Why social entrepreneurship has become a distraction: it’s mainstream capitalism that needs to change

Pamela Hartigan, Director of the Skoll Centre for Social Entrepreneurship at Oxford’s Saïd Business School, is having second thoughts about the impact of social entrepreneurs.Pamela Hartigan

The first time I heard the term “social entrepreneur” I thought it referred to business people who liked to party. That was about twenty years ago, when the term was just beginning to surface, said to have been coined by Bill Drayton, founder of Ashoka. Ashoka was the first entity that identified and supported such individuals – innovators with a “bold idea” aimed at changing a system that was at the root of a major social or environmental problem.

Twenty years ago I fell in love with “social entrepreneurship”, its promise, and most of all, the stories of the champions that practiced this approach.   They didn’t take “it can’t be done” as a deterrent – in fact, as one of them described to me, “’it’s impossible’ is our clarion call to action”.   As the first Managing Director of the Schwab Foundation for Social Entrepreneurship, an entity supported by World Economic Forum’s founder Klaus Schwab and his wife, Hilde, I spent eight years identifying, celebrating and supporting such individuals, providing them with opportunities to enter the coveted corporate enclave that is the annual meeting of the WEF at Davos – which in turn gave them access to networks of power they had never been able to tap. Many of these social entrepreneurs formed strong and lasting relationships with members of the corporate C suite, heads of philanthropic foundations and the media leaders that attend Davos.  It was difficult not to become infected with the bug of “social entrepreneurship”.

money v missionThe Schwab Foundation certainly was not the only social entrepreneurship organization on the scene.  A host of other organizations were created at around the same time, including Echoing Green, the Skoll Foundation, the Omidyar Network, Acumen, Mulago, to name just a few. These were primarily based in the USA, but the UK quickly followed suit along with countries on the European continent, Asia, Latin America, Africa and Australia.  Governments, led by the UK, embraced “social enterprise” as the “third way” – income-generating charities that did not depend wholly on public coffers but dealt with the increasing number of social problems that defied government solutions.

My main concern about this viewpoint is that it stripped the notion of innovation and systems change – the essence of social entrepreneurial endeavour – right out of the approach.  In the UK and those countries that have followed, social enterprises have become part of the “social enterprise industrial complex”,  sub-contractors to government and feeding into a dysfunctional system.  But that is for another blog.

The point is, all of a sudden, social entrepreneurship was everywhere and everyone wanted to be one.  But there was one question that was raised at every national and international gathering of social entrepreneurs.  As former President Bill Clinton noted in a speech about the challenge of school reform “Nearly every problem has been solved by someone somewhere.  The frustration is that we can’t seem to replicate [those solutions] anywhere else.”    Why is it that the only system-changing approach that has managed to go to scale is microfinance?  Yet we forget that it took 30 years and an estimated US$20 billion in subsidies from major foundations and individual philanthropists to transform microfinance from an undefined effort sitting between philanthropy, aid and the market, to something much closer to mainstream investing.

This begs the question as to whether the only way social entrepreneurship will scale is by becoming part of the mainstream market system.   As someone who is now working in a business school environment, this idea carries significant weight.

I do believe that transformational systems change will never be achieved on a massive scale by non-profit organizations or even by well-meaning “hybrids”.  I very much

Which needs fixing first?
Which needs fixing first?

believe that the way forward is through business. And so I have come to feel increasingly uncomfortable with the term “social entrepreneurship” and its main actor, the “social entrepreneur”.

But the reason is not because I have bought into the notion that capitalism as we now practice it is the solution – but because I firmly believe that every entrepreneur has to be a “social entrepreneur”.  The way business has operated in the last 50 years must be disrupted because we will not survive as a society or a planet if we do not tear down the walls that compartmentalise economic, social and environmental activity.  That is why I am now working in business schools.  The way we approach business education has to change.

There is no doubt that the term “social entrepreneurship” served its purpose at one point in time, mainly because we needed to highlight what type of entrepreneurial practice we were referring to – but today it only serves to further dichotomise entrepreneurial practice into the “social” and the “commercial” (“non-social”?).   It creates a false separation between “this is where we make money, and this is where we do good”.  And that is EXACTLY what is wrong with capitalism today.

It is hard for us who have been born and raised under capitalism and the large corporation to reflect on the fact that it was only relatively recently – not many centuries ago – that humankind finally began to achieve a surplus, something more than the necessities for survival.

The central precept of all early corporations that began to take shape around the 16th century was that even though they were chartered as private entities and possessed special privileges and monopoly rights, they were still expected to carry out activities with a public purpose. That has changed and needs to be revisited if the world is to advance.

