Social Entrepreneurship And Its Impact On The Economy

There are so many social entrepreneurship ventures in India that work to make India a better nation. An article by Down To Earth in 2015 shows that there are 3.2 million NGOs in India. It also claims that there are more per-capita NGOs than hospital beds in India, 4 NGOs per 1000 members of the urban population, and 2.3 NGOs per thousand members of the rural population. As much as we are shocked about the abysmal level of healthcare in India, it is important to understand the concept of social entrepreneurship and how it is important to the economy of a country, particularly in countries like India. 

Entrepreneurship does not have a concrete definition but it has concepts that differentiate it from a business. In the book “How To Change The World”, David Bornstein writes, quoting economists Jean-Baptiste Say and Joseph Schumpeter, that entrepreneurs usually are able to transfer resources from a lower place to another higher place that yields greater productivity and profits. At the same time, entrepreneurs are able to unleash “creative destruction”, which is creating new products or systems through innovation that replaces the old system. Applying these concepts to solving social issues is broadly understood as social entrepreneurship. To put this more clearly, Archana Singh, in her book “The Process of Social Value Creation: A Multiple-Case Study on Social Entrepreneurship in India”, writes that despite disagreements amongst scholars on its meaning, it is commonly agreed that Social Entrepreneurship is a field where individuals exhibit entrepreneurial behaviour such as being innovative, exploiting numerous opportunities that arise, and mobilise and use resources to their own benefit, to create social change and solve social problems within a certain context i.e., with respect to the socio-economic and political climate.  

Bornstein further writes that in response to the “demand” for social change due to technological advances leading to dissemination of knowledge amongst people about issues such as environmental degradation, inequality, and human rights violations, people “supply” their freedom, money, time and ideas to solve them through social entrepreneurship. The reason for the surge in the number of social entrepreneurship ventures around the world is because of the freedom people have today in accessing information and resources needed to start a social organization, which was limited before. At the same time, there had been a surge in the per capita income of many of the free market economies by 700% in the twentieth century, thus, also creating the capital needed to fund these social organizations. Communication technology, despite increasing the gap between the rich and the poor, has also helped people to educate and mobilize themselves to start these social entrepreneurship ventures. These factors drive the need and subsequently, the proliferation of these social entrepreneurship ventures today. 

The most important reason why social entrepreneurship is necessary and beneficial to the economy is that social entrepreneurship seeks to correct market failures and government failures. The book ‘Government Failure Versus Market Failure: Microeconomic Policy Research And Government Performance’ defines Market Failure as “a situation where the equilibrium allocation of resources is not Pareto optimal.” Here, “Pareto Optimal” is a type of resource allocation in which a change in the present structure of resource allocation will be detrimental to one or certain groups of people. This might occur for various reasons: the existence of monopolies, use of inadequate information to make economic decisions, market power held by a few firms that make the markets uncompetitive, economic activities that exclude certain people, negative externalities, and so on. Similarly, government failure refers to a situation where the involvement of the government in solving the market failure further worsens the condition in such a way that allowing the market to correct itself would have been efficient and yielded better results. 

There is enough literature to show that it is difficult for the government to correct market failures. Rather, it makes it worse. Joseph Stiglitz said that the government often fails in making the market Pareto efficient due to the following reasons: One, it fails to commit itself to solve issues from a long-term perspective. Two, the government often fails in securing efficient bargains as it uses incomplete information. Three, government’s involvement destroys market competition and subsequently, the entrepreneurial spirit amongst competitors in a market, leaving no scope for innovation and improvement in parameters such as quality. Finally, the government fails to foresee the changes in public policy and its consequences. Additionally, Daron Acemoglu and Verdier Thierry showed that government agencies cannot escape without experiencing corruption within the organizations if they use bureaucrats to conduct activities such as collecting data and creating policies. This has serious implications for the general economic health of the country, such as misallocation of resources, a decline in human development indexes, erosion of economic freedom and competition, and so on. Social entrepreneurship ventures try to eliminate these failures in a more efficient way. 

An example of this is the quality of education in India. The findings of the ASER 2019 Report shows that through the Right To Education Act, 2009, India was able to enroll more than 90% of its children from the age group 4-8 in primary schools, but only 5.7% of students between ages 4-5 can read a grade I textbook. This number slightly increases to nearly 12.7% and 26% as age increases, showing the abysmal quality of education in India. But there are many social entrepreneurship ventures such as Teach For India that are working towards solving this issue through innovative ideas such as Fellowships that allow people to teach students that come from underprivileged backgrounds.  

Social Entrepreneurship has a very important duty in an economic setting. It is high time that people and the State recognise this and allow them to organize and create a change that would benefit the economy in the long run. 

Siddharth G is an undergraduate student at Ashoka University, with interests in Economics, Public Policy, and Political Science.

One comment

  1. Social entrepreneurship will be instrumental in ushering us into the changing global scenario. Kudos to the writer for speaking about it

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