What are the problem-solving sectors in a society? For many, there are just two: government and business. The space in between is often ignored, but no less important. That space - a third sector between legislative action and for-profit enterprise - has long been one of the most effective in defining and addressing a myriad of social problems.

According to Karl Zinsmeister, author of a book on the regenerative power of civil society in the aftermath of the 2016 US election, solving public problems with private resources has a long and hallowed tradition in America, particularly as “civil society sprang up in the US before the government”. So how can this tradition continue to address today’s problems - not just in America but globally, as poverty, economic inequality, climate change and an estimated 65.6 million refugees continue to perplex policy makers?

Here are three ideas.

Follow the young guns

A new generation of young philanthropists is investing more of their money, and are doing it earlier, narrowing the gaps between commerce and cause.

They also demand the same performance and accountability, risk-taking and innovation that they have applied in their start-up models.

Mark Zuckerberg and his wife Priscilla Chan launched their new philanthropic initiative (funded by approximately $45 billion of Facebook shares) last year with the goal of “advancing human potential and promoting equality”. The first disbursement of funding is targeted “to help cure, prevent or manage all diseases by the end of the century.”

At Davos in 2017, the Gates Foundation teamed up with the world’s largest medical charity, the Wellcome Trust, the World Economic Forum and the governments of India and Norway to launch the Coalition for Epidemic Preparedness Innovations (CEPI), which will accelerate the development and deployment of vaccines for major infectious diseases. This coalition aims to overcome the complex regulatory hurdles that hinder medical trials in many countries, and the limited market potential of many drugs which often delays the delivery of vaccines to those who need them most.

So we can already see tangible evidence of the power of civil society and private sector philanthropists to fill in those gaps between market incentives and government prerogatives. Yet this type of transformative action is not limited to billionaires alone.

Our era of big data has also empowered millions more to become philanthropists and to choose how and what they give. The young tech titans came of age in the context of millions of markets for hundreds, instead of hundreds of markets for millions. More eclectic fundraising models have proliferated via social media so that tomorrow’s philanthropic titans will be the sum of a collective with modest incomes, empowered to spend smartly.

Consumers will demand ever-higher standards of ethical and social impact from businesses, which will make positive societal impact a top-line goal. This is where responsible business comes into play.

The new private sector role

Both the need and the potential to utilize the private sector as a partner well beyond the traditional donor role are becoming increasingly evident.

The response to the ebola outbreak demonstrated how public-private coordination is essential to tackling emerging threats effectively. This coordination relates to health, logistics and supply chain capacities, transport, communications, technology, data management and financial services, as well as key local knowledge of communities and cultures that can be invaluable when time is of the essence.

NGOs such as Rotary already have a proven ability to act as the bridging partner between private expertise and public challenges. For example, as part of the Global Polio Eradication Initiative, we partnered with healthcare company Abbott in India to provide Mega Wellness Camps, in which a large number of doctors provided free consultation and education to all walk-in patients on a wide range of health issues.

One future opportunity is to build on the existing UN Logistics Cluster and develop a Global Strategic Pandemic Reserve to build stores of key medical supplies and develop best practices for a medical goods supply chain. The Cluster already counts private companies (such as UPS and Maersk) among its members, so this is one clear collaborative enterprise which has the potential to stop a future pandemic in its tracks.

 What is a social investment bond?
What is a social investment bond?
Image: Social Impact Investment Taskforce

Beyond risk and reward

Since social impact investing became part of the G8 agenda in 2013, new models for harnessing the power of non-profit and private interventions are proliferating. Social impact investing can be defined as the coalescing of “entrepreneurship, innovation and capital to power social progress”. Ronald Cohen, chair of the Global Social Impact Investment Steering Group, sees it as a “new asset class” which can supplement the “two established agents of social intervention”, government spending and charity.

For many years, it was difficult to answer the inevitable question: How do you blend and measure social and financial returns? This is no longer the case. Today, we have concrete figures to better determine the cost of social challenges, and the economic impact of preventive action. For example, in the UK, “the annual cost to the government of a convicted youth offender is around £21,268” whereas the cost of a successful intervention could be as little as £7,000. We also know that polio eradication will save up to $50 billion through 2035 in healthcare costs and productivity. However, it is often difficult to find the initial capital for public projects that only deliver cost savings in the distant future.

To address this barrier to investment, we can leverage these new abilities to measure social and financial returns in order to create new opportunities for collaboration between NGOs and the private sector. Early applications of novel instruments for cross-sector initiatives, such as social impact bonds (SIBs), are promising.

Seventeen governments now use SIBS, which are a 'pay-for-success 'model to help governments fund critical social programmes through a combination of government initiation, private investment, and non-profit implementation. Investors are only repaid if and when improved social outcomes are achieved, making this model more cost-effective and more resilient to political change than traditional publicly funded services.

Reports on the first SIB, which was launched in 2010 to reduce prisoner recidivism in the UK, reveal that the pilot – in which a specialized NGO worked with former offenders on practical problems such as housing, benefits, training and education - has made both a meaningful improvement in the lives of ex-offenders, and is an effective financial model. After four years, re-offending was reduced by 8.4%, and, by the last evaluation, investors were on track to receive positive returns.

The market for SIBs and other instruments of social impact is growing. The measures of success for investment are expanding, too. If 19th century investment was defined by reward, and the 20th century benchmark was risk and reward, then the 21st century will be defined by risk, reward, and impact. Exciting developments in the third sector can catalyse a new era of sustainable, and financially viable, impact.