Is Social Enterprise For Cynics?

Typical pit latrines in Mukuru Kwa Ruben, an informal settlement in Nairobi. This is what the government provides for the people

Typical pit latrines in Mukuru Kwa Ruben, an informal settlement in Nairobi. This is what the government provides for the people. Social entrepreneurs can do better.

Charles Kenny, a Senior Fellow at the Center for Global Development, is one of the sharpest minds on international development and always a delight to read. But I found his latest article, on the naiveté and cynicism of social enterprise – which he pins mainly on Millennials – a bit off the mark.

In the article, Kenny argues that social entrepreneurs are naïve, anti-institution, anti-big business cynics who are improperly substituting small-scale solutions to massive problems that require massive solutions via a large, competent central government.

Kenny is absolutely right that modern infrastructure – roads, sanitation networks, electrical grids and the like – is necessary for long-term health, development, and growth, and that small-scale solutions aren’t perfect substitutes.

But his solution, such as it is, relies on projects that require years of work carried out by competent governments, and he fails to articulate a plausible medium-term solution that will improve the lives of the people living under incompetent governments now.

Kenny creates a straw man of a social entrepreneur who expects to replace the government’s role wholesale. In my experience, this is the aim of few, if any. Social enterprise is certainly not a perfect solution and it’s not a perfect substitute for large infrastructure projects; nevertheless, it holds promise to quickly, sustainably, and successfully improve outcomes and to (temporarily) alleviate suffering.

It’s worth clarifying what a social enterprise is. The most basic definition, while overly broad, is a good place to start: any organization, for-profit or otherwise, that uses market mechanisms to achieve a social goal. That’s it. In many states, a company can legally incorporate as a “benefit corporation,” a designation meant to protect the social aim if it’s in conflict with the goal of producing profit. Many for-profits choose to also apply for “B Corps” status, a stamp of approval that designates the business as socially and environmentally “good.”

In the article, Kenny refers mostly to smaller for-profit social enterprises using innovative technologies to solve a social problem. He argues that they are naive for thinking that using markets to solve global problems would have a significant effect:

Forget bureaucracies, charities, foreign aid, and big multinationals, they might say, the best way to fight global poverty is through the right blend of innovation and business savvy. In its own way, this is simply a new brand of naiveté. The fact remains that poor countries can’t develop without a big, traditional private sector that creates jobs, and the smartest innovations can only go so far without functional governments to provide basic services and infrastructure.

Note the straw man “they might say.” Why not just ask? Extreme poverty is important to end, but so are deaths from inadequate sanitation, improper health care, and a variety of social ills.

Kenny then argues that social entrepreneurs are not just naive, but cynical too:

The social enterprise movement is built on cynicism about the public sector and large-scale private enterprise. A recent survey of 12,171 people aged 18 to 30 across 27 countries found that while 68 percent thought they had an opportunity to become entrepreneur, only 45 percent believed one person’s participation could make a difference in the current political system. For cynics who nonetheless want to change the world for the better, social enterprise offers an attractive alternative to the snail’s pace of institutional change. With a double bottom line of profit and social impact—and the right killer app—social enterprises can innovate their way to a better world.”

Emphasis mine. Let’s set aside the fact that the data point above doesn’t say anything about how cynical Millennials actually are – if anything, 45% sounds pretty high! – and that “the social enterprise movement is built on cynicism” is, well, a pretty cynical claim to make.

What’s most important is that, as Kenny recognizes, institutional changes takes a long time. It’s hard to do, and harder to do right:

Fixing the infrastructure problems and low-quality health and education services takes more, better government—even if the services are contracted out. For all the valuable work they do, social entrepreneurs can’t replace the state’s role, and they can’t function nearly as effectively where governments are poor, incompetent, or corrupt.

Kenny is absolutely correct that an effective government is needed to fix the hard and soft infrastructure problems that plague low-resource countries.

