The thick end of social entrepreneurship’s thin means

By Grant Rhodes

Can you 'cut' human rights? Health care is a human right, a ‘global public good’ to fight  ‘global  public bads’. This does not mean that health care is free.  Developed  countries, for example, now devote as much as 30% of their  groaning  public finances to it. But, for the bulk of the world’s  population,  health care is paid directly by the consumer. An anathema to  many in  both the development and health (care) industries, but at the  nexus, in  the ‘global health community’, the primary beneficiary of the   Millennium Development Goals project, it can be considered close to an   abuse of human rights. Thick issues. The ‘global health community’,   which includes (I)NGOs, multinational corporations and government   agencies, then has plenty at stake if a solution to shrinking aid   budgets cannot be found. Surely there can be no ‘thin’ solutions?

It was therefore with some trepidation that I agreed last May to  present at a conference on social entrepreneurship in health care and  development in Eindhoven. My role was to tell a simple story.

Health care and global demography are not what they were in 1948  when the Universal Declaration of Human Rights appeared. Constant  innovation to save lives and improvements in care quality have a price.  We have to accept that states cannot continue to be expected to bear the  full price. Innovations will be needed and who better at providing them  than entrepreneurs? How better to ensure that we do not loose sight of  the public purpose of health care – the crown jewel of a welfare state -  than using development aid to provide investment capital to  (non-profit) social entrepreneurs in health care? Surely some  market-based but non-profit health care (comfortingly familiar to a  Dutch audience) is a very small price to pay for the benefits of modern  medicine. And besides, OECD DACs export credit rules already provide the  systems and infrastructure to move ahead quickly. We could start  tomorrow. A similar story could be told for agriculture (food rights) or  any sector seeking project and program finance under development aid.  But this is not the story I told. The times demand greater risk taking -  and sharing.

The benefits of (social) entrepreneurship actually operate at the  individual/ organizational, and the societal level. Social  entrepreneurship is both ‘kaizen’ and ‘social kaizen’. And it is its  affects in the long-term at the societal level, are what make it a  serious candidate for the future of development aid.

Entrepreneurship, innovation and ‘Kaizen’

Entrepreneurs are the undisputed high priests of innovation. In  their search for innovation (I)NGOs and other development agencies have  also rushed to embrace ‘partnerships with the private sector’.

Few concepts provide a better illustration of the eulogized  relationship between business, entrepreneurship and innovation as the  Japanese principle of ‘Kaizen’ (改 善)- (continuous) positive change(s).  The principle is elegantly simple and popular amongst management gurus.  Whatever you do, try to continuously refine and improve every step and  every component of it down to and including the discipline and  conscientiousness with which you and each other person takes part in it.  It is then very closely associated with such personal effectiveness  concepts as ‘mindfulness’. The process continues repeatedly even  infinitely. It does not matter whether you are a: Sumo wrestler, nurse,  or manufacturer of clockwork radios or power stations. Think big, by  focusing on the manageably microscopic.

Contrasts to traditional approaches to development (aid), and  certainly the Millennium Development Goals, could not be starker. Kaizen  development is not; a loud and proud collective movement towards a  defined (and certainly not utopian) and far off ‘goal’ to be achieved by  a ‘big push’ to be reached by any given date (in an ‘evidence based’  whole, or externally invalid parts!); rather it is a silent process of  infinite, individual, tiny and largely unpredictable steps from  reference points not in the future; but in the past and present. A known  context. The future is not known. The future is maybe a good reference  point for selling dreams and mobilizing the masses, but it is a very bad  reference point for serious planning and action. Too many variables are  uncertain. Too few can be controlled.

Only those who survive can innovate

There is therefore a second dimension to entrepreneurship. A  pre-condition. Control. Managing risk and uncertainty. Surviving  failures to continue innovating (Figure 1). How is this done? There  would seem to be two key components.