Yep, maybe it is
Yep, maybe it is

There is no doubt that the modern corporation as we know it today has empowered individual genius and bestowed great social benefits.  Yet it has also done social harm. Many of the ills of modern life – non-sustainable levels of personal and institutional debt, toxic air and water, workplace injury, loss of livelihoods for communities, political bribery – can be traced to corporate lack of responsibility to one or more constituencies.  This is not intentional.  No one wants to cause poverty, pollution, disease, unemployment and corruption.  Rather, they want to make profits. But in that pursuit, they may find anti-social behaviour pays. To achieve profits in the short term, corporations exact a “social and environmental price” and that price is high and rising.

The key to sustainable capitalism is reasonable profits as opposed to maximizing profits.  In the current system, a segment of society is trying to maximize profits without concern for the impact on the well being of the society as a whole, while another segment of social organizations have to deal with the fall out.  The system is not working.

Fortunately, there are a growing number of people, particularly among the young, who embrace the notion of “entrepreneurship for society” rather than commercial or social entrepreneurship.   They are not waiting until they are 50 years old when they have “made their money” and can “give back”.  I am optimistic that through the new breed young professionals, we can go back to the future and base our economies on activities that uphold social and environmental goals without eschewing financial sustainability.

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19 Responses to “Why social entrepreneurship has become a distraction: it’s mainstream capitalism that needs to change”
  1. Doug Hadden

    No question that we need to move away from the notion in capitalism that the “business of business is business”.

    The other takeaway is that more and more for-profit businesses are focused on societal issues as core. This differs from “conscious capitalism” where social responsibility is important. It’s somewhat difficult to measure the rise of these organizations because of the noise generated by large company CSR PR, and the impact of very large charities. I don’t think socents are distractions – more of an exploration of business models towards maturing of social responsibility. (More at http://www.freebalance.com/blog/?p=1125).

  2. Miguel Pantoja

    Inspiring and clarifying post. Even more valuable when considering Ms Hartigan’s background. Changing “the way we approach business education” is paramount but we should reform capitalism itself. Otherwise we will find the social-versus-commercial entrepreneurship discordance again, but this time between society-aware business education and the-winner-takes-it-all real business.

    E.F. Schumacher’s “Small is Beautiful” was published in 1973. Its subtitle was “A Study of Economics as if People Mattered”. More than 40 years later it seems that people matters to an increasing but still too small number of economists.

  3. Daniel

    Very glad someone is bringing this up, someone who’s opinion can influence others. Whenever I mention anything along these lines in social enterprise circles I get looked at as if I was speaking in tongues.

  4. Dave

    While I agree with the general thrust of the post, I think it leaves out one important point. Capitalism always exists within the more general framework of the governmental, legal, and regulatory framework. Capitalist will always try to “maximize” on the playing field they are given. There is nothing wrong with that. It’s that ambition that drives innovation and progress.

    But I think it’s fanciful to believe that capitalists (or budding capitalists) can, or even should be taught that their goal should be “reasonable” profits. Yes, maybe that should be the goal, but defining the problem that way is a recipe for failure. Why? because capitalism is essentially about competition. So long as their are any actors in the market that drive to maximize profits, the others will follow suit.

    The issue really is instilling values within the business community so that it is willing to accept or even advocate for a somewhat altered playing field. This means an increased focus on incorporating social costs and benefits in business calculations — showing how altering the playing field actually makes (or keeps) the pie bigger. A example of this is the recent study that came out on all of the economic costs associated with climate change. The hope is that the business community will join the consensus that “something” must be done. But what does that mean? It means that the business community will accept and participate in the crafting of a cap and trade system or some other change in the playing field that will address the problem (I’m just using cap and trade as an possible example. Don’t get hung up on the specifics of that policy).

    Businesses will always attempt to maximize profits (it’s the DNA of capitalism). But teaching business leaders to view the playing field differently (and, therefore, accept modifications to it) can be an effective tools in mitigating capitalism’s potential downsides.

    I certainly applaud Ms. Hartigan’s efforts in that regard.

