Is the profit motive compatible with social innovation?

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” This is what the early political economist Adam Smith said in The Wealth of Nations, in 1776.

He firmly believed that the profit motive generates wealth and that human nature means that individuals are motivated by personal wealth. These factors have certainly led the world into some difficulties throughout history and, of late, most graphically.

But a new generation of social innovators has set about showing that technology, financial instruments and business methods could be applied in place of, or as a complement to, charities that benefit the poor.

The same creativity and business principles that make millions for Wall Street can be harnessed and adapted to advance the charity model to address more effectively some of the world’s seemingly intractable problems.

Let us not, however, throw the baby out with the bath water. Philanthropy is good because it does not seek financial profit. The great philanthropists and civic benefactors have long looked at ways to improve the lives of the poor. But it can encourage donor dependence and there are big questions about sustainability, so even philanthropic giving must be leveraged and used innovatively.

Social innovation has taken a step beyond, moving away from patronage and enabling more people in the world to enjoy health and economic opportunities in ways that can be sustained. “Impact investing”, a term used to describe investment capital that seeks outsized social and environmental returns in addition to a modest financial gain, has become high profile among many foundations and donor agencies.

Impact investors are negotiating their way, carefully and cautiously, to finding a reasonable balance between making a profit and doing good sustainably.

Over the past year, members of the Global Agenda Council on Social Innovation have discussed these vital issues and more. What amazes me is the amount of attention the sector is attracting in the US, the EU and elsewhere, even at the highest political levels.

Many members of the Council – particularly Jacqueline Novogratz, Nick O’Donohoe and Johanna Mair, who all straddle multiple worlds of investment, government, and research – have significantly influenced the global debate.

Now the task is to turn that debate into action. Over the coming years, the Global Agenda Council on Social Innovation, in collaboration with the Schwab Foundation for Social Entrepreneurship and the World Economic Forum, will increasingly collaborate with governments serious about fostering social innovation.

A decade from now we might be talking about a significant sector of the global economy that is a powerful force for truly inclusive growth.

Author: Andrea Coleman, Co-Founder, Riders for Health; Schwab Foundation social entrepreneur and member of the Global Agenda Council on Social Innovation.

Image: The cover of Adam Smith’s Wealth of Nations, 1776