Key to equitable, inclusive development is compassionate and sustainable capitalism

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By Moin Qazi*

The field of social entrepreneurship has attracted great global interest on account of its role in providing sustainable solutions to a diverse range of challenging environmental and social problems – health, poverty and climate change – with limited resources.

Social entrepreneurs are drawn by a variety of social missions. They are passionate about tackling a problem, have an idea for a solution, and the determination to make that solution happen. This fertile field has given rise to extraordinarily ingenious people who have conjured brilliant ideas and used them with operational prowess to dramatically improve people’s lives. Social entrepreneurship is an appealing construct precisely because it gives primacy to social benefits while at the same time remaining firmly grounded in sound financial principles. Finding the balance between social purpose and financial viability is the toughest challenge for any social entrepreneur.

The social entrepreneurship community has now a big tent, and a major challenge is to protect the purity of its mission. At the core of social entrepreneurship is the recognition of a new mindset, one that believes in an agenda oriented around making the world a more just and equal place. Yet we are witnessing several unsavoury trends which are mudding the waters and putting this noble field under strain.

An increasing number of purely business ideas are being masqueraded as social innovations. Several so-called entrepreneurs are being hailed as game-changers or saviours, when the impact and outcome of their work is nowhere near proven, and still less studied are the damaging, unintended consequences of their enterprise. In many cases their mission is not their work, but they themselves. There is a huge mismatch between rhetoric and reality, as is the misalignment between their personal lifestyle and the public stance about the poor. Their compassion-laden pronouncements mask their real objectives.

These high-flying denizens are using the art of lobbying to manipulate the system to pass off self-serving interests as altruistic agendas. Several business magazines are boasting them on their covers and award juries are knighting them. These new social climbers need to be made to understand that the poor cannot be used as raw material for individual or corporate salvation. Robust ethical foundations must be at the core of any idea that aspires to be a social innovation.

Trust is the currency that facilitates acceptance of any new idea. Without trust, society runs the risk of moral bankruptcy. We cannot take trust for granted. It must be earned in all we do, every day. Microfinance was once hailed as one of the most revolutionary ideas of the century. But rigorous studies have demonstrated that the benevolent power of microfinance, more particularly microcredit, was overhyped and that it has only a modest role in improving the lives of the poor. Microcredit is so longer an ally in a social entrepreneur’s toolbox.

Since the term social innovation is still quite amorphous, several business leaders are conflating it to cover even purely profit-driven inventions. One of the prime determiners of meaningfulness and relevance of the innovations is their affordability to end-users while being sustainable for the providers also.

Technology, like all other modern tools, is an unmixed blessing. All technological changes, and the various innovations that originate in them, is a trade-off and may be better termed as a Faustian bargain. Alan Moore once said, “Technology is always a two-edged sword. It will bring in many benefits but also many disasters”. For every advantage a new technology offers, there is always a corresponding disadvantage. These are unevenly distributed among the population. Some benefit, while some others are harmed. The consequences of the changes are vast and unpredictable and often irreversible. This is so even with social innovations. It is in this context that Bertrand Russell warned that “unless men increase in wisdom as much as in knowledge, increase of knowledge will be increase of sorrow”.

The key to equitable and inclusive development is compassionate and sustainable capitalism which has to be built on a model that relies on reasonable profits as opposed to maximisation of profits. There are now people, particularly among the socially conscious ones, who are embracing the notion of “entrepreneurship for society” rather than “commercial” or “social” entrepreneurship.

In the natural sciences, experiments are carried out under painstakingly controlled conditions, most frequently in a laboratory setting. However, all economic and social experimentation takes place in the real world – which is no carefully controlled lab. This is the prime reason why economic and social experiments demand greater caution and restraint.

Poor societies have long been used as guinea pigs by development scientists. This is perfectly all right as long as the objectives are fair and rational. But the emergence of a tribe that sees the world through a business lens, and wants to use these vulnerable communities as a constituency for furthering its commercial goals, has set the activist camps on fire.

The avowed social mission of these self-serving entrepreneurs is only meant to camouflage their rapacious business interests. In this pursuit, they are using their semantic skills to garb their wolfish acts in sheep’s clothing.

Social science tends to focus on average outcomes and makes little allowance for negative tail-end effects. Most modern entrepreneurs are the product of business schools, where the training is focused on maximising shareholder value with only limited understanding of the ethical and social considerations essential to a truly visionary leadership.

In the present system, one section of society is trying to maximise profits totally unconcerned with the consequences it is having on the well-being of the larger society, while another section is investing its time and effort in dealing with the fallout. This system is not working.

The Nobel Prize was recently awarded for such randomised, controlled trials that have changed the face of development economics. What was earlier used for clinical trials of medicines has now become a tool for gauging the efficacy of financial and social medicines.

The tragedy is that foundations cobble up money to honour innovations by instituting awards, but they don’t have enough money for undertaking rigorous evaluation. This is one of the reasons why several unproven innovations are making up award lists. We need a lot more rigorous and intensive field studies to properly evaluate them.

The latest Nobel Prize marks a new chapter in development research, and it is a reflection of the concern which the economic community places on a need for stringent evaluation of social interventions. Much damage has already been done by ideas bolstered by sporadic and selective evidence that validated the claim of the protagonists, while playing down any negative effects. They have violated the principles of scientific enquiry and research that are essential tools for evaluating their role of these new innovations for the well-being of the larger society.

