its current form, actually inhibits executives and
corporations from being socially responsible” (Hinkley, 2002: 4, author’s emphasis).
We mentioned previously that we are not Friedman disciples, except in one instance. His
philosophy of corporate social responsibility is summed up in his directive, “…there is one and
only one social responsibility of business—to use its resources and engage in activities designed
to increase its profits so long as it stays within the rules of the game…” (Friedman, 1962: 133).
Currently, for all practical purposes, business makes up its own rules of the game (Kelly, 2003;
Korten, 1995; Nace, 2003; Stone, 1975). Until other social institutions provide an effective
counterbalance to business’s influence, and help develop more just “rules,” the second and third
bottom lines will continue to be effectively ignored.
HOW CAN SOCIAL INSTITUTIONS WORK TOGETHER?
James Rest, building on the work of Lawrence Kohlberg and Jean Piaget, developed a
model of activities necessary for moral behavior to occur. His Four Component Model specifies
that a moral agent must: 1) become sensitive to, or aware of, the moral situation; 2) make moral
judgments about the situation; 3) be sufficiently motivated to act, and 4) have courage to follow
through with the action. Other than needing to become aware of a moral situation before any of
the other steps can occur, Rest is careful to say that his four components do not necessarily occur
in sequence, and they are likely to interact (Rest, 1994). This model is a useful tool for
24
analyzing the likelihood that moral behavior (in this particular instance, SE) will occur. If the
amoral theory of business is accurate, we would expect repeated failure in any and all of the four
steps. With business practitioners’ moral capabilities artificially truncated, it becomes clear that
other social institutions’ input is necessary. As one author notes, “Childline [an SE venture in
India] and the Grameen Bank could not have achieved national and global impact without the
financing and the legitimacy they received from governments” (Bornstein, 2004: 269). Below,
we postulate ways in which dissimilar social institutions might use Rest’s framework in order to
work together to solve social problems.
Awareness – The initial recognition that a social problem exists, and carries with it moral
implications, may arise from a plethora of sources. For example, a religious order might
recognize that a number of its parishioners need basic medical care. Lacking the ability to
provide those services by itself, it might enlist government agencies or SEs to address the
problem. Our moral argument clarifies the point that viewing business as an amoral enterprise
severely limits the operation of moral awareness. Seeing business as an undertaking with moral
implications is necessary for moral awareness to operate.
Judgment – Moral judgment is the topic about which philosophers have been debating for
more than two millennia. To assume that SEs, operating in a vacuum, would know the “right”
actions to take, gives them much more credit than they are due. As we point out in the political
argument, social ends may be highly contentious (take the pro-choice/right to life debate as one
example). The process for establishing social ends is necessarily political, and in many cases,
would include input from other social institutions, such as the family, religion, or education.
Motivation – As the Skoll Foundation points out on its website, SEs are motivated by
more than just the bottom line; they seek to improve society. However, we present the case in
25
the structural argument that we cannot rely solely on SEs beneficence. The profit motive is too
strong in our society to realistically believe that a subset of the economic institution will be able
to bring about widespread social improvements. Therefore, other social institutions like
governments, religious orders, and educational systems must become involved to either change
societal values or provide a system of rules that guide economic behavior toward more social
ends.
Courage – Rest points out, “A person may be morally sensitive, may make good moral
judgments, and may place high priority on moral values, but if the person wilts under pressure, is
easily distracted or discouraged, is a wimp and weak-willed, then moral failure occurs because of
deficiency in Component IV (weak character)” (Rest, 1994: 24) Some of the defining
characteristics of SEs are their extraordinary devotion to their causes and their persistence in the
face of often overwhelming obstacles (Bornstein, 2004; Nicholls, 2004, 2006). Although these
are obviously commendable qualities, they are not a sound basis upon which to build a system of
social justice. “We want [people] with moral courage. Yet we must strive to create
organizations where moral courage is not needed” (Kidder, 2005: 179). As we have discussed in
the isomorphism argument, SEs’ ultimate goal is to change the system itself, so that the obstacles
they (and more importantly, their clients) encounter cease to exist (Skoll Foundation, 2005;
Nicholls and Cho, 2006). Because these obstacles are the products of a wide range of social
institutions, all of those institutions must be involved in their destruction.
