Societal Entrepreneurship

The Welfare State is dead – long live the Kinky State

Karl Richter, March 2014

The Welfare State is dead – long live the Kinky State

King Wilhem of the Netherlands. Photo: Wikimedia Commons


I don’t mean the type of adulterous scooter socialism enjoyed by French President Francois Hollande – I mean an agile and nimble State that is deftly able to do more with less. Kinky like a change in direction of a trend line. Kinky as in ‘crinkled’ and ‘intertwined’ and ‘complex’ and ‘strikingly unconventional’. Kinky like talk about the rise of smart power in a multi-polar world – because this is the new practical reality, not because the laissez-faire types won the ideological debate about the size of the state. Quite the contrary, it’s dangerous to mistake coincidence for causality.

King Willem-Alexander, the recently inaugurated King of the Netherlands, used his maiden speech to the Dutch Parliament in September 2013 to effectively announce the end of the Welfare State. He told the nation (and the world) that austerity is not a temporary budgetary measure but a new norm – a permanent shift towards a smaller State.

He said that the classic Welfare State is evolving into the participatiesamenleving, translated as the ‘participatory society’. This new concept made such an impact that a month later it was voted word of the year in the Netherlands. According to the King, it’s time for citizens to take care of themselves or find more civil society solutions for things like caring for the elderly, because the State can no longer afford it.

We should not be distracted by an ideological debate about whether this is right or wrong. Instead, we should focus on the very practical consideration of how we – the participatory society – can fill the gap left by the retreating state.

At an OECD meeting I attended as part of the G8 work on Social Impact Investment, Nick Johnstone (Head of Structural Policy Division) echoed this point by saying that the State is moving away from being a provider of services towards being a guarantor of services.

Government needs to get smarter as it gets smaller

In Britain, the Government’s public services reform programme, which is intended to get more participation of civil society organisations in delivering public services, has been attacked by Sir Stephen Bubb (charity leader and CEO of the Association of Chief Executives of Voluntary Organisations). Sir Stephen was initially a strong supporter of the policy, but now rightly points out that Prime Minister David Cameron’s attempt to open up public services is in effect replacing “public sector monopolies with private sector oligopolies”.

These “deserts of anti-competitiveness” he says are “relegating civil society and other smaller providers to the margins”.

Government still overestimates its ability to effectively align diverse groups of stakeholders, especially when there is a large inequality of capital power amongst them. The result is that enacted policy is often disconnected from the intended outcomes on the ground, particularly when the landscape of operators comprises of both juggernauts and micro-entities.

This problem is well known. The term ‘pluralism’ was used to describe political theory of the 1950s and 1960s, specifically referring to the means of policy formation that was influenced by the resources of non-governmental groups. In practice this is not as egalitarian as one might imagine. Reality is often less idyllic with a bias towards corporatist power, which is in turn earned the name ‘neo-pluralism’.

How frustrating that the pitfalls of neo-pluralism are not being redressed today, half a century later. Governments who want civil society to better participate in the delivery of public services need to recognise that these organisations are often more modestly capitalised and smaller scale than corporate conglomerates.

As recently as 2013, the OECD concluded that European governments need to do more to level the playing field. The OECD recommends that governments need to “work across policy boundaries and adopt a systemic approach” to achieve “policies that favour growth in the scale and efficiency of the sector”.

Being more social – isn’t that more risky?

There have been few times in history when the need to harness the strengths of civil society has been greater than now. Socio-economic problems globally continue to be exacerbated by mounting pressures on our natural resources, an aging population that needs caring for, and the fiscal constraints that the 2008 financial crisis brought home as the new normal.

At the same time we see a rise of entrepreneurs and innovators wanting to help solve some of society’s most intractable problems – they are known as ‘social’ innovators and ‘social’ entrepreneurs who run ‘social’ enterprises. Unfortunately, these exciting people and organisations are still confronted with old challenges and a glass ceiling that restricts their ability to effectively engage (and be engaged) at scale.

People who have a clear vision for solving a societal challenge are often criticised for not having sufficient business sense or that their social businesses are not investable in the conventional sense. The classic argument says that social entrepreneurs are, well, just too fluffy – too focussed on the social stuff and not enough on what makes a business viable. ‘Social’, when applied as a prefix to business, innovation or investment is just a fig leaf for inadequate financial performance, is it not?

No – it’s not the ‘social’ part that makes them risky. Being an entrepreneur and running a start-up – irrespective of the social focus – is risky by nature. This is recognised by every venture capitalist who invests their business skills and management experience alongside their cash to try make the best success out of each investment.

Although the financial sustainability of social enterprises is vitally important – they wouldn’t be bona fide businesses if this wasn’t a clear objective – we should remember that not every conventional enterprise is a financial success. That is a hard fact of business.

Being ‘sustainably social’ requires a living will

When it comes to growing the scale and reach of social enterprises, we should not fixate on trying to reduce their inherent riskiness – we should accept and manage this risk as a given like we would in any other business. The priority is to figure out how to underwrite the social value that is being delivered, and to find a way of guaranteeing it if the business goes to the wall.

To be ‘sustainably social’, much more focus should be given to creating a living will to guarantee the social benefit of a social enterprise’s operations after its demise. With a living will in place the business and financial risks can be accepted knowing full well that the social good of the operation is protected.

