Social enterprise business ventures are all the rage. Entrepreneurs and consumers (not to mention scholars, policymakers, donors, and other stakeholders) see in them a solution to vexing social problems—a promise of salvation from the organizational baggage that weighs down more traditional approaches to tackling the ills that plague society. Disciplined by market forces, social enterprises are creative, nimble, and ever responsive to consumer demands. Even better, they possess that most coveted quality: sustainability, or freedom from the obligation to chase grant money and charitable contributions—not to mention an ability to succeed (or the opportunity to fail) on their own merits. Released from bureaucratic encumbrances and the burden of begging for money, the market-based social enterprise is poised to offer an altogether different approach from the traditional strategies (read: nonprofit and governmental ones) that have so far failed to deliver us from our most pressing social problems.
Well, sort of.
That story—familiar as it has become—is deeply problematic. While the high praise of social enterprise (defined here as businesses that actively pursue both revenue-generating and socially beneficial goals) may sometimes be deserved, it is often framed in contrast to well-intentioned but old-fashioned and ineffective philanthropy. It is this contrast that is off target: the dismissal of the work of the nonprofit sector as antiquated at best and inept at worst. In fact, scratching below the surface of social enterprise businesses reveals that they depend significantly on the nonprofit sector for their effectiveness and survival.
Over a three-year period, I studied intensively two social enterprise industries: fair trade and socially responsible investing.1 What I found is something I did not go searching for: a scaffolding based in civil society that allowed the businesses in these industries to flourish. Specifically, I came to understand how for-profit social enterprise ventures rely fundamentally on elements of civil society for (1) providing credit and other financial support, (2) broadcasting their trustworthiness, and/or (3) generating difficult-to-access information. All of these are resources often overlooked in our collective celebration of the social enterprise business.
Although examples abound, I highlight these three ways in which social enterprise businesses depend on the work of the nonprofit sector (and other parts of civil society) because they are readily apparent and, more important, because they solve fundamental problems for the business ventures in question. After taking stock of the ways in which nonprofits solve problems for social enterprise, the lesson for me is clear: It is logically inconsistent, and potentially damaging, to lionize for-profit social enterprise and at the same time characterize it as somehow a replacement for the work of the nonprofit sector. Rather, it is the work of the latter that in many ways enables the success of the former.
The Money Problem—Borrowing Nonprofits’ Financial Support
One aspect of the civil society infrastructure I’m referring to is financial in nature and evident, especially, in the fair trade industry. The fair trade businesses I examined source and/or sell ethically produced goods such as tea, coffee, and handicrafts. They commit to abiding by widely shared standards of practice, such as working directly with artisans and farmers (often cooperatively organized) instead of through intermediaries, paying a living wage, and, often, paying a “social premium” intended to fund community development projects in producer communities.
In pursuing their mission to “do good,” these fair trade social enterprises have an interest in working with small farming groups rather than well-established, single-owner plantations. Doing so is challenging, however. Coffee growers, who are often in economically marginalized positions, need financial support before the harvest comes in. For conventional importers, though, making pre-harvest payments to coffee growers introduces risk—risk that they can avoid by working with large coffee operations that are more economically secure. But what of the social enterprise business that is committed to working with small-scale farmers?