The thick end of social entrepreneurship’s thin means

Development Policy11 Jan 2012Grant Rhodes

Health care is a human right, a ‘global public good’ to fight ‘global public bads’. This does not mean that health care is free.

Can you ‘cut’ human rights?

Health care is a human right, a ‘global public good’ to fight ‘global public bads’. This does not mean that health care is free. Developed countries, for example, now devote as much as 30% of their groaning public finances to it. But, for the bulk of the world’s population, health care is paid directly by the consumer. An anathema to many in both the development and health (care) industries, but at the nexus, in the ‘global health community’, the primary beneficiary of the Millennium Development Goals project, it can be considered close to an abuse of human rights. Thick issues. The ‘global health community’, which includes (I)NGOs, multinational corporations and government agencies, then has plenty at stake if a solution to shrinking aid budgets cannot be found. Surely there can be no ‘thin’ solutions?

It was therefore with some trepidation that I agreed last May to present at a conference on social entrepreneurship in health care and development in Eindhoven. My role was to tell a simple story.

Health care and global demography are not what they were in 1948 when the Universal Declaration of Human Rights appeared. Constant innovation to save lives and improvements in care quality have a price. We have to accept that states cannot continue to be expected to bear the full price. Innovations will be needed and who better at providing them than entrepreneurs? How better to ensure that we do not loose sight of the public purpose of health care – the crown jewel of a welfare state – than using development aid to provide investment capital to (non-profit) social entrepreneurs in health care? Surely some market-based but non-profit health care (comfortingly familiar to a Dutch audience) is a very small price to pay for the benefits of modern medicine. And besides, OECD DACs export credit rules already provide the systems and infrastructure to move ahead quickly. We could start tomorrow. A similar story could be told for agriculture (food rights) or any sector seeking project and program finance under development aid. But this is not the story I told. The times demand greater risk taking – and sharing.

The benefits of (social) entrepreneurship actually operate at the individual/ organizational, and the societal level. Social entrepreneurship is both ‘kaizen’ and ‘social kaizen’. And it is its affects in the long-term at the societal level, are what make it a serious candidate for the future of development aid.

Entrepreneurship, innovation and ‘Kaizen’

Entrepreneurs are the undisputed high priests of innovation. In their search for innovation (I)NGOs and other development agencies have also rushed to embrace ‘partnerships with the private sector’.

Few concepts provide a better illustration of the eulogized relationship between business, entrepreneurship and innovation as the Japanese principle of ‘Kaizen’ (改 善)- (continuous) positive change(s). The principle is elegantly simple and popular amongst management gurus. Whatever you do, try to continuously refine and improve every step and every component of it down to and including the discipline and conscientiousness with which you and each other person takes part in it. It is then very closely associated with such personal effectiveness concepts as ‘mindfulness’. The process continues repeatedly even infinitely. It does not matter whether you are a: Sumo wrestler, nurse, or manufacturer of clockwork radios or power stations. Think big, by focusing on the manageably microscopic.

Contrasts to traditional approaches to development (aid), and certainly the Millennium Development Goals, could not be starker. Kaizen development is not; a loud and proud collective movement towards a defined (and certainly not utopian) and far off ‘goal’ to be achieved by a ‘big push’ to be reached by any given date (in an ‘evidence based’ whole, or externally invalid parts!); rather it is a silent process of infinite, individual, tiny and largely unpredictable steps from reference points not in the future; but in the past and present. A known context. The future is not known. The future is maybe a good reference point for selling dreams and mobilizing the masses, but it is a very bad reference point for serious planning and action. Too many variables are uncertain. Too few can be controlled.

Only those who survive can innovate

There is therefore a second dimension to entrepreneurship. A pre-condition. Control. Managing risk and uncertainty. Surviving failures to continue innovating (Figure 1). How is this done? There would seem to be two key components.