There is no that doubt that millions of people lack access to basic services, but there are ethical questions to testing and selling products and services in the guise of a public service, especially if this disguise earns you subsidies or concessions from the public.

Everyone has heard depressingly familiar tales of poor and uneducated people saying how privileged they were made to feel as they were suddenly offered the chance to receive medicines and nutritious food they couldn’t usually afford – such interventions are in many cases part of clinical or field trials. These people are chosen because they do not understand the implications and agree to participate “without any fuss”.

A social innovation typically involves an unsettling of the status quo – and these disruptions may impose new costs for some members of a community or elements of an ecosystem. Yet when the impact is measured, there’s a tendency to avoid assessing the full range of positive and negative impacts, and to only focus on measurable effects within the “good part of the impact spectrum”, which is what is crucial to mobilise investment.

Much less effort is put in for measuring the potential negatives, knowing which is critical from the perspective of the user community. While it is true that several innovations become useful after a period of refinement, the final impact can only be measured by understanding the damage caused in the transition period.

Innovators must give importance to this window before embarking on large-scale experimentation, and must take measures to minimise the negative consequences.

We often mistake innovation for invention. Innovators are anything but inventors. They offer deliverables because their focus is on taking something already known and improving it. Inventions are the real breakthroughs, as they transform entire cultures for the better. But the real touchstone for genuine innovation and invention is their transformative potential – they should be able to change the lives of neglected people for the better.

However, the results of strategies which are not grounded in hard research will always be speculative. Several innovations fail because their promoters hurry into scaling up — big numbers are important to attract investors. All too often, the rush to scale up ends up compromising on key design elements that made the pilots a success.

A fresh nuance in the innovation discourse is the concept of ideas which have potential business value or strong commercial proposition and may have some collateral social benefits. In the new paradigm, the net benefit to society is usually outweighed by the profit accruing to the innovators’ financial backers – the investors and political actors who are now important players in the ecosystem. Most innovations are measured in terms of their business worth, and how effectively they can be pitched to the investment world.

The language of innovation is getting increasingly grounded in financial logic. Entrepreneurs may be quite well intentioned but their funders may have a narrow agenda. Startups should think before going for external funding because the moment they do, the investors will control and govern the business, and they can think only about returns and exit for the investors.

There are several beneficial social innovations that do not get strong champions because they lack business value. Such innovations must oftentimes be skewed to meet the needs of the funders and their rigid financial framework. This usually results in a compliance culture that’s highly regimented, leaving little scope for creativity or attention to important social dimensions.

Thus the tramlines are set. What can be measured becomes the defining metric, and what cannot be measured is completely overlooked, even though it may have meaningful impact for people. Instead of being viewed as long-term development stewards, managers are seen solely as agents of the owners – the shareholders – responsible primarily for maximising shareholder wealth.

We now have plenty of awards to celebrate social innovation-and there is enough to celebrate. But there is not much recognition for those in the social sector who are unable to scale. We do not support organisations that innovate on a continuous basis and bring about transformational change in the lives of neglected communities.

Societal change is very complex; it requires system change and the acknowledgement of agency. The path to change at scale needs many experiments, much innovation. Many ideas will not work on the ground and will have to be abandoned, but are persisted with for supporting the innovator’s claims and bolstering their credibility in the ecosystem. This practice has done immense damage to the field of social innovation.

For the social sector, recognising failure early, acknowledging one’s personal and institutional role in it, learning from the insights, and then correcting course is very critical.

Those who work towards transformational change will experience a higher failure rate-but these are precisely the ones who are most likely to deliver significant results. The desire to succeed at all costs often leads to lack of transparency about failure and destroys the critical link between innovation and scaling-up process and damages the entire sector. This often means that flawed strategies are replicated and iterative improvements are delayed. This culture has profound consequences for the sector.

There is now huge money in the field of innovation. But much of it comes from business-minded investors who are using this double-edged sword for their ruthlessly selfish agenda. Since the targeted population is mostly illiterate, the innovations usually do not get subjected to rigorous scrutiny, and negative effects are brushed off with deft diplomacy. Even small benefits are telescoped into messianic acts.

Since such innovations have the backing of powerful people, even genuine and widespread resistance can be overcome. The real dilemma is that most investors take an exit immediately after they have reaped benefits, and don’t have to see the longer term outcome of their investments. They may not be around to answer and become accountable when the evil consequences start appearing.

In their book “Poor Economics”, Esther Duflo and Abhijit Banerjee list hundreds of “common sense” development projects-micro insurance, housing, food aid, microcredit-which either don’t help poor people or make them poorer. Many of the serious problems of farmers and the rural poor are largely a result of misguided projects that have severely impaired the local ecology, leading to soil degradation, acute shortage of water, and resistant pests. Such interventions also encourage “social Darwinism”.

Then there are several policies which have novel features that are not organically integrated. They have excellent ingredients but have to be meshed in the proper proportions so that they make an effective recipe. A policy must be seen as a living organism where each organ has its own unique role.

Every society is going through different forms of development and the necessary solutions and interventions must be appropriate for its unique cultural and economic context. By respecting the cultural outlook of the people and embracing their concerns, we enlist their buy-in, and that is what paves the way for enduring and sustainable success.

*Development expert

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