EXAMPLES
We have argued that as SE attempts to scale up, it will, by itself, be unable to solve the
social problems we currently face. For a variety of reasons, it will take a joint effort by several
social institutions to effectively address those issues. As we show in the following examples,
26
varied social institutions are working with SEs to address some of the most profound social
problems currently faced. These institutions include governments, education systems, and for-
profit businesses. These examples provide clear evidence that our arguments are sound, and that
such inter-institutional collaboration is a necessary element in addressing our most serious social
ills.
One Laptop Per Child
“This is not just a matter of giving a laptop to each child, as if bestowing
on them some magical charm. The magic lies within—within each child, within
each scientist—, scholar—, or just-plain-citizen-in-the-making. This initiative
is meant to bring it forth into the light of day.”
Kofi Annan
Founded in 2005, it has been only a few short years since Nicholas Negroponte presented
his vision for a global educational program to the World Economic Forum in Davros,
Switzerland. Joined by technological heavyweights, AMD, Google and News Corp, Negroponte
outlined his strategy for providing “…children around the world with new opportunities to
explore, experiment, and express themselves.” Negroponte’s organization, One Laptop Per
Child (OLPC), has chosen a bold and unique approach for achieving this goal.
The strategy undertaken to reach these ends involves the coordination of experts in
technological design and manufacturing, as well as educational research and international
relations (representing the social institutions of business, education, and government) to develop
a means by which children in underdeveloped nations and communities can enhance their own
learning process. Based on research by Seymour Papert, an MIT professor and renowned expert
on artificial intelligence and the use of technology in early education, and espoused by
Negroponte in his book Being Digital, the organization has developed a rugged, energy-efficient,
27
internet-capable laptop, called the XO, installed with software designed specifically to allow
children not only access to the world via the internet, but also the capability to manipulate and
experiment with programming in order to enhance critical thinking and problem-solving skills.
Though the goals to which Negroponte and the One Laptop Per Child organization aspire
to have met with little criticism, it is the strategy executed that has instigated the most
controversy and evoked many pressures from outside constituencies that have attempted to
inhibit the growth and achievements of the OLPC organization. Negroponte’s organization has
met with resistance from certain factions within for-profit technology organizations, educational
research, and governments of those countries targeted for distribution of OLPC’s machines.
Particular resistance stemmed from one of the key goals set forth by the OLPC, to build a
computer for less than $100. This price point, though recently deemed unachievable, was set in
the hopes that such a relatively low price for a fully functioning laptop would allow countries to
buy larger quantities of laptops for their own educational systems. However, at the same time,
the market has been pressuring laptop manufacturers to lower prices. The existence of a $100
laptop concerned many manufacturers who were actively working to lower the price of laptops
over a longer term. Moreover, many computer manufacturers were already planning and/or
producing laptops designed for children (e.g., Intel and Asus) and had begun attempting to
garner market share in developing countries for their own products. The development of the
OLPC’s XO represents not only a potentially acute downward force on current laptop prices, but
also represented direct and vital competition for what has been estimated to be billions of
potential customers.
Additionally, the success of the OLPC initiative hinges on the buy-in by the leaders of
developing countries. While countries such as Brazil, Urugay, Libya, Rwanda, and others have
28
ceremoniously committed to the OLPC cause, follow-through with orders on the magnitude
expected by OLPC has fallen short. Moreover, countries aggressively sought out by the OLPC,
including India and China have shown wavering interest in the program. In both cases,
politically oriented concerns have been raised as to whether or not these countries could use their
own advanced technological know-how to create machines within their own countries. To
partially counter these obstacles, the OLPC plans to sell XO machines for $400 in a “give 1, get
1” campaign within the United States, a marked change in strategy, for a two week period in
November of 2007 in order to generate interest and funding to jumpstart the dissemination of the
machines in target countries.
