Citizen entrepreneurship, as described in the Manhattan Institute’s 2010 William E. Simon Lecture.
Last week, The Wall Street Journal’s Gabriele Steinhauser checked in on any progress toward the ambitious goals, once highly touted by promoters of “social entrepreneurship,” of microfinance—tiny loans to communities not served by traditional banks to alleviate poverty. “[F]ew of those aspirations have come to pass,” she reports.
In the Manhattan Institute’s 2010 William E. Simon Lecture, Giving Review co-editor @William A. Schambra critically examined social entrepreneurialism, microfinance in particular, and “sector-bending.” The lecture is viewable on YouTube and, with permission, it’s republished below.
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I’m deeply honored and grateful to the Manhattan Institute for the opportunity to deliver a lecture named for William E. Simon. I never met him personally, but I had the privilege of working with two of his students and good friends, Jim Piereson and the late Michael Joyce, and I’ve tried to master the philosophy of giving that they passed on from Bill Simon.
This is a particularly propitious moment to reflect on the future of social entrepreneurship. That is because over the past several months, one of its proudest achievements—the microfinance industry—has sailed into some very rough waters.
Ever since microfinance’s founder, Muhammad Yunus, received the Nobel Peace Prize in 2006 for his work with the Grameen Bank in Bangladesh, he has been the exemplar of the social entrepreneur in the world’s imagination. His is indeed an inspiring story: a charismatic figure works tirelessly to transform the world with his visionary idea—in this case, the conviction that the poor can work their way out of poverty through small loans to support their own village microenterprises.
Since 2006, a veritable macro-enterprise has sprung up to locate, study, nurture, and replicate similarly inspiring figures. It has spawned countless university programs, books, journal articles, and consultants aimed at refining the theory and practice of social entrepreneurialism. Over the past two years, though, further analysis has taken some of the bloom off the microenterprise rose. Researchers have found that many of the microloans don’t fuel enterprise, but rather are used by the poor to address immediate food, health, or education needs. No wonder, then, that the aggregate impact on poverty in places like Bangladesh seems to be negligible.
Two months ago, a grave challenge to the vast microfinance industry arose in the Indian state of Andhra Pradesh, where authorities sought to end what they considered harsh practices. Interest rates were too high; loan officers from multiple lenders pressured villagers to take out multiple loans and then bullied them when payments were late. The resulting downward spiral of indebtedness ended in suicide for many.
There is another side to this story, however, and it is every bit as inspiring as the legend of Muhammad Yunus. Vikram Akula, a native son of Andhra Pradesh who grew up in the United States, has devoted his life to extending microcredit far beyond the limited amounts that could be funded by miserly international donors. He insists that “the only place you can get the amount of money that is needed to help the poor is in the capital market.” When his organization, SKS Microfinance, went public in August, it raised some $358 million from wealthy investors, including George Soros. But critics, including Yunus himself, denounced the profit-making approach as exploitation of, rather than relief for, the poor—an argument that fueled the hostility of Andhra Pradesh authorities.
This complicated story, though still unfolding, enables us to understand a central point: for all its popularity, microlending is built over a deep and treacherous fault line between the demands of compassion and capitalism. This does not daunt the social entrepreneur, though, for his champions assure us that he is a veritable colossus bestriding the narrow world—or, at least, bestriding the boundaries separating compassion, capitalism, and politics, on the way to revolutionizing entire social systems to get to the root causes of our problems.
If this sounds utopian, it is. And in that utopianism lies the central problem of social entrepreneurialism. Consider the inflated expectations for it that are raised by its leading promoters. David Bornstein maintains—in a book tellingly titled How to Change the World—that social entrepreneurs possess “powerful ideas for attacking social problems” and are “unwilling or unable to rest until they have spread their ideas society-wide.” Bill Drayton, founder of the Ashoka fellows program, notes that the social entrepreneur “in the core of his or her personality, absolutely must change an important pattern across her or his whole society” and, indeed, “cannot stop until he or she has changed the whole society.”
J. Gregory Dees adds that social entrepreneurs are “reformers and revolutionaries” with a social mission. “They make fundamental changes in the way things are done in the social sector. Their visions are bold. They attack the underlying causes of problems, rather than simply treating symptoms.” In Paul Light’s words: “[S]ocial entrepreneurship focuses on changing the underlying dynamics that create the demand for services in the first place. Instead of treating society’s distress, social entrepreneurship holds hope for eliminating the distress altogether.”
