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Moving Beyond the Public-Private Divide: Locating Social Entrepreneurship in the Social Economy

26 Feb 2013

Moving Beyond the Public-Private Divide: Locating Social Entrepreneurship in the Social Economy
This is part of a series of think pieces by scholars and practitioners working on a broad range of issues within the field of Social and Solidarity Economy. The series is being published in the build-up to the UNRISD conference “Potential and Limits of Social and Solidarity Economy”. The conference will take place on 6-8 May 2013 in collaboration with the International Labour Organization and the UN Non-Governmental Liaison Service.

In the face of the neoliberal development agenda, the delivery of public services has, to varying degrees in different countries, been assumed by non-state actors. This has led to a continuous debate about the efficiency of services furnished either by the state or non-state actors. Social enterprises have emerged in recent decades as a new actor striving not only to satisfy service provision, but also to simultaneously achieve a social mission and financial goals. While there is confusion regarding the definition and forms that those social enterprises can take, this think piece will reflect on the public-private divide and the role of social enterprises in the delivery of public services, with particular attention to their role in the social economy. It will suggest that one of the greatest potentials of social enterprises may be the possibility of co-constructing social policy through partnerships and alliances across the public-private divide.

Lisa M. Hanley is a postdoctoral research fellow at the Civil Society Center at Zeppelin University where she coordinates the International Research Network on Social Economic Empowerment (IRENE|SEE) funded by the Siemens Foundation. She works in the field of international development and urban studies.

Who is responsible for delivering public services? The public-private divide and the social economy

The phenomenon of trade liberalization in recent decades has influenced almost every aspect of economic and social life. At the same time, it has impacted and eroded public sector provision of services. The perceived inadequacy of the state and the failure of governments to deliver satisfactory services have led to systematic support for alternative forms of services provided by non-state actors in the social economy and in the private sector. This has transformed the state from its original role as a direct provider of public services to an enabler role in search of market efficiency and demand-oriented service.

Non-state actors can be divided into two categories: the social economy (or third sector) and the private sector. The social economy is commonly understood as economic activities that prioritize social goals over profit maximization. It is part of the third sector, which refers to “all forms of organizations or enterprises involved in the production of goods and services that are not private, for-profit or public” (Neamtam 2005, p.1).

Furthermore, research has demonstrated that non-state actors have a lot to offer with regard to providing services, particularly to poor communities in the global South. The decentralization of services from the state to the private and third sectors has been important in the developing world, though with diverse impacts on social policy and the provision of public services. The state’s inability to satisfy basic needs through public services has resulted in a lack of confidence on the part of the public, which has therefore turned to a variety of enterprises and organizations. However, the state’s reduced role in providing services may deny recipients the “publicness” of the services as access may be limited, either to those able to pay or through other forms of discrimination. This conflicts with the values traditionally associated with public services. Public services have been generally described as such because it is believed that the market cannot allocate them efficiently. The conversion of public goods into club and private goods1 often shifts the financial burden to the recipient and therefore relieves the state of its obligations. It is believed that the transition from public goods to club goods may provide benefits such as improved matching of supply with demand. However this may result in the exclusion of some stakeholders while giving preference to others, resulting in fragmentation and inequality. This also sums up the potential and limits of social entrepreneurship.

This leads to the question of whether there is a need to protect public provision of services from private and third sector organizations in order to ensure equality. Alternatively, can the private and third sectors effectively bridge the gap between the market and the state? Social enterprises aim to achieve precisely the above mentioned goals through the integration of economic and social value creation. Conversely, understanding how social enterprises compete for territory and scarce financial resources and whether their operations act as an adjunct to the public and third sector or a competitor remains unclear. One answer may lie in how social enterprises collaborate with the state and other non-state actors, but first it is necessary to explore what precisely a social enterprise is.

What are social enterprises and what is their role in the social economy?

Social entrepreneurship has emerged as an innovative approach to dealing with the provision of basic services that have either been traditionally ignored by the state or recently scrapped. The term social entrepreneurship blurs the boundaries between the state, the market and civil society in an effort to combine profit and/or market orientation with a social mission and innovative approaches to services and goods. In the interest of making social policy more responsive to local needs through participation and community involvement, social entrepreneurship has been incorporated into the transition of service provision from the state to the third and private sectors.

Non-traditional forms of service provision are increasingly being viewed with interest by foundations, development banks and governments as result of growing dissatisfaction with the quality of development aid and increasing criticism of NGOs from academics and policy practitioners (Fowler 2000).2 Development organizations have also promoted social entrepreneurship through programs such as the World Bank Development Market Place, the Inter-American Development Bank Social Entrepreneurship Program (SEP) and the United Nations Global Compact. In addition, many foundations and NGOs have also endorsed the concept of social entrepreneurship through fellowships, grants, loans, and other sources of funding.

However, the incorporation of social enterprise into the development discourse has not helped clarify its meaning. For example, the SEP program eligibility criteria include a diverse mix of enterprises, not-for-profits and NGOs that may apply for funding, providing little evidence of what precisely a social enterprise is, as opposed to an NGO or a for-profit enterprise. Given the opacity of the area between the for-profit and not-for-profit arena in which social enterprises seek to operate, their role in the social economy lies in the delicate balance that they try to strike between the integration of the market and the social. Conversely, the central challenge to any social enterprise lies in the antagonistic relationship between the market and its social mission. The manner in which social enterprises balance this antagonistic relationship is essential to understanding how they are either integrated into or compete with the social economy and the public sector.

