Social Enterprise vs Foreign Aid
Poverty eradication has proven to be a decisively stubborn problem. Despite programs like the Millennium Development Goals (MDGs) from the UN, 836 million people still lived in extreme poverty in 2015 compared to 1.9 billion people in 1990 (MDG Monitor, 2016). Although this improvement is substantial, it is still unclear to practitioners what exactly works in reducing poverty and what does not (Starobin, 2013). What is clear is that the rise of the social enterprise could be a mutually beneficial practice to instigate economic development in poor populations globally and gain profit for its operators.
Social enterprises operate similarly to traditional businesses, and, as Whalan suggests, business like these enterprises have several advantages over charities. For example, charities struggle to attract investment (Whalan, 2013). In other words, a charity has no more potential to be impactful than the money it receives. Since charities have are constrained by a fluctuating money supply, being impactful becomes a difficult goal to plan and pursue. Moreover, charities are not really accountable to the constituency it may want to help. Interestingly, foreign aid given to developing areas from multilateral organization like the UN operate under similar constraints to these.
However, business do not have these constraints. Instead, businesses are incentivized to make products or generate services that will diffuse and, as a result, make a profit. If businesses were incentivized to create or be social enterprises that target poor populations, these same constraints apply. A social enterprise wants to diffuse its products or services and can also attract considerable investment to do so. Additionally, social enterprises would be interested in cultivating ecosystems to help meet its goals (Bloom, 2012). That could mean teaming up with local decision-makers to help understand and develop a product or service to meet the constituents’ needs and wants.
Thus when considering methods to eradicate poverty, it may be useful to compare the incentives that drive both processes. While foreign aid or charity can help short term liquidity problems in developing areas, the creation and proliferation of social enterprises may more effectively lift people out of poverty by generating business conditions comparable to those in the developed world. Consider what would happen if the World Bank was replaced with an institution that helped developed social ventures? Instead of working with governments and nonprofits on the ground in developing nations, the World Bank would help nascent social enterprises target populations, who are poor, but are in need of what the enterprise is selling. Could this method be more effective a reducing poverty?
Bloom, P. (2012, June 18). How to Take a Social Venture to Scale. Retrieved September 20, 2016, from https://hbr.org/2012/06/how-to-take-a-social-venture-t
MDG Monitor. (2016, September 14). MDG 1 - Eradicate extreme poverty and hunger. Retrieved from http://www.mdgmonitor.org/mdg-1-eradicate-poverty-hunger/
Starobin, P. (n.d.). Does It Take a Village? Retrieved from https://foreignpolicy.com/2013/06/24/does-it-take-a-village/
Whalan, H. (2013, May 8). How Misinformed Ideas About Profit Are Holding Back The World’s Poor. Retrieved September 20, 2016, from https://www.fastcoexist.com/1682004/how-misinformed-ideas-about-profit-are-holding-back-the-worlds-poor
Poverty eradication has proven to be a decisively stubborn problem. Despite programs like the Millennium Development Goals (MDGs) from the UN, 836 million people still lived in extreme poverty in 2015 compared to 1.9 billion people in 1990 (MDG Monitor, 2016). Although this improvement is substantial, it is still unclear to practitioners what exactly works in reducing poverty and what does not (Starobin, 2013). What is clear is that the rise of the social enterprise could be a mutually beneficial practice to instigate economic development in poor populations globally and gain profit for its operators.
Social enterprises operate similarly to traditional businesses, and, as Whalan suggests, business like these enterprises have several advantages over charities. For example, charities struggle to attract investment (Whalan, 2013). In other words, a charity has no more potential to be impactful than the money it receives. Since charities have are constrained by a fluctuating money supply, being impactful becomes a difficult goal to plan and pursue. Moreover, charities are not really accountable to the constituency it may want to help. Interestingly, foreign aid given to developing areas from multilateral organization like the UN operate under similar constraints to these.
However, business do not have these constraints. Instead, businesses are incentivized to make products or generate services that will diffuse and, as a result, make a profit. If businesses were incentivized to create or be social enterprises that target poor populations, these same constraints apply. A social enterprise wants to diffuse its products or services and can also attract considerable investment to do so. Additionally, social enterprises would be interested in cultivating ecosystems to help meet its goals (Bloom, 2012). That could mean teaming up with local decision-makers to help understand and develop a product or service to meet the constituents’ needs and wants.
Thus when considering methods to eradicate poverty, it may be useful to compare the incentives that drive both processes. While foreign aid or charity can help short term liquidity problems in developing areas, the creation and proliferation of social enterprises may more effectively lift people out of poverty by generating business conditions comparable to those in the developed world. Consider what would happen if the World Bank was replaced with an institution that helped developed social ventures? Instead of working with governments and nonprofits on the ground in developing nations, the World Bank would help nascent social enterprises target populations, who are poor, but are in need of what the enterprise is selling. Could this method be more effective a reducing poverty?
Bloom, P. (2012, June 18). How to Take a Social Venture to Scale. Retrieved September 20, 2016, from https://hbr.org/2012/06/how-to-take-a-social-venture-t
MDG Monitor. (2016, September 14). MDG 1 - Eradicate extreme poverty and hunger. Retrieved from http://www.mdgmonitor.org/mdg-1-eradicate-poverty-hunger/
Starobin, P. (n.d.). Does It Take a Village? Retrieved from https://foreignpolicy.com/2013/06/24/does-it-take-a-village/
Whalan, H. (2013, May 8). How Misinformed Ideas About Profit Are Holding Back The World’s Poor. Retrieved September 20, 2016, from https://www.fastcoexist.com/1682004/how-misinformed-ideas-about-profit-are-holding-back-the-worlds-poor
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