Attacking the root causes of social problems, particularly poverty, means to many observers that social entrepreneurs must become masters of the marketplace as well as the nonprofit sector. Dees and Beth Anderson argue that “we should focus on social entrepreneurs who carry out innovations that blend methods from the worlds of business and philanthropy to create social value.” The Schwab Foundation suggests that social entrepreneurship “captures a unique approach to economic and social problems, an approach that cuts across sectors and disciplines.”
Utopian admixture, demanding marketplace
How have efforts to blend business and philanthropy worked out? Not so well, according to Stephanie Strom of The New York Times, who likens the hybrid to Dr. Dolittle’s fabulous pushmi-pullyu. Sooner or later, it seems, the uneasily conjoined profit motive and social motive come to blows, and one or the other is driven from the partnership.
Social entrepreneurs typically tackle this utopian admixture with very little sense of just how rigorous and demanding the marketplace can be. In 2005, William Foster and Jeffrey Bradach surveyed nonprofits that had undertaken “social enterprises” and found that 71 percent reported being unprofitable. (Of the 24 percent claiming profitability, half were not fully accounting for indirect costs.) The authors concluded that the “lion’s share of earned-income ventures do not succeed at generating revenues beyond their costs.”
Two fairly recent institutional failures illustrate the difficulty of reconciling social and marketplace principles. In the late 1990s, and with the applause of the social entrepreneur community ringing in it ears, the Nature Conservancy decided to put its considerable nonprofit resources behind an environmentally conscious commercial venture on Virginia’s Eastern Shore—a classic “triple-bottom-line venture” meeting economic, social, and environmental ends all at once. It included dozens of business start-ups, an “eco-friendly” waterfront development of homes and farms, and a twelve-room inn built around a historic lighthouse specially barged in at the cost of $3 million. Despite massive spending and even more massive hype, the project went belly-up in 1999. An analysis by the Ford Foundation—one of the disappointed investors—concluded: “[T]he fact is that very little is known about how to create enterprises that meet a triple bottom line.”
More recently, one of social entrepreneurialism’s favorite projects, Chicago’s famous ShoreBank, failed as well. (Its motto was “Let’s Change the World.”) As an article in Fast Company noted, the news was “quite depressing to many people across the globe,” for ShoreBank had “come to represent the enduring success of capitalism serving the needy” through commercially viable lending in low-income neighborhoods.
That is, it captured perfectly the combination of compassion and profit that social entrepreneurship values. But after the collapse of the housing market, ShoreBank could not bring itself to foreclose on its many troubled loans, as the marketplace—but not social purpose—would have demanded. One bank analyst posed this query: “Was this bank managed as well as it could have been? Or were they too much into the social-welfare thing?” A former board advisor suggested that ShoreBank “suffered from an overly zealous commitment to its original mission.”
Again, it seems that reconciling banking and the “social-welfare thing,” or market and charitable principles, is not as easy as social entrepreneurialism’s definition suggests. It is also possible, of course, that market principles might come to displace the charitable impulse. This is precisely the charge leveled by Muhammad Yunus against Vikram Akula, when he condemns SKS Microfinance for reversing Grameen Bank’s original subordination of profit-making to poverty fighting.
Another much-admired social entrepreneur, Martin Eakes, similarly condemns commercial lenders for swooping into the subprime mortgage market with toxic products, after his North Carolina nonprofit had helped create a national market for nonconforming loans. In both cases, social entrepreneurs claim that they created markets for social purposes, only to find the market principle morphing into a monster and swallowing the initial charitable impulse.
It seems that social entrepreneurs may indeed stride boldly across sectors, but only to trigger powerful market forces over which they then have no control. We see once again that markets and social purpose make for an unstable compound, which even the most skilled entrepreneur finds difficult to maintain.
