Social Enterprise and Its Discontents

A new study—poignantly titled “Social Enterprise: Innovation or Mission Distraction?”—reports that nonprofit agencies which choose to support themselves with for-profit businesses end up serving their clients less and worse.  Moreover, when the businesses thrive the profits go back into the business, while when the businesses falter the losses are taken out of the hide of the agencies.  (So glad to see nonprofits acting like businesses!  This “heads I win, tails you lose” approach is just what the investment bankers did en route to destroying the economy.)

Gloating is unattractive, and unwarranted.  After all, any friend of the nonprofit sector would be delighted to learn there was a way to strengthen it without having to stretch every penny into a copper wire, or grovel to wealthy people who understand the situation less well than the people they may or may not deign to help.  But a bit of schadenfreude directed at the prophets of social enterprise really can’t be avoided.

It’s always seemed obvious to the Nonprofiteer that if there were money to be made in ending poverty, poverty would long since have been ended.  The challenge is to provide services and alleviate suffering when it isn’t profitable.  It seems equally obvious that any system which must allow for a private person to make money before the clients get served is one that reduces the resources available for those clients.

Now, lots of things that are obvious also happen to be false.  And certainly there’s a reasonable discussion to be had about whether, once you factor in all the costs of raising donations, it would be cheaper or more efficient—even with a profit margin—to organize charities as business enterprises.  But a decade’s worth of experimentation suggests that the answer is “No.”

Are services provided by social entrepreneurs better than no services at all?  Sure, but it demonstrates the poverty of our current mindless anti-tax political discourse that those seem like the only two choices.  The real alternative to entrusting the provision of public services to for-profit groups is having them supplied by the public.  Anyone familiar with the history of the private subway franchises and private lending libraries and private schools of the 19th Century will be grateful that our predecessors decided to eliminate the middleman markup and run subways and libraries and schools as the public goods they are.

Have social enterprises ever succeeded?  Certainly, and more power to them.  But anyone who claims they will supplant philanthropy, charity or social change movements is selling snake-oil.

The most thoroughgoing enthusiasts of the market seem to forget that Adam Smith himself recognized areas in which it would, and did, fail.  Those of us caring for people who can’t make profits for other people are dealing with the consequences of those failures.  So let’s face it: we’re outside the market economy.  Let’s stop contorting ourselves to fit into it, and concentrate on figuring out how to make our own systems function more fairly, transparently and effectively.

Read more stories by Kelly Kleiman.