I’ve been thinking about risk relating to social enterprise, and the difference between public risk, which we could define as risk undertaken by social entrepreneurs working for social enterprises auspiced by Not for Profits / Community Organisations, and private risk, which we could define as undertaken by individual social entrepreneurs.
As an entrepreneur I have taken both private and public risk. I was the founder of two start ups (one of them cofounded with Georgia Farrell); in these environmental enterprises the financial risk was private, when I lost money it was my money. The only people that suffered as a result of the loss was myself and my immediate family, which although in itself painful did not put others at risk due to my good, bad or otherwise business decisions.
As a social entrepreneur running SEED I make financial risks that are pubic, because the money which is at risk in the business decisions I make is not mine but public money brought in from government grants, philanthropy, and/or saved earnings which are owned by the Incorporated NFP who employ me.
So, my decision making is affected by two things, first by making and loosing my own money on ventures (which is the best way to learn, but also pretty costly!), secondly by the nature of the public risk I take with SEED’s money. This can make me a cautious entrepreneur, but one that currently creates value for the organisation paying my wage.
In doing some reading on the notion of risk I came across this article – The Marketization of the Nonprofit Sector: Civil Society at Risk? . The authors, Eikenberry and Kluver argue that in America, around the time of their writing in the early 2000’s, and drawing extensively on research from the 1980’s onwards that “the public sector is increasingly adopting the methods and values of the market to guide policy creation and management. – Similarly, nonprofit organisations have increasingly adopted the approaches and values of the private market (Weisbrod 1998), leading to what Salaman (1997) calls the ‘marketisation’ of the non profit sector”
As market mechanisms and entrepreneurialism are pushed onto the NFP sector risk is increased. Who’s risk? Public risk. This is because with Marketization NFP’s are shepherded to gamble with cash reserves in an effort to shore up their finances or even for survival in the face of spending cuts by government.
We have some interesting parallels between the United States in the early 2000’s and contemporary Queensland where the Newman Government has taken a slash and burn approach to public spending knocking down many effective community programs in their wake. They do this with the never ending mantra of bringing the state budget back into surplus, accusing the previous Labor government of squandering public funds and then leaving the incoming administration with a huge deficit. These assertions by the Newman government have been challenged along with the efficacy of the research conducted leading to the justifications of spending cuts (the ‘Commission of Audit’ was led at great consultative cost to the taxpayer by a previous Federal government treasurer on the Newman government side of politics).
So, we have an environment similar to the United States in the 1980’s and 90’s where both brands of politics slashed spending on ‘social welfare’. According to Eikenberry and Kluver an incredible $46.5 Billion in funding was lost to not for profit organisations during this time. The Newman government claims the total amount of deficit is estimated to be around $9.5 Billion in 2012/13 (www.commissionofaudit.qld.gov.au), so although we wont see the same size of social welfare spending cuts here, the sector is already feeling the pain. We do see however the parallels in the ideological reasoning for cuts and their preferred method of social welfare delivery; competitive, lean, and offering perceived value for money.
Here in Brisbane there are many community organisations in great panic over the loss of funding they have already suffered, and the future projections for more cuts. This has prompted many of them to look for entrepreneurial ways to raise income outside of the funding streams, including the NFP who employ me as a social entrepreneur to run the enterprise arm of the organisation. Community organisations in Queensland are looking at entrepreneurial solutions to try and keep staff employed, continue to provide services, and protect their organisations from financial collapse.
This strategy of course comes at great risk. Ellison and Flint of Social Enterprise Works (UK) wrote in “Managing in Tough Times” there are several types of risk; “Strategic, commercial, operational, technical, financial & systems, and compliance” . All of these can be exacerbated by Directors/CEO’s and boards of NFP’s who are inexperienced in managing businesses. Of course there is an argument that Directors and CEO’s of NFP’s already manage the business of their organisation, but I argue it is a different skill set required to manage using enterprising frameworks.
Other risks associated with an entrepreneurial approach to raising funds for NFP’s are made clear by Eikenberry and Kluver who point out the risk to civil society. They reference several authors who claim that:
the market based model of public management, with its emphasis on entrepreneurialism and satisfying individual clients’ self interest, is incompatible with democratic accountability, citizenship, and an emphasis on collective action for public interest. Furthermore the market model places little or no value on democratic ideals such as fairness and justice.
They go onto argue that although
Marketization may be beneficial for the short term survival needs of non profit organisations, it may have negative long term consequences. Marketization may harm democracy and citizenship because of its impact on non profit organisations’ ability to create and maintain a strong civil society
To find out more on the implications for civil society see the link above to the article.
To conclude and to bring back the concept of public V private risk I ask how entrepreneurially risk taking can a social entrepreneur be if she or he is employed by a NFP? Do social entrepreneurs need to be risk takers? The literature would suggest entrepreneurs do need to take risks; does this hold true in the social sector? One would assume yes. This begs the question; what if the best learnings in business are from failures, which I argue they probably are, then how can social entrepreneurs legitimately take risks with public money, fail, learn, take more risks, fail, learn, repeat? A private entrepreneur can do this until bankrupt if they so desire, but is it ethical to do this with public funds? What does it say about the risks for organisations’ long term viability? If NFP’s are being pushed into Marketization especially those looking at entrepreneurial solutions to their financial woes they would do well to think long and hard about risk.