Responding to Clayton Christensen’s article on Government’s potential role in Social Innovation

My recent post on Clayton Christensen’s article on Social Innovation resulted in several comments and responses questioning the appropriate role of the government in fostering social innovation. I do believe there is a role for government to play in encouraging growth in this sector. I believe the Office of Social Innovation is a well intentioned attempt by Obama of putting Social Innovation on the nation’s agenda. I also believe that the government should try to be a transparent facilitator where needed and then get out of the way and let the market work its way.

The single most critical issue for a young, startup social entrepreneur is the lack of a well structured ecosystem to encourage social innovation. This is where the government can play a significant role. Some of the things it can do are to:

  • Invest and encourage in infrastructure building. Seed urban points of networking where like minded social entrepreneurs, social investors and volunteers can meet, exchange ideas, recruit and grow their enterprises. These are the seeds from which corporations grow. There are too few venues where social entrepreneurs can be incubated in the same way as for-profit tech entrepreneurs are. The government can help provide seed funding for social incubators that grow the next generation of social entrepreneurs. It can encourage the creation of a social stock market where social businesses can be listed and early stage social investors can cash out to later risk-averse social investors.
  • Create rules and regulations that provide transparency and encourage trust. We need to develop standardized and acceptable metrics that can be used across the board to evaluate social entrepreneurs. Like the public private partnership between the SEC and FASB, a similar structure that helps define social accounting and rules that address social impact needs to evolve.
  • Provide social and tax incentives to encourage social investors to step in to this domain. The government can define corporate structures that encourage social businesses like the L3C Corporation and the B Corporation. It could allow socially responsible, mission-driven organizations to be set up as social businesses with the ability to raise some equity, conduct some income generating activities, provide limited returns to social investors and allow limited tax write-offs due to any losses in equity investment. Through tax incentives, government could encourage regular businesses to create subsidiary social businesses while simultaneously limiting the financial returns being passed back to the parent. Other tax incentives could perhaps provide socially responsible investors in these types of entities with some additional benefits for taking on social risk.
  • Use its bully pulpit to shine the spotlight and motivate entrepreneurs to focus on this sector. Even in the first six months of his administration, President Obama and his wife Michele have increased the visibility of social entrepreneurs both by word and deed. Their actions, rooted in their years of active grass roots participation, have a genuine ring whether it is their call for a day of service or growing a vegetable garden in the White House. By example, the administration can also lead people to invest in service based organizations.

This list doesn’t imply that everything is put on hold while the government goes about its job, or metrics are defined, or appropriate structures created. Rather it is meant to highlight areas where government action would provide the most impact. As more of the younger generation turn to social entrepreneurship, we will continue to see hundreds of young entrepreneurs taking the plunge regardless of the infrastructure that is in place. By focusing on these areas, the government will only make it easier for these new enterprises to survive in the long run.

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