Though these are just two of the influential challenges for the OLPC organization, they
represent well the conflict experienced by social entrepreneurs as their organizations begin to
gain momentum. The more support the OLPC gains in terms of its mission, the more pressure
the organization faces to conform to the expectations of powerful, yet unintentional,
constituencies. For example, as OLPC began to make progress toward the design and production
of a much more durable, efficient, and economical computing machine isomorphic pressure was
applied by both the technological and educational industries to mold OLPC’s approach into an
approach more traditional, and thereby less threatening, model. Moreover, though the leadership
of many countries agree, in principle, with the goals of the OLPC organization and realize the
potential for significant long-term benefits, they seem to resist the achievement of those goals in
ways that do not directly, and in the short-term, benefit those nations. These structural and
political pressures created clear and challenging obstacles to the OLPC programs progress.
Recent events have indicated that the OLPC organization is taking action to address these
isomorphic, political, and structural pressures. For example, in 2007 the OLPC created a
29
position on their Board for a representative from Intel, historically their most staunch and bitter
competition. This unlikely collaboration between not-for-profit and for-profit organizations,
while surprising many observers, was explained by Negroponte as a way for the OLPC
organization to maximize the number of laptops distributed to children around the world.
Additionally, the OLPC organization has responded to political and structural pressures
by shifting their marketing strategy from a primary emphasis on persuading national educational
and political leaders of target countries to working directly with local and regional leadership of
target nations in order to build demand from within. While the outcome of this new strategic
approach remains to be seen, early evidence indicates that the OLPC organization may make
stronger headway toward achieving its mission. In fact, in October of 2007, after an initial
rejection by the Indian government in order to evaluate India’s ability to build its own program
from within, a pilot program was begun at Khairat School in Khairat-Dhangarwada, a small
village in Maharashtra State, India.
Dharavi-The make over of the largest slum in Asia
The root cause of urban slumming seems to
lie not in urban poverty but in urban wealth.
Gita Verma
The operational definition of a slum is poor or informal housing which is characterized
by overcrowding, inadequate access to safe water and sanitation, and has insecurity of tenure.
The United Nations has estimated that more than a billion people—a third of the urban
population—live in slums and that these numbers are expected to swell as the rural exodus
continues.
30
Dharavi houses close to a million people squeezed into 550 acres of swampy landfill in
the center of India’s financial capital, Mumbai. Sewage filled gutters (there is a toilet for every
1,440 residents), rickety ramshackle homes, labyrinthine lanes so crowded with shanties that
little sunlight penetrates and garbage piles everywhere are a common sight in what is probably
Asia’s largest slum. This place is booming, however, with sometimes highly polluting industrial
activity. A thriving pottery business exists where potters have passed on their craft through
generations. Other industries include soap making, chemical manufacturing, and recycling, all of
which have existed side by side with sweat shops, in which workers on sewing machines toil for
long hours in tiny rooms. It has been estimated that the annual gross revenues of business
emanating from Dharavi is approximately $650 million.
The residents are also a source of cheap, skilled and unskilled labor that is desperately
required to help keep the wheels of India’s financial capital moving. However, successive
governments’ apathy toward their citizens’ well-being, the prohibitive cost of housing in the city,
and the regular influx of people has further aggravated a serious housing problem. Despite a
number of attempts over the past few decades to address this issue and get the squatters evicted
from what is now valuable government land, it has remained an intractable problem. This is due
in no small measure to the so-called “vote bank politics” prevalent here. Local democratically
elected governments have turned a blind eye simply because the densely populated areas serve as
a source of votes during elections. A number of attempts, over the years, by the city’s slum
clearance board have also been unsuccessful.
Historically, slum rehabilitation has been addressed on a piecemeal basis, more often
being tackled as a housing, rather than a socio-economic problem. This has resulted in the lack
of any sustainable model of rehabilitation. The Dharavi Redeployment Project (DRP), a public/
31
private partnership has adopted a significantly different approach on three fronts. If successful,
this model could be a blueprint for slum rehabilitation all over the world.
