Saturday, June 23, 2012

The Dual Failure Puzzle

By Dr. Suhaib Riaz.
 MIT Stata Center

A scintillating session at MIT on “social innovation in the public sector” a few days ago made me reflect on what I call the “The dual failure puzzle” - what do you do when societal needs are unmet as there is both market failure and government failure? 

The session was hosted by TiE (The Indus Entrepreneurs) Social Entrepreneurs group and brought together an interesting panel engaged with the practical issues in this field.

The entire discussion highlighted how much excitement there is in the area of building social enterprises. And there seems to be no dearth of problems for which such initiatives could be created; given the large spaces that business or government cannot serve, or can only underserve, e.g. health, utilities, crime, education, etc. in various parts of the world.

An interesting argument was that social entrepreneurship is not something that should be ‘done’ to people; but rather, a shift in mindset is needed that would enable, say an informal advisor in a low income migrant neighborhood, see herself as a social entrepreneur. Perhaps the word ‘entrepreneur’ itself has connotations that are scary for some people and prevents their systematic engagement with such efforts.

The biggest challenge that came up is that of scale. While social entrepreneurs might have the know-how for fixing intractable social problems, how do they scale activities to the level of governments or large corporations? Should they look to innovative funding models involving financial markets? Partnerships with governments seemed to be an option. I was also reminded of Mohammad Yunus’s Social Business ideas for dealing with the challenge of scale.

I would say this attention to social enterprise (also including hybrid and newly legally recognized ‘benefit’ corporations), is a reflection of much more fundamental problems in existing economies. It should not be seen just as a patchwork, but as a questioning of the philosophy underlying current institutional structures in the economy.

For a long time, the focus has been on for-profits because the often unstated but underlying assumption has been that firms competing with each other to make more profits will, in the ultimate impact, benefit society. On the other hand, in countries where such competition was largely stifled, we have seen some pretty negative societal consequences as well.

Personally, for those with government failure experiences in places like India, it is challenging to reconcile with increased roles for government there. And yet, one has also seen a whole different type of problem with the business and finance organizations recently in many parts of the world.

Given these scenarios, I wonder if it is possible that much criticism of government or business is at some level quite superficial. Whatever are the characteristics of disliked governments are the same as those of disliked businesses: Inefficiencies, corruption, abuse of power over those they are meant to serve (customers, stakeholders - taxpayers and society). It seems these can exist anywhere in any form of organization. More importantly, wouldn’t these problems manifest again in some partnerships between governments and business, if the basic models of each remain the same?

Can there be management models that root out these problems per se, instead of simply pointing blame on government or business? What kind of imaginative solutions are needed to overcome these challenges and solve the dual failure puzzle? Could some social enterprises be on the verge of discovering such models?

Academically, the field is burgeoning with new research, as I’m learning by working with colleagues in the area. There are now research programs devoted to the theme; my own institution is launching a PhD program in Organizations and Social Change. This is certainly an area to watch for its intellectual and practical challenges. On another note, I wonder how many such initiatives currently address the problem of economic inequality that my colleagues and I are working on...but more on that another time.