    • Duncan Green

      Yep, I found myself wondering what else would be needed beyond re-education. Regulation for starters. Pamela says she agrees, but did not go into it in the post

  5. Lizzie Spring

    A year in to running a tiny soc ent designed to be an enjoyable way to bring a handful of middle-aged unwaged women out of poverty, I am swamped by would be participants. The levels of rage, despair, grief and imposed helplessness many live with, astonish and scare me. This is in my own Inner London community, five minutes from my home.
    I think I have become aware as at no other time in my 35 years in community work,of how cruel our society has become. The idea started in the 1980’s that any mischance or difficulty is the result of a failure of will or of enough positive thinking, means anyone stumbling or lost can be happily despised and ignored.
    The women I meet through sew Portobello are mainstream people, knocked off course by redundancy, illness, bereavement, the need to care unpaid over decades for spouses or relatives, or just kept down by never having had much education.
    There are no mainstream non-stigmatising preventions services left because of “austerity” cuts. Yet running as a business however social, is just not enough to offer the support that is wanted. Don’t know the answer, but maybe we can at least share thinking about the question – how to go forward?

  6. Jill Poet

    Thanks Pamela. Great article that very much echoes my own thoughts.

    And Daniel, I know exactly how you feel! But interestingly, an increasing number of people are beginning to see the light. I’ve given a couple of presentations to this effect lately and the audiences were predominently socent, so I expected a lot of backlash. Surprisingly, a lot of people agreed with me.

    I work predominently with SMEs, and my goal is to break down this huge void between social enterprise and “normal” business. Quite frankly, I think how a business is constituted is irrelevant. I know social enterprises that are really not very good at providing the service they are meant to, don’t look after their staff and don’t give any thought to their environmental impact. Conversly, I know many “normal” businesses that genuinely embrace the principles of CSR (even if they don’t call it that.) We would like to see socent and SMEs work to a common “responsible business” framework and yes – this is something we have in place via our auditable certification.

  7. Brett Cowell

    Good article. I think there is always a tendency to try to anticipate a grand economic revolution in reaction to clear examples of where elements of capitalism have run off the rails, but what about how social enterprise can influence within the current parameters of capitalism that is is a part of, and thereby tweak those parameters? Is what is required a revolution or evolution? Do we need to endlessly debate this, or work on testing some practical actions that can be implemented by business?

    If businesses require the flow of talent, attention, capital and innovation to survive, then social entrepreneurship can be an effective mechanism to influence wider business over time. Big companies compete for talent and if new employees have broader criteria than money for selecting a job then companies whose values don’t align with employees will suffer over time. I think the ongoing debate around social enterprise is a valuable voice to help shape values – and establish a continuum of what good looks like. Getting engaged in what is good for society is not dropping out, dropping out is inertia in the current way, when that way needs to evolve and maybe doesn’t even align any more with your personal values. Social enterprise is more than an organizational construct, but a mindset that can exist in big business as well as small.

    I wish I’d had the opportunity to have a more rounded debate in my MBA course, though I think most of us got the message that persistent short-termism doesn’t pay off in the long term. Acting on that when in “business reality” is something that needs more practcal coaching. Not all big business is bad or even most of it, there are some leaders who’ve worked to articulate the long term value of sustainability in business. The rest need to have the courage to lead with a longer term perspective.

    Likewise from a consumer standpoint – do you go to your local chain coffee store or an independent (that may also be a social enterprise, or at least the funds staying in local community / city / state?). Social enterprises direct attention toward other ways to measure success and allow us to make distinctions and form decision criteria. Attention is resulting in funding in some countries to kickstart this. Attention is giving big business an option of whether to direct their community/CSR investment in money, or in skills based volunteering of employees to social enterprises. We need to engage our CSR department and invest time to make this a possibility.

    Although social capital is still small, if there is consumer demand it will grow. We need the constant supply of new entrepreneurs coming into the wider business community to make this happen – and big business will slowly react. Like the coffee shop example I can say personally that I’d welcome the ability to direct some of my pension funds away from historic investments (many of which have actually performed poorly) and towards social business. I am likely not alone. We need to challenge our pension fund administrators to add this as an option. Social business needs to do its part in aggregate by not ignoring good business practice – to steward the capital invested in it wisely and sustainably. Incubators and collaboration with big business and its legions of specialised professionals can help. Learning goes both ways.

    By the nature of a large number of small social enterprises striving to survive innovation is generated, particularly if new talent goes into the sector to supplement ex-charity workers and social activists, and the creative abrasion over time results in new business models that can scale. Big business notoriously struggles to find disruptive innovation, or even create the environment where incremental innovation can take root – particularly in the face of cost cutting and restructuring. There is an opportunity to cross-pollinate talent and collaboration between big and evolving social business models.

    So yes social enterprise is a distraction – it prevents us from giving our full attention to traditional ways of doing things where those ways need to evolve. By doing so we get progress – as a result of thousands of small actions by individuals…including actions by those reading this. Yes – you!

