How to Read This Report

Breaking the Binary: Policy Guide to Scaling Social Innovation is intended to add a perspective to the global conversation already under way about how we move beyond binary choices in crafting responses to social, economic, and environmental challenges. Fundamentally, it is about leveraging private enterprise and capital for public benefit. 

We refer to this as social innovation, which we define as “the application of innovative, practical, sustainable, business-like approaches that achieve positive social and/or environmental change, with an emphasis on low-income or underserved populations.” And while social enterprises do not hold a monopoly on social innovation, they are a critical but under-utilized part of the social innovation ecosystem.

There are many reasons for this, but chief among them is that our current economic system is designed to stimulate growth through a market mechanism that historically channels investment capital based only on financial results, while government seeks to address market failure through spending and aid. As neither conventional businesses nor traditional charities, social enterprises blur existing boundaries and “fall through the cracks” of existing policy frameworks, forcing them to navigate a multitude of challenges along their path to scale. 

What sort of challenges do social enterprises face and why is scaling them so difficult? Corporate legal forms do not recognize dual-purpose business models, for example, and tax systems rarely distinguish between companies that benefit society and the environment and those that damage it. Regulation is designed to protect investors from excessive financial risks but never recognizes that their decisions may be influenced by a desire to seek positive social or environmental impact. 

Overcoming these challenges is vital to moving beyond the goodwill of individuals and delivering on social entrepreneurship’s promise as a sector, and well-designed policy tools and incentives clearly serve as the foundation. The ecosystem that will support and stimulate the growth and development of social enterprises and the financial infrastructure that will fund their replication and scale will not just happen without catalytic policy support.

Do we really just have binary choices – between public or private provision of education, health and other social services; between charities and aid agencies focused only on dire needs or corporations focused only on maximizing profits; between investors who can choose only to maximize their returns or make philanthropic donations? Is there a middle way? Is there a model that embraces the financial disciplines of market capitalism but also provides opportunity and support for the vulnerable, the dispossessed and the downright unfortunate?

There is. Social enterprises balance a social mission with financial viability and sustainability, existing between the public sector and private markets in both the developed and developing world. We need to unleash a whole new wave of social entrepreneurs and help existing models with proven impact grow to scale much more effectively. If we get this right, the economic historians of the future will look at this generation of leaders and be grateful. They took the risk and transformed the prevailing model. They helped create a world that enriched the many and not just the few.

Nick O’Donohoe, CEO, Big Society Capital, UK;
Vice Chair of the Global Agenda Council on Social Innovation

So what role can and should government play to catalyse social innovation? The first section of this report attempts to answer that question, articulating a framework for credible, realistic policy action that governments can take to turn social entrepreneurship into a major force for innovation. Recognizing that a “one size fits all” approach does not work for countries and regions in different stages of development, with vastly different social problems, the framework does not aim to be prescriptive. In other words, the six broad steps are analogous to the “pieces of the puzzle” necessary for social innovation to flourish, while the case examples under each one are akin to a “menu of enabling tools” that policy-makers can choose from and adapt as their circumstances dictate. 

In addition to case studies in the US, UK, and Australia, we profile efforts under way in Senegal, Colombia, India, China, and elsewhere. The fact that there is so much policy experimentation under way around the world is a significant indicator of forward momentum in only a few short years. At the same time, because the policies and institutions profiled in this guide are relatively young, they have limited track records on which to evaluate success or failure. We should, therefore, emphasize that although these policies hold tremendous promise, we are not asserting that they represent best practice, as we simply do not have enough data to make any conclusions regarding performance.

Rather, the case studies should be interpreted as proof points of what we see as a clearly emerging global trend: governments are increasingly experimenting with ways to harness the power of mission-driven private enterprises to create public good. Public sector innovation is a long and arduous process, but it is a critical enabler to enhance and scale the impact of social innovation models pioneering solutions to many of the most entrenched social and environmental problems we face today. Our hope is that these cases not only provide a comprehensive snapshot of where the policy frontiers lie today but also that they stimulate a broader debate about how much farther we can move the needle in the months and years to come.

For those who are familiar with the principles of social entrepreneurship, the value they create for society are obvious, and the case for encouraging more of this kind of enterprise development is intuitive. But for the majority of people who have heard these terms thrown around in many different contexts and situations, the significance might still be unclear. 

For that reason, the second section of this guide profiles leading social enterprises in the Schwab Foundation network working in specific domains: education, health, employment, urban development and rural development. In profiling proven social innovation models, our aim is to showcase the realities of social enterprises, bring the abstract concepts of “social entrepreneurship” and “social innovation” to life, and inspire the next generation of social entrepreneurs to build off of these models and apply them to different problems or cultural contexts. 

For policy-makers, too, we hope that the social innovation models profiled in the second section demonstrate how social enterprises occupy the grey space between governments and markets, how they deliver products and services that lead to improved outcomes for poor people, and thus why it is in the overwhelming public interest to encourage the growth of these models through appropriate policy tools. 

From our point of view, the trend lines are extremely encouraging. A confluence of factors – including reduced government expenditure, a greater emphasis on evidence-based interventions, growing consciousness among investors, and a new generation of talented social entrepreneurs who are pushing boundaries and developing disruptive solutions – all point to a window of opportunity that cannot and should not be missed. There is a greater openness for cross-sector dialogue and for experimentation with new approaches than at any time in recent memory. 

We hope this guide helps to advance the debate beyond a general recognition that policy change is a necessary ingredient for inclusive growth and stimulates robust national discussions about concrete steps that governments and policy institutions can take to accelerate the innovation already beginning to take root.