First, it attempts to treat slum dwellers as a valuable human resource that can act as a
cornerstone of a vibrant and robust economy. Unlike previous urban planning initiatives, DRP
seeks to integrate slum areas with the rest of the city in order to provide sustainable
development. The project recognizes both the need of the slum dwellers to continue their
livelihood, as well as the necessity of providing them infrastructure for HIKES (Heath, Income,
Knowledge, Environment and Socio-cultural development). Significantly, the plan envisages
full deployment of slum dwellers and transit accommodation until the project is completed,
within the same areas where they now reside. Attempts are being made to upgrade their skills
while maintaining their vocation (e.g., people who for many generations have been engaged in
pottery will be provided training to improve their skill sets using other mediums, such as
ceramics, while opportunities will be provided to them to market their crafts locally as well as a
potential export market).
Secondly, in anticipation of likely moral and structural pressures that might arise, the
plan has involved the private sector. International developers have been invited to transform
Dharavi into an integrated township with all modern civic amenities and complete infrastructure,
including entrepreneurial zones where small businesses could be run. Under the proposal each
family would be entitled to a 225 square foot dwelling unit equipped with proper sanitation in
mid- and high-rise buildings. Approximately 36.6 million square feet of liveable space will be
constructed by the top five bidders, each of whom would be allotted a 107 acre zone. In
exchange for providing local inhabitants with free homes and licensed industrial space, the
successful builders will have the right to develop an additional 43.5 million square feet in the
32
open spaces freed up by relocating the slum dwellers, which they would be allowed to sell or
lease commercially.
Finally, the government is confining its role to that of a facilitator. The original idea was
conceived by an architect who has since been invited to join the DRP and has been made the
project management consultant. To preempt likely political pressures that this model might face
NGO’s have been entrusted with spreading awareness of the benefits of the scheme and
legislation introduced that the slum resettlement proceeds after seventy percent of households
sign up for it. The Free Space Index (FSI) also know as FAR, (the square footage of area a
builder is typically allowed to construct) has been increased to ensure viability of the project.
The government is thus clearly luring private builders both with the promise of huge returns on
their investments and the ability to participate in a noble cause.
Traditionally, the common approach for slum development has been for the government
to sanction slum clearance and then build low cost housing with public funds. Toshi Noda, Asia
Director of the United Nations Human Settlement Program (UN-Habitat) said, “Free apartments
is not common. It is a new scheme. I think it will work because the private sector can get their
profit by developing the other half of the real estate” (Giridharadas, 2006).
Besides heralding it as a financial “opportunity of a life time” for prospective builders,
the Global Expression of Interest highlighted the opportunity to participate in a noble cause with
huge social benefits. A director of a New York investment fund was recently quoted in the local
media as saying, “It makes a lot of investment sense for us. We’re not here just to serve a social
cause” (Architecture for Humanity, 2007).
The project, which is now at the bidding phase, is likely to take six to seven years to
complete. The Global Expression of Interest advertisement, inviting prospective bidders, was
33
published in May 2007. Short listing of bidders is in progress. Simultaneously, an
environmental impact assessment in each of the five sectors of the redevelopment is in progress.
The initial response from the international community has been overwhelmingly positive with
top-flight builders submitting offers, which are in the process of being evaluated. Mumbai’s
Dharvai makeover is an exemplar of how social entrepreneurship can succeed by engaging other
institutions.
34
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Moral
Pressures
Organizational
Legitimacy
Pressures
Isomorphic
Pressures
Political
Pressures
Structural
Pressures
Social
Entrepreneurship
Scaling Up
Scaling Up
Moral
Pressures
Organizational
Legitimacy
Pressures
Isomorphic
Pressures
Political
Pressures
Structural
Pressures
Social
Entrepreneurship
Scaling Up
Scaling Up
38
