Not All Social Problems Can Be Solved by Business

10/30/2013 12:55 pm ET | Updated Dec 30, 2013

The recent government shutdown has underscored that we can't count on politicians to solve the world's many pressing social problems; they're too preoccupied with combatting one another. And the billions of dollars we spend in foreign aid isn't necessarily the solution either. As Angus Deaton, an expert on global poverty, argues in his new book The Great Escape, aid money may even do more harm than good. Now more than ever we need the fast-growing community of social entrepreneurs to fill this leadership void to develop innovative solutions to the world's problems.

Around the world, thousands of social entrepreneurs are identifying inherently unjust equilibriums in society and using innovation to unlock potential and alleviate the suffering. Scott Harrison at charity: water has brought clean and safe drinking water to millions. Sakena Yacoobi at the Afghan Institute of Learning has developed a model of community support to provide schooling to nearly 300,000 Afghan children with no prior access to education. And Simeon Koroma at Timap for Justice has created a network of paralegal offices around Sierra Leone to pioneer basic justice services to thousands of poor Sierra Leoneans. It is vital that philanthropic organizations and public donors continue to fund this work.

The problem is that social entrepreneurs are now coming under increasingly unrealistic pressure to fund more and more of their operations themselves by selling products and services. When they apply for foundation grants, the first question foundations often ask is "How will you become sustainable once this funding is over?" Similarly, many individual donors, often people who have become wealthy in the corporate world, push social entrepreneurs to use market mechanisms to support their work, or even expecting investment returns in the case of impact investing, where firms invest in companies, organizations and funds with the intention of generating measurable social, as well as financial, return. The push to bring the best practices of the business world to the nonprofit sector has produced many positive results, and it has helped social entrepreneurs become less dependent on chasing grants and philanthropic contributions. But it's being pushed too far.

There is a serious danger in expecting social entrepreneurs to develop fully self-sustaining business models. Because social entrepreneurs are, by definition, solving problems that result from market and government deficiencies, markets cannot be the solution. If bringing water to the 800 million people who don't have adequate access to clean water or selling mosquito nets to the 200 million suffering annually from the scourge of malaria were profitable ventures, private companies would be doing these things. Expecting social entrepreneurs to figure out how to create solutions to such problems profitable when even the behemoths of modern-day capitalism can't do so is misguided wishful thinking.

Consider two cases of social entrepreneurs who have stepped up to the plate to incorporate profit-making programs into their work. Gemma Bulos founded the Global Women's Water Initiative (GWWI), which not only trains rural women in East Africa in to build rainwater catchment systems with water storage tanks, toilets and water filters but teaches them to make and sell water-related products, such as soap and shampoo, in their communities. Many of these micro-businesses have become self-sustaining, but they do not make enough money, not by a long shot, to provide funding to GWWI as well, let alone to fund the extension of the work to other regions in Sub-Saharan Africa.

Martin Fisher and Nick Moon founded KickStart to design, promote and mass-market simple farming tools, such as irrigation water pumps, that small-holder farmers can buy cheaply and use to make their struggling farms profitable. To date, KickStart has pulled over 750,000 poorest-of-the-poor African women, men and children out of poverty. To achieve that kind of success, the organization has to engage in extensive training of the farmers, to teach them about the benefits of irrigation and convince them to spend their very limited savings on the tools. Without funding from foundations and individual donors to cover a significant portion of its annual budget KickStart would not be viable.

The irony of the success of these and many other such innovative organizations using business tools to develop income-generating initiatives is that it has led so many foundations and individuals to take the demand for profit to extremes, failing to appreciate the on-the-ground constraints of revenue potential.

The incorporation of business practices into solutions crafted by social entrepreneurs holds enormous promise. But if we force social entrepreneurships to actually become self-sustaining businesses, we will end up undermining their ability to provide those solutions, taking their focus away from their core missions and forcing them to spin their wheels trying to use market principles to solve market failures. Rather than focusing on helping those in need to apply the best practices of business to improve their lives, organizations will end up focusing on applying those practices to serve their own needs. The philanthropic community must continue to support social entrepreneurs without holding them accountable to fundamentally unrealistic expectations. We must practice smart philanthropy and hold organizations accountable for results, but we must not expect those results to show up in the form of profits.