17/12/2014 05:39 GMT | Updated 15/02/2015 05:59 GMT

Why Social Enterprise Will Not Replace Social Welfare Programs

Social enterprise is a great idea, but still will not, and cannot, replace state social welfare programs. Don't get me wrong, I'm not against social enterprise. Indeed, I have worked for social enterprises all my working life and I champion the causes across the University of Northampton in the UK, where I now work. I have started, stopped, advised, been a director of, researched and published about, social enterprises over the last twenty years.

I am very passionate about social enterprise, but my passion has limits. My passion is quelled by over enthusiastic colleagues who are distracted by the notions of scalability and maximising impact, and are tempted by the notion that swift and innovative social enterprises (and charities) can replace the tedious and wasteful bureaucracy of the public sector.

I was also prodded by my eldest son, soon to go to University, who came back from a youth political debating event held by my local council bewailing 'bureaucratic waste' in the public sector, and specifically the EU. I found myself defending the bureaucracy. I found myself arguing with him that bureaucracy is a good thing, because it places governance and accountability structures around innovation. It creates a 'drag' effect to slow down the vicissitudes of over enthusiastic entrepreneurialism. Sure, bureaucracy can run away with itself and become bureaucracy for its own sake. But bureaucracy, when done well, contains and limits the effects of Schumpeterian creative destruction. I have argued this before in my chapter on the challenges and risks of innovation in social entrepreneurship.

It is easy to look at any state program and see the sort of waste and bureaucracy that suggests that it is the nature of governmental programs to be wasteful, but they are generally not- in fact, they are generally hugely efficient. As a counterpoint, small charities and social enterprises seem to be efficient because they only employ a few people and have low overheads, but the reality is that their scale of impact is limited. An important thought experiment for all social enterprises and charities is to think what would happen if you were asked to widen your program to cover the city, and then the state/county and then the whole country, employing tens of thousands of people to serve hundreds of millions of people, where you once served a few hundred. Employing all these people means that they will all have their own ideas about what to and how to do it, they will be there just to make a salary and go home and won't care as much as you do, politicians won't be able to contain themselves and will interfere to make sure that their constituency and their bit of the country gets a better deal than everyone else. You will also find that the people you serve will have diverse and complex needs that you can't deliver on with the money you have, so you will start different programs to help. And so you will end up with a huge unwieldy bureaucracy with lots of overlapping programs.

What governmental welfare programs do is simple things at very large scale and very cheaply. I don't have USA figures but state education in the UK costs £2,000 per child per year to care for a child (so that both parents can work) and educate them to a reasonably high degree. They are not always successful, and lots of people come up with ideas as alternatives to state education, but they invariably end up costing more than £2,000 per child per year, if every child in the UK was to be educated in the same way- montessori, forest schools, home-schooling etc. £2k is a tiny amount to use to educate the masses.

Another way of looking at this is to think of charities and social enterprises filling the gaps and contradictions that are caused by the mass welfare programs. Mass welfare programs are like Ford factories: they do lots of simple things incredibly cheaply. But they can't cover every eventuality, let's call these niche needs. Wealthy can fulfil their niche needs with their own money, but the poor can't. So philanthropy and social innovation can design small solutions for niche needs, complementing, challenging and refining the mass welfare programs. Some social innovations are the ones that get adopted and mainstreamed by mass welfare programs or by private businesses- like pension schemes or recycling. Others stay small, meeting the niche needs of small populations that cannot be reached by the mass programs.


Figure 1 A bell curve of social innovation across the sectors

Above is a bell curve diagram to illustrate my point. If the general population is all below the bell curve and education is the social outcome we wish to achieve, we can see that the publicly funded program in the centre will provide the majority of the outcomes for the majority of children. On the right, there will be wealthy parents who want and can afford to pay for their own enhanced outcomes. On the left, however, are the children have complex social and learning needs but their parents are not well educated enough to home-school and/or can't or don't want to support their child's education. So, other parents volunteer to support such children in the class. This social innovation is adopted by the public sector, and all schools have the opportunity to have paid, and trained, classroom and teaching assistants (so the social innovation moves to the right into the centre of the bell curve). Some children's needs are still too challenging to be handled by one teacher, a teaching assistant and 30 other pupils, so they are offered additional out-of-class support by an educational charity funded by the philanthropy of the people on the right of the bell curve whose companies sponsor educational charities. The idea is so good that some schools also purchase that service from the social enterprise. The type of intervention, however, is of a type that if every child in our population was given access to this outcome, the overall cost of education would skyrocket. This bell curve illustration closely matches the stage of social innovation (niche, niche markets, co-option) in Geoff Mulgan's 2007 paper on social innovation and why it matters.

This article is not a call for social enterprises to 'stick to their knitting' or know their place, but rather to recognise that social enterprises are not always the answer to mass social welfare programmes. They might create great new ideas, and sell them to the governments to be mainstreamed, but they are not a shadow government or a liberal's paradise.

Social innovation, on the other hand, is about ideas, solutions and social movements. The fundamental unit of social innovation is the idea, not the 'enterprise' or the trading organisation that is required to implement it. Social innovation is infinitely scalable, because ideas are not expensive to transfer to new contexts and the means of that transfer are people, regardless of whether they work in the public, private or third sector.

When we look at the most highly scaled solutions to social problems we see that they are ideas that motivate social movements, rather than businesses trading on privatised intellectual property. The garden city movement popularised by Ebenezer Howard in 1902 was shared widely as a book and influenced the development of Welwyn Garden City (by a government program) and Radburn New Jersey (by a City Housing Corporation and latterly by a residents association). Michael Young in the UK created a number of major social innovations out of his early experience in the post-war UK government. The Open University began as a voluntary organisation but was adopted as a government funded body, whereas Which?- the Consumers Association was designed as a public body but worked out as a third sector body and voluntary organisations like Language Line ended up as a for-profit business.

Perhaps the knitting that social entrepreneurs, and the enterprises they run, should stick to is creating ideas and encouraging the social movements that mediate and implement their ideas. Some social entrepreneurs can be so focussed on running their business that they forget the business they are in: making the world a better place.