Social venture

I am listening to Bill Gates on his visions. Incredible to listen to one of the most powerful persons alive mentioning that the future of the world relies on taking care of huge issues such as global health, education and energy.

He is one of the few i have heard being very firm in explaining the policy issues being extremely central to solve in the future, and that foundations (such as the Gates foundation of course) and corporations such as Cisco, Microsoft, Google, Intel will play an important role making change happen. Subsidies for rural areas were mentioned. Very interesting.

It cannot have passed anyone that the Grameen Bank got awarded the Nobel Peace Prize some time ago, and the scientific community thinks about the social entrepreneurship more seriously than ever before. Yet many both inside the social entrepreneur community as well as outside tend not to see what social entrepreneurship is and more importantly why we so desperately need it.

Simply put, social entrepreneurship is to share knowledge of the developed world with the developing, whether that is building water pumps or creating distance learning programs. It all comes down to the very simple passage from a well-known book the bible and a certain Jesus. “Give a man a fish and feed him for a day, or teach him how to fish and feed him for a lifetime.” There have been a lot of misconceptions about this historically. A lot of the so called aid work has been focused on ether giving funds or just pure charity technology.

Why is this fundamentally wrong?

I did some consultancy work as for an IT-strategy some time ago and explained what I see the five characteristics of any strategy – financial, technological, legal, management, organizational – which should be well-known, but too often seem like total surprises to clients.

• Flexibility
• Stability
• Sustainability
• Maintainability
• Scalability

Considering these characteristics, it isn’t that hard to realize that the traditional aid work strategy is doomed to fail, and so it has. Here is where the social entrepreneurs take or honestly should take on the challenge to create sustainable projects which hands over tools/instruments for the people themselves and not finished products. The Stanford GSB professor and economist Paul Romer calls these tools and instruments meta-ideas and he in an article in The Concise Encyclopedia of Economics, David R. Henderson, ed. Liberty Fund, 2007 puts it as

“Perhaps the most important ideas of all are meta-ideas. These are ideas about how to support the production and transmission of other ideas.”

These meta-ideas are very, very important as we will see later. For now let’s leave it and further consider the challenges met inside any social venture. The ventures will of course all have financial, technological, and legal issues, but you will also have to think about the management issues as well as the organizational issues. A majority of the ventures I have come across tend to forget the latter two. They look very nice, but will probably never be sustainable. The ever so important legal issues are today well-known. Copyrights, patents and intellectual property rights are all daily elements of entrepreneurial work today unfortunately. Extremely put, in the developed world we have too much regulation, and in the developing world we have none. Hernando de Soto talked about this in The Mystery of The Capital, which discusses how to recreate the so often existing informal economy in the developing world to a formal economy.

We now realize that a social venture is any venture – for-profit or non-profit, which aims to bridge the knowledge gap and empower individuals and the community in the developing. Ironically, the developed world will have something to gain by getting more closely involved in the developing world in another manner than before. Without getting into details about the nature of it I would remind any skeptics to read the basics of trade-off, comparative and absolute advantages, and you will see that it is pretty obvious. In order for it to work we need to have consistency in the legal and economical system as Hernando de Soto is talking about.

What few people realize is that we have to have a consistent view on how we should work together and how economical growth is created. Living in a global economy requires a lot, and we still haven’t found the right path to create a sustainable and fair global economy. Considering the ever so important environmental problems we will also by this create a structure in which we can solve this as environmental problems are global whether we like it or not.

Paul Romer and his well-known New Growth Theory explain it all.

“The knowledge needed to provide citizens of the poorest countries with a vastly improved standard of living already exists in the advanced countries. If a poor nation invests in education and does not destroy the incentives for its citizens to acquire ideas from the rest of the world, it can rapidly take advantage of the publicly available part of the worldwide stock of knowledge. If, in addition, it offers incentives for privately held ideas to be put to use within its borders – for example, by protecting foreign patents, copyrights, and licenses, by permitting direct investment by foreign firms, by protecting property rights, and by avoiding heavy regulation and high marginal tax rates – its citizens can soon work in state-of-the-art productive activities.”

Interesting stuff, right?

Freedom of movement of merchandise, labor and money is crucial for success and economical growth. Many tend to forget that the fairness needs to be there. Some claim the market should tell us completely where we should go, but we have some moral and ethical obligations to protect and inhibit a too unfair market to emerge. Think of it as a supervised evolution.

The European Union is an example of what can be done to, but also gives us insight in what the difficulties are when creating the global economy. Start by considering the break in a pool game. The tightly assembled balls will rush off in all sorts of directions after the white ball smash into the formation. In time they settle in a new more “relaxed” formation. The nation’s economies will react similarly to the shock of change when opening up the borders. Letting it all loose at the same time would be careless, and just look at the shock waves which happened in Russia after the fall of the Soviet regime. It is just about calming down now. We cannot let this happen on the entire globe.

Looking at the developing world and honestly the developed world too, the governments play an essential part of how to implement a structure to handle these new scenarios and interactions. The important part is that they realize what role they should play and stay focused at their part, that is create an educational and legal system that nurtures technological, process and value innovations.

It cannot be over exaggerated how important the educational component is. Education should not only teach the youths (as well as the adults) the necessary tools and knowledge, but also create confidence in the people and a sense of seeing possibilities and not problems. Here is a huge opportunity for social ventures, and thus we find many attempts here.

In more general terms, Paul Romer puts this as:

“The one safe measure that governments have used to great advantage has been to use subsidies for education to increase the supply of talented young scientists and engineers. They are the basic input into the discovery process, the fuel that fires the innovation engine. No one can know where newly trained young people will end up working, but nations that are willing to educate more of them and let them follow their instincts can be confident that they will accomplish amazing things.”

Now we have this arsenal of with knowledge and confidence armed youths who will save themselves. Let them do the magic. They can and will do that… It will happen as we did the same thing here in the 19th century. We have just forgotten about it.

Wow, what a sunshine story, Erik! It sounds so nice and neat, but what about the entrepreneurs and what is the role of the open-source mentality?

I will use the previously quote:

“Perhaps the most important ideas of all are meta-ideas. These are ideas about how to support the production and transmission of other ideas.”

Do I really need to say more? Openness and exchange of ideas is crucial. If they legally are open-source or not doesn’t really matter so much as long as the mentality is to share information. The social media also known as Web 2.0 is an excellent example of how the openness should be. It should be easy to build on top of other solutions and ideas and derive new innovative solutions.

Why do we need to do this?

Again Paul Romer:

“First, the country that takes the lead in the twenty-first century will be the one that implements an innovation that more effectively supports the production of new ideas in the private sector. Second, new meta-ideas of this kind will be found.”

It explains it all. What’s so cool is that you get to create a better world in the same blow. Who doesn’t want to do that?

Final question to you: Do you really want to be on the losing team?