False Economy: A Depressing Triple Entendre

Defenders of unfettered free market capitalism, as it has been practiced for the past three decades, are diminishing in number.  The model has been proven to be utterly unsustainable–a false economy.

A growing number of observers believe something new is emerging–a more social economy, where social, ethical, environmental and financial objectives are balanced.  This is no longer just the belief of ardent zealots, but the mainstream sees this as a viable concept for economic organisation.

Governments across the political spectrum are embracing social enterprise, and, encouragingly, the corporate sector is as well. We at ClearlySo work with over 100 corporations and dozens of governmental counter-parties with an expressed interest in helping the social enterprise and investment sector to flourish. Their intentions are noble and the folks involved tend to be sincere–but in our judgement the good work is frequently offset by two categories of flawed approaches.

One is to bury the sector in grants.  Free stuff is great but it creates a false economy, giving the impression of a sector heading towards or already achieving sustainability (because of all the buzz and activity).  In this way we begin to kid ourselves–were the grants to cease the sector would simply evaporate, with few exceptions.

The other approach is to seek to ‘work with’ the sector on a commercial basis.  This approach would appear to have intellectual merit as corporations and government agents buy services from the sector and arguably are bringing it into the normal market economy.  However, the sector’s immaturity and the absence of normal market disciplines caused by grant-dependency, often causes social enterprises desperate for work to offer products and services at low prices, often below cost.

This situation is helpful for cash-strapped governments and profit-oriented mainstream firms.  They take advantage of competition in the sector to force prices to an unsustainable level.  “Socent XYZ will do it for free”, those social enterprises trying to become sustainable are told, or “this is the most we can pay…..due to budgets, etc.”

All this is also a false economy, especially for governments who subsidise a sector through one set of actions and then under-pay for services with another.  Far better to pay a fair price, which they certainly do with large private sector firms selling to the public sector.  Corporations looking for (and are getting!!) bargains from the social enterprise sector would appear to be indirect beneficiaries of governmental grants to the sector, as well as the below market wages of their dedicated staff and the free work of their volunteers.

  • Can this possibly be right?
  • Do many of you out there in the social enterprise world experience such behaviour?
  • Is there a justification for corporations and governments to pay a premium to social entrepreneurs for the products and services they offer, or does this continue to falsify the social economy?

First published in The Social Edge in March 2012

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