  8. Alan Doran

    Great article Pamela – a couple of parallels: Herman Mulder of Equator Principles and GRI said recently of Impact Investing: we need to move this from an oxymoron to a tautology, and the trade journal Socially Responsible Investment dropped the Socially. The new generation of entrepreneurs will hopefully blur the commercial socent divide.
    But I also take issue with reasonable as opposed to maximum profits, because of competition. Better to concentrate on the time horizon. Long term profits, assuming not generated by monopoly power, and in a regulatory and risk climate where environmental and social costs are better (not perfectly – that is in my view unattainable) attributed to enterprises responsible for them should be associated with better social outcomes. Issue is how to reward long term profits – the social and financial discount rate is currently too high, and that in turn is partly a function of our credit based economy. We need to rethink finance to get away from the tyranny of too many interest based financing contracts and go back to a system based more on real risky assets that can lose value as well as gain it. This argument is harder to make perhaps when global interest rates are low, as now, but it holds in principle.

  9. Una Key

    The generalisation within this leaves an awful lot to be desired. It is ” business” with its fixation on profit that has led to the demise of Jobs for life, family financial growth and stability, the need for two parents to work instead of one wage being able to pay bills. Suddenly this now has the ability to regenerate society? I’ll wait with baited breath

  10. Dan

    Great article. We have been working in this domain for many years. It is nearly impossible to get the system to change for our best interest. All of the goals stated above can be accomplished much easier of we reorganize ourselves. The key is to measure into existence “intangibles” as factors of production; social capital, creative capital, intellectual capital instead of land labor and capital. After all, the proverbial “basket of Goods” is a product of the social, creative, and intellectual assets of people. Then the integration is extremely simple – almost trivial. Here is a broader explanation. Reorganizing Society For The Era of Social Capitalism http://www.ingenesist.com/general-info/reorganizing-in-the-era-of-social-capitalism.html

  11. Jeff Mowatt

    It’s an area we’ve also been working in for many years. Introducing our social business model to the UK in 2004, saying:
    “Capitalism is the most powerful economic engine ever devised, yet it came up short with its classical, inherent profit-motive as being presumed to be the driving force. Under that presumption, all is good in the name of profit became the prevailing winds of international economies — thereby giving carte blanche to the notion that greed is good because it is what has driven capitalism. The 1996 paper merely took exception with the assumption that personal profit, greed, and the desire to amass as much money and property on a personal level as possible are inherent and therefore necessary aspects of any capitalist endeavour. While it is in fact very normal for that to be the case, it simply does not follow that it must be the case.”


  12. Sahila

    Been thinking about these issues a lot over the past decade or two…

    and… becoming more and more frustrated that, as our environment – the habitat necessary for our survival as a species – is degraded more and more daily, people STILL don’t get that capitalism is a system we can’t afford to continue to practise…

    in the first place, capitalism is built on the idea of unlimited growth (unlimited profits), which is built on the premise of having unlimited resources (natural and human) to manipulate and exploit to maximise profits…..

    and the plain, undeniable, scientific fact is that we cannot have infinite growth in a finite system (the biosphere is a closed, finite system), and so capitalism – especially as a global system – leads us, literally, to a dead end, as it uses up resources and makes our environment inhospitable to human life…

    secondly, capitalism is a system that is built on the model of a pyramid, with all of the profit/power sucked up to the top, to the capstone…. just how many people do you think we can fit on that capstone? Comparatively few…. and just how many people at the base and in the middle of the pyramid have to be used, exploited and then cast aside, for those few people to get to and stay at the top? And there is no way to change this because the pyramid structure doesn’t allow for any other process and outcome…

    so why we are messing around with ideas that capitalism is good and merely needs ‘tweaking’ to ‘benefit’ more people is beyond me…

