Tuesday, April 5, 2011

Social Entrepreneurship

Let me start out with a few definitions from Wikipedia.

Capitalism is an economic system in which the means of production are privately owned and operated for profit. Income in a Capitalist system takes at least two forms, profit on the one hand and wages on the other. There is no consensus on the precise definition of capitalism, nor how the term should be used as an analytical category. There is, however, little controversy that private ownership of the means of production, creation of goods or services for profit in a market, and prices and wages are elements of capitalism

Social capitalism (Socio-capitalism), as a theory or political or philosophical stance, challenges the idea that socialism and capitalism are inherently antagonistic. The essence of social capitalism is that markets work best and output is maximized through sound social management of the macroeconomy. Social capitalism posits that a strong social support network for the poor enhances capital output. By decreasing poverty, capital market participation is enlarged.

Social entrepreneurship is the work of social entrepreneurs. A social entrepreneur recognizes a social problem and uses entrepreneurial principles to organize, create and manage a venture to achieve social change (a social venture). While a business entrepreneur typically measures performance in profit and return, a social entrepreneur focuses on creating social capital. Thus, the main aim of social entrepreneurship is to further social and environmental goals. Social entrepreneurs are most commonly associated with the voluntary and not-for-profit sectors, but this need not preclude making a profit. The terms social entrepreneur and social entrepreneurship were used first in the literature on social change in the 1960s and 1970s

Many people, this people tend to be workers or politicians rather than owners or investors, see capitalism as a system of moving money from the poor to the rich. They believe that the entire ecosystem is disproportionately tilted toward the rich. The poor may benefit to some extent by having jobs but the preponderance of the benefit is given to the rich. I can’t argue this view. Capitalism rewards those with resources, who reinvest them, with greater gains then those without. I could argue that without those who are willing to risk what they have there would be no jobs for those who have little to risk. But only the truly greedy person would accept this as a valid response. After all, one person can only consume so much. The incremental value to their quality of life of spending more on themselves diminishes as assets accumulate. It’s the law of diminishing returns.

Social capitalism says that there is an inherent benefit to the economic enterprise to address social issues. That by building a business around serving the community, the business prospers. True social capitalist suggest that government should regulate the social interaction. I disagree with this mainly on the grounds that politicians are not free of bias. They tend to sponsor bills that promote their own longevity. Fundamentally political parties are just a special form of capitalism. The exchange rate is not calculated in dollars but power and influence. They produce a product, they raise funds, they distribute funds, and they pay wages. They do not fund social programs outside of their specific agendas.

Free of regulation companies and individuals could determine where social investments create the best return. Money would not be spent on programs that look and sound good but do not produce positive change.

There is the caveat to social capitalism and social entrepreneurship; enterprises must be economically driven to be sustainable. If they do not have a good profit structure, they too will become a social casualty. Without a true long term profit driven approach the enterprise will dry up for lack of capital and its social value will go away. The failure of most social entrepreneurs is not that their idea for social change was not valid; it was they lost the concept of perpetuating their enterprise by failing to more aggressively promote economic capitalism.

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