Monday, July 25, 2011

The new social economy

My colleague at Stanford, Rob Reich, coined a phrase, the New Social Economy, that I find very useful. I define this economy as "Organizations and financial structures that deploy private resources for shared social benefits." Shorthand - the sector formally known as nonprofit and philanthropy.

Why do we need a new term? Because the innovations on the edges of nonprofits and philanthropy - from impact investing to social enterprise, B corporations and informal networks of volunteers, digitally created shared goods held in common - these are not marginal extras, they are very much a part of how we create public goods in the 21st century. The reality is that these types of enterprises (nonprofit, mission based for profit, b corporations) and types of funding (impact investing, giving, SRI) all exist in the same "sandbox" - what separates them are old mental models and 20th century regulatory structures. As long as the discussion continues as if these forms operate at odd with each other we prevent ourselves from seeing solutions built on their collective potential.

The new social economy uses all of these tools - financial and structural - to address our challenges from social inequities to climate change. Different problems will require different applications of these tools, some will be more philanthropy and nonprofit, some will be more market based, others may require new kinds of advocacy.

I've been speaking about this new economy over the last year and it is at the core of the work I'll be doing at Stanford. Recent slides I've used in discussions are online here and embedded here - note that these focus on what the social economy looks like from the perspective of donors.

Navigating New Social Economy

What is most important about this new social economy is that it is just beginning. By naming it and seeing its component parts we immediately see that the picture is incomplete. There are institutional forms yet to be invented, digital movements still in their infancy, new forms of governance we can only just imagine. There is much "to be invented" in this economy - from new structures to new financial tools to new regulations and means of oversight.


Jeff Raderstrong said...

Thanks for this, Lucy.

My one thought on all this--I still feel like corporations are not being given enough credit or placement in this "brave new social economy." It seems like any mention of corporations always has to come with "social benefit" in front of it. I understand needing to make the distinction, but does this really help create a full-integrated, fully-blended social economy? "Social-benefit" is never tacked on to non-profits, even though I'd rather not see some nonprofits (cough, NRA, cough) join this new way forward.

The corporate structure is a tool for social change, plain and simple. We don't need to qualify it, any more than we need to do that for non-profits and government.

Eme Morato said...

I personally have given much thought to social entrepreneurship issues, specifically to the fact that, in a near future, companies (specially big ones) will need to re-gain trust among consumers, so that their sometimes client or supplier-skrewing tactics will be forgiven. Many companies nowadays have this negative image because they have made profits at the environment's expense, or even at the consumer's or employee's, such as Wal-Mart or Goldman Sachs, for example. Building a business in a way that it will help society benefit from it, will be a key element of success in the business days to come.

Lucy Bernholz said...

Thanks for both of your thoughts -

Commercial corporations, chartered in most states, under the existing corporate codes are enterprises designed to, and focused on, maximizing profit for shareholders. It's embedded in the fiduciary responsibility codes for directors.

The corporate structure itself is neither good nor bad - it's an institutional technology that we have created to serve certain purposes. For the most part, and in the minds of most people, the unqualified term "corporation" evokes a profit maximizing commercial enterprise.

To the degree that profit maximization comes at the expense of shared public goods, environmental or social benefits, these enterprises need to be distinguished from those that seek other "profits" besides financial returns.

As for "social good nonprofits" - nonprofits are simply a corporate structure that has been granted tax exempt status in return for "not returning profits to shareholders."

The corporation is a man-made institutional technology. We can, and do, put it to many purposes. Some corporations are very much committed to producing social goods. Some are not. To the degree that more and more are, can and will be is an important indication of how our collective goals are changing and why we should take this opportunity to consider whether our existing rules meet our current and future needs.


Jeff Raderstrong said...


Not to draw this out (but what is blogging for if not circular conversations?), but I have to push back a little on your statement that "To the degree that profit maximization comes at the expense of shared public goods, environmental or social benefits, these enterprises need to be distinguished from those that seek other "profits" besides financial returns."

As much as I disagree with the "Single Bottom Line" piece from Dalberg, I have to agree with its conclusion: In the long run, maximizing profits means maximizing social good. You can't make money in broken communities and a world full of strife.

So, to your point, I feel like its more a matter of semantics and how you look at it. Corporations, generally, have operated to the detriment of social good. Nonprofits, generally, have operated to the benefit of social good. Neither is inherent. I think the sooner we can get beyond these semantics, and the sooner we see these structure as neutral "tools," as you say, the better.

Lucy Bernholz said...

Hey Jeff

I think we are agreeing - institutions are tools and we use them in certain ways. Since I'm not entirely an instrumentalist, however, I also think we need to consider that mental models and collective expectations also play a part in how all of these different choices play out.

Via twitter discussions about this original blog entry @webb led me to this post

I don't like linear diagrams when we're talking about people and systems but I think the author's basic observation - there's a spectrum of choices - is what we all need to recognize.


Jeff Raderstrong said...

Thanks Lucy! Nice graphic there. I hope one day there isn't a spectrum, and instead only the understanding that the goals of all organizations is to create social change. Wouldn't that be nice?

David S. said...

Do you see these new options as new tools in the toolbelt or do you think they will replace or redirect funding in the direct giving/philanthropic pool? What does that mean to the respondents of Kevin Starr's recent post at SSIR? Will these new options bring unrestricted and ongoing operating capital or will everything be about growth and project based?

Lucy Bernholz said...


These are additional sources of capital. Most of them are being deployed as operating capital - or general operating grants in the lingo of giving. They're most likely additional funds, though there will likely be some replacement of existing capital.