The Blurring of Sectors: Social Entrepreneurship Emerges at the Nexus

Traditionally, each of the three sectors maintained distinct roles and approaches—with the private sector focused on profitable markets, the public sector solving market failures, and the nonprofit sector engaging citizens in meeting societal needs.

Recently, however, several trends have reduced these distinctions, increasingly blurring the social and economic roles that businesses, government agencies, and nonprofits are playing.

In the private sector, businesses and their employees are increasingly engaging in activities that previously fell under the domain of nonprofits and government. For instance, private-sector companies have begun competing in fields such as education and social services, which were once considered core government activities. 

The public sector, too, has seen a shift in practices. As Reinventing Government authors David Osborne and Ted Gaebler describe, government is increasingly steering rather than rowing and emphasizing cost-effective results over bureaucratic rules.   According to Stephen Goldsmith, professor at Harvard’s Kennedy School of Government and director of its Innovations in American Government Awards Program, “New Deal-style initiatives, in which government assumes the dominant service-delivery role, have become increasingly rare, especially for newly developed programs.” 

For the nonprofit sector, pressures are growing to fill gaps in public service delivery, ensuring that citizens can get the services they need even when government is unwilling or unable to provide it. In providing essential services, nonprofit leaders are striving for sustainability to ensure that they will continue to be able to meet the needs of those they serve. Following the national scandal at a major nonprofit in 1992, and as many foundations adopt outcomes-driven approaches to funding, nonprofits also face demands for accountability.

As each sector has entered the territory of the others, the blurring between them has given rise to a host of new phenomena. An increase in public-private partnerships has involved more businesses and nonprofits as collaborators in government projects. At the same time, the increased popularity of earned-income ventures has led many nonprofits to develop business-like ventures to generate revenues.  Lastly, corporate social responsibility movements have entered the mainstream, motivating businesses to account for their community, environmental, and labor practices along with their profits.

By blending some of the social and economic responsibilities traditionally associated with each of the three sectors, social entrepreneurship may take the form of a nonprofit, business, or government initiative. No matter what organizational form it takes, social entrepreneurship tends to exhibit characteristics of all three. Like business, social entrepreneurship utilizes markets to drive innovation and productivity. Like government, social entrepreneurship responds to market failures by providing public goods and services. Like nonprofits, social entrepreneurship engages individuals in action to achieve social goals. Alex Nicholls of Oxford University’s Skoll Centre concludes, “The organizational mechanisms employed are largely irrelevant: social entrepreneurs work in the public, private, and social sectors alike, employing for-profit, not-for-profit, and hybrid organizational forms (or a mix of all three) to deliver social value and bring about change.”  Social entrepreneurship, then, is the practice of responding to market failures with transformative and financially sustainable innovations aimed at solving social problems. Next, we examine the three essential components of this definition.

Next Week: Definition Part I: Response to Market Failures