The Importance of Effective Demand

I am currently taking my first economics course, which means that I've been giving a lot of thought to the ideas of supply and demand. As I receive my introduction to the study of economics, I often find myself thinking about how the theories we learn about in class apply in practice, taking factors like ethics and responsibility for the good of others into account. When learning about the economic impact of a policy like rent control, for instance, I understood how the policy keeps the market from functioning at its most efficient state, and thus negatively impacts the economy. However, due to a wide host of factors, there are many people who will never earn enough money to be competitive in this market, and I believe that they still have the right to a decent place to live. Now, I look forward to learning more about how policymakers balance such tensions.

With economics on my mind, I found the way that Geoff Mulgan factors supply and demand into the measurement of social value in his article, “Measuring Social Value” to be very interesting. For social enterprises and nonprofit and public organizations, having this data can be incredibly important. Our other reading assignments this week, including Chertok et. al.’s “The Funding Gap” from the Stanford Social Innovation review and The Economist’s “A Place in Society,” demonstrated that social enterprises have many challenges to overcome in securing funding. Their models must carefully consider how they can make providing a social service or good profitable, yet they are unable to secure funds from many traditional foundations because of the discomfort the grey-area of earning a profit introduces. With this being the case, the need for effective methods of measurement that undoubtedly prove a program’s worth is incredibly high.

Before reading Mulgan’s article, I had never thought of applying the concept of supply and demand that I learned about in economics class to the availability and need for social services on the market. However, I found Mulgan’s argument about the necessity of effective supply and effective demand—not just supply and demand—in the market for social impact organizations to be very convincing.  According to Mulgan, effective demand indicates that “someone is willing to pay for a service or an outcome,” whether it is an individual, or a public agency or nonprofit organization. Meanwhile, effective supply requires that “the service or outcome works, is affordable, and is implementable” (126).

Mulgan asserts there are often missing links between supply and demand for social services. As Nehal and Pim discussed in their blog posts, a lack of communication between the parties attempting to address a social need can prevent the sharing of this knowledge. If the connection is not made, the result will be an ineffective evaluation or failure to produce convincing metrics, which could threaten a program’s livelihood.

One issue with creating effective demand that stands out to me in particular is that the fact that a need exists does not necessarily mean it will be acknowledged.  Sometimes, these issues must be given a voice to be considered in the market. It is for this reason that the work of advocacy organizations is so critical. I wholeheartedly agree with Mulgan’s suggestion that funders would be wise to focus their attention on making these issues known. Though this is a less direct strategy than funding the programs themselves, it can ultimately bring greater returns for the organization by providing the measurements needed to help them achieve in the future. If a need is recognized at its fullest potential, the success of the social service provided to address it can be measured in a more convincing way.

What are some of the best ways for funders and organizations alike to help promote effective demand for a service?