Sector-bending unbound
Social entrepreneurialism’s sector-bending is not confined to its relationship with the marketplace. It also has its eye on the realm of public policy, knowing that government is typically the most dominant and wealthy player in its areas of interest. In former presidential advisor David Gergen’s words: “If you could unite the energy, ideals, and innovativeness of social entrepreneurs with the resources of government, you would have a powerhouse.” So over the past two years, many of America’s leading social entrepreneurs—including City Year, America’s Promise, Teach for America, and Youth Villages—have come together in an effort called America Forward, in order to attract government support for their efforts.
America Forward, too, is a sector-bender, arguing that “by connecting all sectors—government, business, nonprofit, academia, and philanthropy—we can garner the human and capital resources to solve some of our country’s most pressing social problems.” Arguing that government should be “organized effectively to identify innovation, invest wisely, and release civic energy,” America Forward’s efforts culminated in the establishment of the Obama administration’s Social Innovation Fund.
But this effort to marshal government resources behind entrepreneurial initiatives has yet to answer a question posed recently by the Manhattan Institute’s own Howard Husock. Why is it likely to end any differently from the countless other joint ventures between nonprofits and government undertaken over the past half- century? We know that in the past, government has frequently reached out with its money to capture the flexibility and innovativeness of social entrepreneurs. But as Steven Rathgeb Smith and Michael Lipsky point out in Nonprofits for Hire, along with the funding came reams of regulations that effectively strangled the very entrepreneurial qualities it sought.
As happened when social entrepreneurialism flirted with markets, its foray into politics is likely to quickly involve it in entanglements for which it is ill prepared. Social entrepreneurialism’s cross-sector ventures at first sound so appealing, so sensible: Let’s combine the efficiency of the marketplace and the resources of government with the compassion of the nonprofit sector, keeping only the good qualities of each while leaving behind all the bad qualities! Whenever we see that glib formulation, we should suspect that it is born of utopian wish rather than realistic expectation. In the real world, such blends seldom preserve only the virtues while avoiding the vices, even if they are engineered by world-beating social entrepreneurs. We are just as likely to end up with the resources of charity, the efficiency of government, and the compassion of the marketplace.
Echoes of past progressive enthusiasms
Social entrepreneurialism believes that its utopian aspirations are radically new. But, in fact, they are mere echoes of the enthusiasms of the first modern American philanthropists. John D. Rockefeller claimed early in the last century that “the best philanthropy is constantly in search for finalities—a search for cause, an attempt to cure the evils at their source.” Charity could only put Band-Aids on problems, while philanthropy would solve them once and for all by getting at their root causes through the new sciences of society that it generously supported.
Like today’s social entrepreneurs, the early foundations did not hesitate to stride boldly across sectoral boundaries in their determination to transform entire social and economic systems. The Russell Sage Foundation, for instance, experimented with social enterprise when it tackled a substantial market-oriented housing project at Forest Hills Gardens. And the Rockefeller Foundation partnered very closely with government when it funded the salaries of federal officials to promote scientific agriculture as well as those of Southern state officials to promote the development of high schools.
Yet after a full century of aspirations to solve social problems in grand, trans-sector fashion, today’s social entrepreneurs can arrive on the scene, look about them at the evident lack of progress, and conclude that surely, such aspirations must be altogether new and peculiar to themselves. One hundred years after John D. Rockefeller declared the need to transcend charity’s Band-Aids in order to “cure the evils at their source,” Paul Light can proclaim with all the enthusiasm of discovery that “[i]nstead of treating society’s distress, social entrepreneurship holds hope for eliminating the distress altogether.”
Charismatic colossi
Today’s social entrepreneurs follow modern philanthropy’s unfortunate path in yet another respect. The progressives who staffed the first foundations believed that social affairs could be handled efficiently and objectively only if taken away from everyday citizens and put into the hands of professional experts trained in new scientific techniques. Today as well, we are asked to place an inordinate amount of trust in a handful of charismatic, sector-bestriding colossi to solve our social problems. In Light’s words, we should try to “identify potential social entrepreneurs, give them the training and support they need, and increase the odds that their work will succeed.”
Scholars of social entrepreneurialism are even confident that it can be distilled into a set of professional principles and practices. Indeed, in Bill Drayton’s view, “social entrepreneurship needs to be the first worldwide operationally integrated profession,” presumably like all professions open only to the chosen few.