Social enterprises take a variety of organizational forms and the term is used to identify an eclectic group including not-for-profit organizations, not-for-profits that found for-profit ventures, businesses that integrate social responsibility, or any venture—whether private, for-profit or not-for-profit—with socially beneficial activities, to name just a few. It is therefore clear that social enterprises operate both within, outside and on the border of the social economy. With the exception of the UK, there is no special legal status for social enterprises, making it impossible to clearly define which organizations are truly social enterprises.

In spite of the varying definitions of social entrepreneurship, there are some common threads that emerge in the literature, such as its problem-solving and innovative nature, the utilization of entrepreneurial and/or business-style management, and an emphasis on improved social outcomes and impacts. This conceptualization suggests that social entrepreneurship can take a variety of forms and in the best possible interpretation it represents the harmonization of the private and third sectors. In the worst scenario, social entrepreneurship may constitute a privatization of public services in which the public sector is relieved of its responsibility, legitimizing the status quo where the state fails to serve the interests of the general public. Reinforcing and institutionalizing a system which contributes to inequality and club good characteristics of public services is objectionable regardless of whether such models are disguised by terms like social entrepreneurship or social economy. However, though the shift to private and club goods cannot viably generate inclusiveness in the long term, it can function as a short-term fix to the lengthier and complex task of reinvesting in the state.

Do social enterprises have the potential to move beyond the public-private divide?

Relying on non-state services is a fact of life for people in developing countries, not a choice. Given that the major development agencies such as the United Nations and the World Bank have advocated for the role of non-state actors in the provision of goods and services, and new forms of funding have become available through venture philanthropy and impact investing, the space for social enterprises to flourish has been expanded and legitimized. Donors often reinforce this trend by choosing to fund services through non-state actors after poor experiences with varying levels of government. If governments cannot provide better services, then improving collaboration and partnership mechanisms between the state and non-state actors may be the best compromise in an effort to develop dialogue and minimize competition, distrust and rivalry that may arise between the state and non-state actors.

Both the potential and limits of social entrepreneurship arise primarily out of its role within the social economy, public sector, and private sector. Social entrepreneurship has the potential to collaborate with the state in an effort to utilize market forces to scale and reach previously disenfranchised groups. Conversely, social enterprises can also encroach on the state domain by competing and pushing the state out of the sphere of direct service delivery.

Social enterprises have certainly found a niche between the market and the state, but do they contribute to social change in a more substantial and long-lasting manner than traditional third sector organizations, private sector enterprises, or the state? The fuzziness of the term and the resulting case-based research has yet to produce clear policy recommendations on the role and benefits of social enterprises, aside from isolated cases. However, social enterprises have the potential to provide the framework for financially sustainable organization of services that reaches out to previously ignored populations, but this may be at the expense of the public and third sectors.

Perhaps one of the greatest potentials of social enterprises is embodied in the possibility of co-constructing social policy through partnerships and alliances that democratize policy and where social enterprises engage and are supported by the state. This constellation combines democratic and market forces in an effort to increase participation and provide greater citizen control over limited resources. In this sense, the potential limits and dangers of social enterprises are likely to be greatest when they operate outside the state sphere where the drive for profit maximization may overtake the social mission, as witnessed in the infamous scandals observed in the field of micro-finance. The argument here is not about bringing the delivery of services exclusively back to the state, but finding alternatives that do not inherently weaken the state and remove the notion of democratic accountability to the general public, but rather bridge the divide to facilitate inclusiveness and equality of access.

1A private good is a good whose consumption is both excludable, meaning that non-paying consumers can be excluded from using the good, and rivalrous, i.e. consumption of the good by one consumer prevents simultaneous consumption by another. Club goods are excludable but non-rivalrous and public goods are non-excludable and non-rivalrous.

2Growing interest can also be witnessed in the developed world, for example in the creation of the White House Office for Social Innovation and Civic Participation in the United States of America and the Office for Civil Society in the United Kingdom.

Fowler, A. 2000. “NGDOs as a moment in history: beyond aid to social entrepreneurship or civic innovation?” Third World Quarterly, Vol. 21, No 4, pp. 637-654.

McDonald, D., and G. Ruiters, (eds). 2012. Alternatives to Privatization: Public Options for Essential Services in the Global South. Routledge, New York.

Neamtam, N. 2005. “The social economy: Finding a way between the market and the state.” Policy Options, July-August, pp. 71-76.

Seelos, C., et. al. 2010. Embededdness of social entrepreneurship: Understanding variations across local communities. Working Paper 858, IESE School of Business University of Navarra, Navarra, Spain.

Warner, M. 2011. “Club goods and local government.” Journal of the American Planning Association, Vol. 77, No 2, pp. 155-166.


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This article reflects the views of the author(s) and does not necessarily represent those of the United Nations Research Institute for Social Development.