The first ‘trick-of-the-trade’ that both social and commercial  entrepreneurs employ in dealing with uncertainty involves, ironically, a  planning tool that was largely developed for public development finance  but has long been out of fashion in development aid. Cost benefit  analysis and decision (‘appraisal’, i.e. ex ante) modeling. The double  and triple bottom line (social) rate of return methods of earlier  development aid has even been adopted under Corporate Social  Responsibility initiatives.  At the same time, development aid  administrations themselves, and the Global Fund in particular, moved  further and further away from these methods seeking a new ‘gold  standard’ of ‘monitoring and evaluation’ in public (development) project  and program formulation and finance. The cancellation of Global Fund  Round 11 would suggest this quest has not been successful. And the major  beneficiaries of these changes, (I)NGOs, also chaff at the ever  increasing weight of layers of ‘key indicators’ and ‘public consultation  and participation’ reporting.

It would seem these experiments have been as much about influencing  public discourse in western donor countries away from the need to talk  about ‘priorities’ and ‘priority setting’ (criteria) and towards  ‘rights’ and reducing public priorities to solely (loosely defined)  ‘inequality’ as managing public development funds purposefully. In  vilifying the calculation of ‘return rates’ donor public administrations  missed the point of such work. The key purpose and the reason why all  entrepreneurs still use these forms of decision support, is not to  self-delude oneself about possible future ‘profits’ – always fun but not  particularly useful - it is to identify risk(s). Risks identified can  then be mitigated.

There are any number of ways for an enterprise to mitigate  investment and operating risk be it: a company, an (I)NGO, or entire  development agency. The same tactics apply to social and commercial  entrepreneurs. It is not important which are used. It is important that  an organization does not rely on just one at a time. ‘Hedging’ is the  second trick-of-the-trade. Hedge variables within plans and hedge plans  in their entirety. Only marketeers and propagandists sell certainties  and scientific truths of future outcomes. However much you believe in a  plan, do you ‘have some skin’ on alternative outcomes? Hubris only  tempts the Gods on Olympus. Again, micro- and financial economics  provide the theoretical foundations, and jargon can be found in  portfolio theory.

 

 

Figure 1: The life of an (social) entrepreneur

Social entrepreneurs in health care in developing countries – and  the key lesson for (I)NGOs - survive therefore not because they ignore  human rights and stoop to charging (some) patients (some) fees, but  because their income streams are hedged! It may feel comforting to have  the security of being completely publicly funded. Decade long public  (for example PFI) contracts are just as appealing to commercial  companies. But, and here is the rub, governments can also go bust. And  do frequently. Development experts more than anyone should know this.  Hedging is how an organization survives short-term failures to live and  innovate another day. But there is a final twist in this story.

Social Kaizen: diversifying the burden of life’s uncertainties

If an organization is not hedged, sooner or later it will fall;  because things change. Plans are never perfect. In the unromantic  language of economists an organization and its people and  customers/clients become ‘residual risk’ for some other party to catch:  the family, church communities, trade unions, insurance companies, and  ultimately - as the West is now discovering - the government treasury  and society. Each provides different and overlapping levels of safety  nets to both individuals and organizations; complex systems in even the  poorest and least developed societies.

But the 0.7% of GDP question is; ‘What happens if more and more  individuals and organizations start living completely off a society’s  final hedge of resources for a rainy day?’.

The true benefit of social entrepreneurship is therefore not only  that enterprises pursuing social goals learn to live more independently  and innovatively, albeit pragmatically, but that the collective result  of these thousands of independent actions. Increasing the independence  of individual action reduces the burden on the cascading means for  collective security. It replaces a negative feedback loop of compounding  social burden (‘moral hazard’ cascades in the jargon) with a positive  feedback loop of compounding social and collective interest and returns.  The development of social capital through thousands of tiny,  continuous, steps. What might be described as ‘social kaizen’.

Conclusion

One can be under no illusion that many will continue to prefer  grand plans, soaring rhetoric and the mobilization of masses approaches  to ‘thick’ development issues and ‘global social justice’. For the  directors of development agencies and (I)NGOs considering this  alternative I would ask one question; ‘With health care at often >30%  of western public expenditure, its largest component and no break in  sight, do you think you will win a battle with the rhetoricians of  ‘local social justice?’. The omens are ominous. Hence for the humble  individual? Social entrepreneurship is the alternative ‘thin’  contribution you can make. Take the risk, and share the burden of some  of life’s uncertainty. The rewards may be ‘thicker’ than you had dared  hope.

The lessons of social entrepreneurship in health care in development  (aid) and public finance may therefore be generalizable and universal,  and apply at home as much as abroad. Making it a truly global  development alternative.