Philanthropy and Enterprise

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Harnessing the Power of Business and Entrepreneurship for Social Change

Social entrepreneurs and supportive philanthropists are challenging conventional assumptions by deliberately using business ventures to serve the public good. This idea of using market forces in strategic ways to promote social improvements is not new, but what is new is the openness and enthusiasm with which entrepreneurial, market-oriented approaches are being embraced as an integral element in creating lasting social change. This is particularly true when the social problem being addressed is poverty in the developing world. In most developing countries, there are serious barriers to market development which prevent the poor from participating in useful economic relationships. Philanthropists can add value by directing their capital and resources to the ventures most likely to remove these barriers and engage the poor in constructive ways. In order for such business ventures to achieve lasting social impact, those who support them must address new challenges that arise and gain a better understanding of the conditions under which they operate and how philanthropists and social investors can best contribute.

I have never known much good done by those who affected to trade for the public good. It is an affection, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

- Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations 

As we enter the 21st century, over two hundred years since Adam Smith penned those words, his wisdom on this matter is being challenged by social entrepreneurs and supportive philanthropists who are deliberately using business ventures to serve the public good. George Soros candidly describes his own change of heart on this matter: “Where I have modified my stance is with regard to social entrepreneurship. I used to be negative toward it because of my innate aversion to mixing business with philanthropy. Experience has taught me that I was wrong. As a philanthropist, I saw a number of successful social enterprises, and I became engaged in some of them.”2

The idea of using market forces in strategic ways to promote social improvements is not new. Many donors have made grants and program-related investments to enterprises that serve their philanthropic missions, including investments in some organizations that take the legal form of a for-profit venture. Without this philanthropic support, microfinance, for instance, would not have grown nearly as quickly and would not be reaching the 100 million or so that it is serving today.

What is new is the openness and enthusiasm with which entrepreneurial, market-oriented approaches are being embraced as an integral element in creating lasting social change. Established philanthropists are opening to this idea, and new philanthropic organizations are being designed to embrace it. The Acumen Fund was established in 2001 explicitly to use “entrepreneurial approaches to solving the problems of global poverty.” With founding support from Cisco Systems Foundation, Rockefeller Foundation, Kellogg Foundation, and many others, Acumen was designed to invest in “enterprises” that deliver “affordable, critical goods and services – like health, water and housing – through innovative market-oriented approaches.” In 2004, Pierre Omidyar, founder of E-Bay, and his wife Pam decided to restructure their philanthropic activities, dramatically replacing the Omidyar Foundation with the Omidyar Network, a limited liability company that could make investments in for-profits, as well as nonprofits.3 In 2006, when the founders of Google, a wildly successful Internet search and media company, took steps to formalize their company’s “philanthropic” arm, they announced that it would be structured as a for-profit organization, “allowing it to fund start-up companies, form partnerships with venture capitalists and even lobby Congress.”4 These are just a few of the most visible examples.