  13. Alissa

    I applaud your efforts to change norms in the business education world. I attended a public health conference, where business and public health officials consider partnerships or recognize that where the money lies (business) is where the greatest change can happen. A really good example of a business that is improving community health is VanCity Credit Union – they pay their employees a living wage, etc. As a student, what I notice is that the walls are LITERALLY built between students studying different topics. Language is crafted for each sector; however, many terms are analogous to jargon used by another sector, but connections may not be made. At UBC in Vancouver, business students are crafting ideas for social entrepreneurship and public health students don’t even know to be able to collaborate. It could be said about much more too – forestry, engineering, etc. – if you want individuals to collaborate, create a common language, and remove the barriers between students, whether it be sharing classrooms in different buildings or allowing students from studying other topics greater opportunity to explore classes in other areas easily. My experience at UNBC in Prince George was amazing – one shared university (classrooms for a variety of topics, shared indoor and outdoor space, not much separation), everyone mingled in classrooms, social settings and beyond – that made for establishing connections in many areas a lot easier to do, and to be more aware of what issues arise in areas you may not consider yourself an expert in. (Canadian context). I’d also support the notion that those businesses today that give back to the community or environment, that use recycled products, that promote reusable mugs for coffee, that pay their staff a living wage – those are businesses my generation (Millennial’s) want to support. It’s in their best interest to take an eco-friendly or healthy communities approach. Look at Enbridge – oil & gas, as well as wind power. Thanks for the article and for giving me something to think about!

  14. Patrick Weirich

    Thank you Pamela,
    I’m also glad to read an article about the role of Social Entrepreneurship in a context to the global capitalism. In a really meta point of view, I think the practice of economics – in the last decades and right know – is also the origin of Social entrepreneurship. The French Author Alain Badiou describes the expandation and extremes of the global capitalism with three developments: 1. We voted the global capitalism as our only economic System with all the advantages and disadvantages. 2. The growing weakness of states in favor of multinational Corporates 3. New Imperial practices by “western Countries”

    Every Social Entrepreneurship approach and every Social Entrepreneurs do agree with these points. SE wants to solve social Problems with a business model which is working in the current capitalistic Framework. Why? They believe that states are not able to solve these social (-and ecological btw) Problems, which are based on other participants in the market in the same Framework. In my opinion we must shift the whole Framework like a disruptiv Innovation for the system, instead of incrementally changes for the participants.

  15. The capitalism doesn’t need to change, the people need. When you study design thinking and Austrian economics you can understand the market adapt to the demand. That’s means the capitalism didn’t change for social entrepreneurship, but people NOW want sustainable goods.

  16. Jim

    Results to all areas mentioned (profit, social, enviro) comes from the organization’s leadership decisions on how they allocate resources that they generate. They have generated these resources from a market that has freely decided to transact with them and the market is now demanding not just a cheap price and high quality, but how the company is making good in the world. The more transparent things become (tech is helping this as the cost is low) the more the market becomes educated on where their dollars/votes are going.

    Social entrepreneurship has had a huge surge in popularity as the 1st world is at a point where it is educated enough to make decisions that will not only keep the company in business but also ask the question of “Now that I have helped you help me, what are we doing for the world?”

    My question is – how do we convince the 3rd world to ask the social/environmental questions now and shortcut the profit only mentality when those people are just trying to survive let alone care about the planet. If the 3rd world runs the same course as the US and other 1st world nations have the planet won’t be in for a nice ride.

  17. Chandler m


    People have this locke vs Hobbs dichotomy of human nature.
    We arent inherently selfish or inherently giving.
    We are complex. Making decisions for different reasons.

    You can solve this problem literally by going back to stakeholder capitalism instead of the predominant shareholder.

    It’s become not even about building a business , it’s become like stated in the article maximizing profits. The stakeholder model has natural slower growth. And by stakeholders I mean employees as the stakeholders. And not a chain of command style either. Maybe on certain businesses.

    Were caught up in value capture rather than value creation.
    Why sell a product to someone , when you can challenge the customer to make it better?
    Lemme guess because intellectual property, right?
    The opposite of oppression is competition, but competition as a inherent property not as an assumption about capitalism.

    And I hate to break it you but no one can “fix” poverty. In a world of building a business rather than making a quick buck, your innovation is your compassion that you give the world to make it a better place.

    One communal centric type of thing has to be lightly taken. Definitely taken In accordance with voluntary understandings thruout the community but lightly.
    Because of the tragedy of the commons.

    When the government helps with social welfare, it helps for the short term.
    when you are on certain programs, you can only make so much money or you lose the benefits and chances are people need those a little longer than what the government assumes.
    We raise the minimum wage to help out those in poverty, but companies want to move away because they see labor as a cost and not an investment. And the employee is in worse shape because you are pricing their labor out of the market and inflation….
    Back to challenging the customer to make a product better than the person… the stakeholder business model whatever it may sell could allow the customer their input, in exchange for a stake in the company, thus on their own as an individual and with support from a company who challenges them

    True capitalism isnt privatize the profit and incentivize the losses. It’s to privatise the profit and the losses.

    By challenging the customer you have eyes everywhere looking to minimize waste, balance efficient yet cost efficient methods, they learn skills, they grow with the company.