The first ‘trick-of-the-trade’ that both social and commercial entrepreneurs employ in dealing with uncertainty involves, ironically, a planning tool that was largely developed for public development finance but has long been out of fashion in development aid. Cost benefit analysis and decision (‘appraisal’, i.e. ex ante) modeling. The double and triple bottom line (social) rate of return methods of earlier development aid has even been adopted under Corporate Social Responsibility initiatives. At the same time, development aid administrations themselves, and the Global Fund in particular, moved further and further away from these methods seeking a new ‘gold standard’ of ‘monitoring and evaluation’ in public (development) project and program formulation and finance. The cancellation of Global Fund Round 11 would suggest this quest has not been successful. And the major beneficiaries of these changes, (I)NGOs, also chaff at the ever increasing weight of layers of ‘key indicators’ and ‘public consultation and participation’ reporting.

It would seem these experiments have been as much about influencing public discourse in western donor countries away from the need to talk about ‘priorities’ and ‘priority setting’ (criteria) and towards ‘rights’ and reducing public priorities to solely (loosely defined) ‘inequality’ as managing public development funds purposefully. In vilifying the calculation of ‘return rates’ donor public administrations missed the point of such work. The key purpose and the reason why all entrepreneurs still use these forms of decision support, is not to self-delude oneself about possible future ‘profits’ – always fun but not particularly useful – it is to identify risk(s). Risks identified can then be mitigated.

There are any number of ways for an enterprise to mitigate investment and operating risk be it: a company, an (I)NGO, or entire development agency. The same tactics apply to social and commercial entrepreneurs. It is not important which are used. It is important that an organization does not rely on just one at a time. ‘Hedging’ is the second trick-of-the-trade. Hedge variables within plans and hedge plans in their entirety. Only marketeers and propagandists sell certainties and scientific truths of future outcomes. However much you believe in a plan, do you ‘have some skin’ on alternative outcomes? Hubris only tempts the Gods on Olympus. Again, micro- and financial economics provide the theoretical foundations, and jargon can be found in portfolio theory.

Social entrepreneurs in health care in developing countries – and the key lesson for (I)NGOs – survive therefore not because they ignore human rights and stoop to charging (some) patients (some) fees, but because their income streams are hedged! It may feel comforting to have the security of being completely publicly funded. Decade long public (for example PFI) contracts are just as appealing to commercial companies. But, and here is the rub, governments can also go bust. And do frequently. Development experts more than anyone should know this. Hedging is how an organization survives short-term failures to live and innovate another day. But there is a final twist in this story.

Social Kaizen: diversifying the burden of life’s uncertainties

If an organization is not hedged, sooner or later it will fall; because things change. Plans are never perfect. In the unromantic language of economists an organization and its people and customers/clients become ‘residual risk’ for some other party to catch: the family, church communities, trade unions, insurance companies, and ultimately – as the West is now discovering – the government treasury and society. Each provides different and overlapping levels of safety nets to both individuals and organizations; complex systems in even the poorest and least developed societies.

But the 0.7% of GDP question is; ‘What happens if more and more individuals and organizations start living completely off a society’s final hedge of resources for a rainy day?’.

The true benefit of social entrepreneurship is therefore not only that enterprises pursuing social goals learn to live more independently and innovatively, albeit pragmatically, but that the collective result of these thousands of independent actions. Increasing the independence of individual action reduces the burden on the cascading means for collective security. It replaces a negative feedback loop of compounding social burden (‘moral hazard’ cascades in the jargon) with a positive feedback loop of compounding social and collective interest and returns. The development of social capital through thousands of tiny, continuous, steps. What might be described as ‘social kaizen’.


One can be under no illusion that many will continue to prefer grand plans, soaring rhetoric and the mobilization of masses approaches to ‘thick’ development issues and ‘global social justice’. For the directors of development agencies and (I)NGOs considering this alternative I would ask one question; ‘With health care at often >30% of western public expenditure, its largest component and no break in sight, do you think you will win a battle with the rhetoricians of ‘local social justice?’. The omens are ominous. Hence for the humble individual? Social entrepreneurship is the alternative ‘thin’ contribution you can make. Take the risk, and share the burden of some of life’s uncertainty. The rewards may be ‘thicker’ than you had dared hope.

The lessons of social entrepreneurship in health care in development (aid) and public finance may therefore be generalizable and universal, and apply at home as much as abroad. Making it a truly global development alternative.