I think most would agree that it would be immoral to carelessly allow a social enterprise to fail if vulnerable people are dependent on it. For example, we wouldn’t want a private elderly care home to simply push the old folks onto the street if it goes bust (this nearly happened to a UK provider in 2011).

This is arguably no different to the living will that financial regulators are asking the too-big-to-fail banks to adopt. For the banks, the living will is to protect customers in the real economy if the banks go bust at the casino.

So why not also make social enterprises do the same? They provide no less social good than the big banks.

Drop the ‘social’ moniker

Having waxed lyrically about why ‘social’ is good. I’m now going to suggest that we drop this moniker before we see opportunists and charlatans use it as an excuse for getting away with bad financial performance. There is a danger that fundamentally inferior business and poor investment opportunities are dressed up with a social wash that is insincere and based on a superficial label, just to camouflage weak performance.

Instead we should focus on being better able to recognise social value when we see it based on its intrinsic characteristics, and not rely too heavily on convenient labels that may or may not be sincere. In other words, by inviting some businesses to be ‘social’ we don’t want to imply that the rest have a license to be ‘anti-social’.

At a conference in Brussels last year I made exactly this point when asked my opinion for how the new European Commissioners (2014-20) could promote more social business. I said that the principles of the Social Business Initiative should be retained but the name changed to make it more inclusive – I suggested the ‘Better Business Initiative’ or the ‘Excellent Business Initiative’. I was delighted to see officials from the European Investment Bank and the European Commission making a note of this.

I now posit that it should be called the ‘Kinky Business Initiative’ – let’s see if they bite.

We should be more inclusive and open up the playing field to all types of organisations that explicitly and deliberately target the delivery of social value. We may even be surprised to see the broad range of organisations that are able to articulate how they deliver social value if given the incentive to do so, irrespective of whether they are private sector or civil society.

There is no point in having a pious battle to resurrect the Welfare State – it is dead, the King has spoken – it is now a numbers game to fill the vacuum. Both civil society and the private sector have a role to play. There is nothing wrong with greater amounts of quantifiable social value being created by organisations of any colour – more deliberate social value creation en masse can only be better for society. Where is the downside in that?

The new mainstream

The OECD report I referred to earlier adds some sober advice – that social enterprises alone are not a panacea for solving all the challenges of austerity, but they are an important contributor in dealing with them. We need the corporate mainstream fully engaged if we want a realistic chance at solving this problem.

The moniker of ‘social’ has served its purpose as a stalking horse to get this issue on the global agenda. Social investment is now formally part of the G8 programme from 2013 to 2014 and it will continue to be promoted under the Australian presidency of the G20 in 2014.

Now we should focus on doing more ‘social’ better. To do this governments need to be smarter at aligning everything that is not public sector with their policy objectives.

If everything is ‘social’ to more or less of a degree, then a binary badge of ‘social’ is also meaningless. We should therefore focus more on how to measure social value and to incentivise better its creation through market signals and active stimulation of demand for social value creation.

Freeing ourselves from the shackles of the ‘social’ moniker requires the self-confidence and conviction that the idea is powerful enough to stand on its own, and that it no longer needs the artificial support of affirmative action.

I would take it one step further and suggest that the ‘social’ moniker is in fact self-defeating and actually restricting growth of this exciting business model when we need it most. I know a few business people who do amazing amounts of positive social good, but who shun ‘social’ as fluffy. They actively don’t want to associate with it because they believe they are doing ‘real’ business and fluffy just isn’t part of that picture – yet at the same time they are intentionally delivering tremendous social value for society that is very real.

Are you kinky enough?

The Welfare State that we in Europe have come to expect and aspire to as the norm cannot sustain itself. This is not to say that the social values, mores and qualities that gave rise to it must be abandoned – however we do need to find ways alongside the State to deliver the dream. It is not about smaller state vis-à-vis bigger state per se. But, in our hyper-complicated (intertwined) and fiscally constrained world, it is more likely that the successful states will be smarter and more nimble.

Less brawn and more brain. 

Show me one manifesto from a political party of the left or right that actually offers a credible plan for dealing with the complexity of reform that is required – I can't find one. Neither side has all the answers, although parts of the solution can be found all along the spectrum. This is not the pluralism or neo-pluralism of the 1950s or 1960s – but it certainly is pluralistic by nature.

We need to make government, corporate business and civil society more effective. All three together need to be better at working in concert based on a better alignment of interests that is greater than the sum of the transactional relationships between them.

At the heart of this is a more cerebral government as convenor, coordinator extraordinaire, market maker and arbiter of social justice.

Government is the only entity that can harness the strengths of public sector, private sector and civil society combined. Yes, in future it is likely that things will be more intertwined, more complex and more unconventional. No one has all the answers, however we can only hope that our leaders of today and tomorrow are smart enough to shape the discourse by asking the right questions.

A new team of European Commissioners will be appointed this year for another term of office – will they be kinky enough to be the beacon of hope we need?

 



Tags: welfare state, social business

  • Karl Richter

    Karl H Richter, CEO and co-founder of EngagedX, which develops market infrastructure for the social ...

    Karl Richter

Additional Elements