The determination to professionalize and elevate the role of social entrepreneurialism bespeaks the same elitism that we found in the progressive philanthropists—a quiet contempt for lesser beings who address the immediate human problems of those directly in front of them through mere charity. To establish rigorous standards for social entrepreneurs, Roger Martin and Sally Osberg want to distinguish their efforts from those that “never break out of their limited frame” and whose impact “remains constrained, their service area stays confined to a local population, and their scope is determined by whatever resources they are able to attract.” Millions of such efforts exist around the world, and the authors concede that they are “well intended, noble in purpose, and frequently exemplary in execution—but they should not be confused with social entrepreneurship.”
I would argue, to the contrary, that such efforts represent the real social entrepreneurs. As much as we can and should admire grand figures like Muhammad Yunus, it’s a mistake to put our welfare into their hands. The glory of American civil society is precisely that it permits and encourages everyday citizens to build countless smaller, limited, local projects to address the problems immediately before them. This kind of social entrepreneurship—let’s call it citizen entrepreneurship—is not a rare, exclusive form of social practice that seeks to revolutionize entire systems at once or to stride boldly back and forth across the boundaries of philanthropy, the marketplace, and politics. But as Alexis de Tocqueville pointed out, the sum of countless such efforts spread across the face of society generates an astonishing level of social energy, cultivating the values essential for democratic freedom along the way.
Bob Coté
Let me frame some concluding thoughts around one citizen entrepreneur, Bob Coté, whom I met through Bob Woodson. Bob Coté, whom I’ve come to know and admire over the years, is the founder and director of Step 13, an addiction program located on Larimer Street in downtown Denver. He had no grand, society-transforming vision for Step 13. It was, rather, a classic manifestation of Tocqueville’s “self interest properly understood.” One day, he simply found himself—a bankrupt businessman—leaning against a building on Larimer with a few drops of vodka left in his bottle, staring at his two drinking buddies passed out on the street, realizing that this would soon be his fate as well. He started his recovery program in a building nearby.
Over the years, he has come to employ the principle of “constructive envy” to draw addicts off the streets and back into society. They begin their time at Step 13 with nothing more than a dormitory bed; with progress in recovery, they work their way up to having their own cubicle, ending upstairs in their own private room. Unlike thirty-day “spin-dry” rehab programs, this program allows residents to stay as long as is necessary to ensure lasting sobriety.
To be sure, Bob is determined to earn enough income someday through his T-shirt screening and auto-detailing businesses to be self-supporting. But that’s not because he has some grandiose vision of combining compassion and capitalism. It’s just because he hates to go hat-in-hand to potential donors. As for political engagement, the last thing Bob wants is government funding. At any rate, Denver’s larger, professional recovery programs would never permit it; he has a stringent zero-tolerance policy, while the latest fad calls for providing addicts with all the comforts of home, hoping that they will realize over time that drinking and drugging may be counterproductive activities. “Bunks for drunks,” Bob calls those programs.
Bob Coté’s story can be replicated hundreds of times in Denver alone and thousands of times across America. His story does not rely on the rare qualities of a global professional elite, but rather on the common qualities of everyday citizens who are drawn into community activity by the modest virtue of self-interest properly understood. This is precisely the sort of effort that Martin and Osberg would wish to exclude from their definition of social entrepreneur. But that kind of exclusiveness is not only patronizing and arrogant; it’s also profoundly ill-advised in a democratic political system. Democracy persists only so long as most of its citizens have a deep sense of civic agency and are convinced that they truly govern themselves.
A civil society that welcomes the commitment of civic energies to projects such as Bob Coté’s contributes to the flourishing of democracy. A social entrepreneurialism based on the cultivation only of the noble, select few as agents of utopian systemic revolution necessarily undermines the spirit of American democracy. As Irving Kristol pointed out thirty years ago in a memorable speech to the Council on Foundations, we really have no idea how to produce social good on the scale called for by the promoters of social entrepreneurialism. Our brief look at such attempts to mash sectors together to get at the root causes of problems only confirms his wisdom.
But we do know how to do good on a small scale, through much-maligned charities like those established by Bob Coté and the other citizens celebrated each year by the Manhattan Institute’s Social Entrepreneurship Award. We should pursue that small, doable good through our support for the real social entrepreneurs—the citizen entrepreneurs—rather than hope for grand, systemic revolutions by rarefied elites that get us nowhere.