But this won’t just happen tomorrow, or next month, or next year; building functioning institutions, water pipelines, and a health care workforce can take years. Faced with the choice of being outraged about inequality or getting to work, social entrepreneurs are choosing both.

The social enterprise model isn’t borne of cynicism; it’s the logical conclusion many pragmatists come to when large infrastructure projects take decades and when traditional aid and charitably fails to sustainably improve outcomes.

To see why, take Nairobi, Kenya’s gleaming capital city and one of the most developed places in Sub-Saharan Africa. It has a population of over three million, fully half of which don’t have access to piped water or a sewage grid. The pipes and the grid will eventually be in place – the plan is to build them out by 2030 – but until then the sanitation situation is a humanitarian disaster, especially for women and children.

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Sanergy’s solution for the neighborhoods and citizens the government has failed

With respect to sanitation and clean water, Nairobi’s government has failed half of its people, and traditional aid projects have been unable to do much better. Seeing these failures, a few social entrepreneurs from MIT started Sanergy, an organization that developed a toilet and a business model to sustainably improve the sanitation situation in many of the informal settlements of Nairobi. It seems to be working. (I visited Nairobi to report on Sanergy last year; you can read the resulting article at The Daily Beast)

In my experience, social entrepreneurs don’t see their organizations as perfect substitutes for strong, effective governments and institutions; they see them as sustainable, reliable stopgaps that improve the lives of people now, while governments slowly improve. This doesn’t seem cynical; it sounds pragmatic and realistic.

The argument implicit in Kenny’s piece is that social entrepreneurs should stop wasting their time outside of the system and instead work within governments – or, at least, foment outrage to effect necessary change. This is impractical – most would not be effective agents of change in, say, Uganda’s Ministry of Health – and many entrepreneurs are entrepreneurial precisely because they don’t like working within the strictures of stodgy, bureaucratic institutions. And we must not forget that in too many low-resource and infrastructure poor countries, outrage and protest are met with violence and unlawful arrest.

None of this is to argue that social enterprise is the silver bullets that will finally rid the world of extreme poverty, decrepit infrastructure, and inadequate institutions. It isn’t.

Kenny is right: ending extreme poverty and deaths because of poor infrastructure will take competent, effective governments; massive investments in infrastructure projects that are maintained and improved over time; and consistent, well-paying jobs for the growing middle class.

And to be sure, many social enterprises are either ineffective or actively harmful. Most are too small to have anything resembling the sort of effect a government infrastructure project could have, and as governments improve some social enterprises will have to step out of the way. But there’s a role for social enterprises to begin to immediately improve health and education outcomes while governments shape up and prepare to do what’s necessary to lift their citizens out of extreme poverty.

Near the end of the piece, Kenny writes, “Cynicism about government is useless. We need outrage at its performance.” There is a place for outrage, sure, but it’s taxing and often generates more heat than light. Action is better.


  2 comments for “Is Social Enterprise For Cynics?

  1. Duncan Green
    October 2, 2014 at 10:48 pm

    This is an old argument on parallel service delivery. The crux is, sure you provide a service in the short term, but the real question is, what is it’s impact on building the long term combo of state and private sector institutions that you accept is required? If your short term intervention undermines it, then you have a problem. If it contributes to the long term shift, then go ahead.

    • Mike Miesen
      October 6, 2014 at 4:33 pm

      Thanks for the comment, Mr. Green! I think that’s a very important point, and you’re right that this is both an old argument and a continuing discussion. Ideally, social enterprises that may contribute to the undermining of public investments should maintain and open and honest dialogue with the municipal/state/national government about their plans (though of course reality is likely to get in the way).

      There are obviously much larger questions that are packed in the overarching topic of what should be done when a given social enterprise – or an NGO, for that matter – is undermining the (potential for future) public investments that are better suited to the state – and what to do if a state can’t/won’t make those investments. There are also many people in a much better position to attack that hydra than I am.

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