Tanner Methvin (TM):
When it comes to social problems like affordable housing, access to energy, quality education, healthcare, job creation or food security, the common refrain is why doesn’t someone do something about it. Rarely, do we remember that we are someone. Realising that we can all contribute to the many challenges we confront is a big first step. However, it is only one step. Understanding who is addressing these challenges, where the gaps are, and what alternatives exist, is a more complicated endeavor. Historically, social problems have been the domain of non-government organisations (NGO), but in post-democracy South Africa, the public sector took on a developmental role and put itself in the middle of addressing the issues confronting its citizens. More recently, the social enterprise model has emerged. Entrepreneurs are creating businesses that both address these challenges, while also generating profit. Although the public, civil and private sectors are all involved, the prevailing expectation in our country is that the government should fix every social ill we face. This is impossible. Actually, we aren’t asking the right questions often enough. For example, who is responsible for what? Are they best suited to address the issue? Are there alternatives here or elsewhere? And, how do we collectively take the jump into the messy space of modelling, testing, and scaling the solutions that work?
Derek Carelse (DC):
Your comments remind me of the discussions taking place around State-owned enterprises (SOE) in South Africa, mostly for the wrong reasons of nefarious activities. There should be a serious debate about the contribution of the public and the private sectors in the context of the market and the state. Many of the social issues get squeezed out of the market. And, what happens when the State becomes a watchdog state rather than a provider of services, which uplift people from the bottom up? Or, rather than the totally discredited trickle-down economics model?
Can one say that the neoliberal public policy of our government has contributed to social inequality? And if so, how can we even begin to expect civil society to, for example, fix the broken school system in South Africa? These are big questions, which must be addressed vigorously, since leaving them unanswered and unresolved will lead to a total market capture of the economy (the market and the economy are two separate entities), either by business or government. And then civil society, NGOs and social enterprises are expected to solve those problems in a financially sustainable way.
TM:
The idea and practice of a developmental state are two different things. When government ramped up its role in the delivery of social services, this act and all its consequences did not inherently lead to greater social inequality. However, taking on this role has compromised civil society by closing our funding sources and pushing critical human capital out of the sector. One of the material consequences of this intervention by the State has been to blur its role as enabler, regulator, financier and service provider. When you take on all of these roles, it is easy to be deluded into the belief that you are good at everything. When it comes to addressing social problems, the State can play an extraordinary role in transferring wealth (taxes to social grants), regulating qualities and standards in the public interest (everything from food safety at schools to certifications for orphan care) and as an enabler for those best suited to deliver the services needed. When it comes to figuring out how to deliver energy to the poor, nutritious meals to schoolchildren, wellness care to the elderly, or a myriad other services in an efficient and cost-effective manner, NGOs and social entrepreneurs are substantially better equipped than the public sector. We must determine what models can deliver the best service, at the lowest cost, in the most financially sustainable way, and invest in replication and scale. Without this clarity and commitment by all stakeholders, we will continue to run in inefficient, costly circles while the poor continue to suffer the consequences.
DC:
If, as you say, NGOs and social entrepreneurs are better suited than the public sector at delivering social solutions, why do NGOs and social entrepreneurs constantly hear the popular refrain of, “You have to be financially sustainable” to be funded? Allow me to bring The Big Issue (TBI) into our conversation. TBI is an interesting reflection of the dynamic you have outlined. It is a true social enterprise, which invests its entire turnover in the beneficiaries, namely the self-employed entrepreneurs who sell the magazine every month. They buy the magazine for R12.50 and then sell it for R25.00. That means 50% of the cover price goes to the vendor, who makes a 100% profit on his or her investment. TBI’s commitment in a co-investing job-creation model will obviously place strain on the operations of the organisation and restricts its ability to generate a surplus. Yet, there appears to be reluctance from corporates to fund TBI on a co-investment basis. I recently presented a co-investment opportunity to the corporate social investment (CSI) foundation of a blue-chip company. Its response was: we do not invest in organisations. A few questions come to mind on reflecting on this recent experience. Can one infer that perspectives have to change from both sides of the funding table? And, what would happen to a social enterprise that does not produce a commercially desirable product? Bear in mind TBI’s 50% share of the cover price means it will close without funding, as it cannot sustain itself on that basis. And, if TBI needs to scale its successful job creation model to Gauteng, will funders see that growth as financially unsustainable because of our 50% co-investing business model? Yet many successful multinational corporations received financial backing based on a business model that articulated losses for a good few years before generating a surplus.
TM:
Being financially sustainable to secure funding is nonsensical unless you deeply understand what social solution is best suited for a for-profit model. Aids orphanages cannot operate at a profit, but renewable decentralised energy provision for people on the grid can. Some solutions only work with State or grant funding, which can never be deemed financially sustainable. Often, long-term sustainable solutions require venture philanthropy, which takes the risk in getting a solution to scale. Once that scale has been reached, however, a traditional investment approach is applicable. It sounds like TBI fits neatly into this paradigm and dilemma. It has defined a market opportunity, tested and refined its product, and proved that it works, but to become truly sustainable it needs scale. For example, selling 10 000 magazines a month in one province requires it to seek grant funding to supplement the organizational income. Increase its sales to 20 000 a month and it reaches break even. Increase that to 30 000, and it can now offer additional services to its vendors and the market. This brings me back to an earlier point. The public, NGO and private sector all have a critical role to play in cracking the seemingly intractable challenges we face. Knowing who should be doing what and building a functional ecosystem in this shared vision is the key.
ABOUT THE WRITERS
Derek Carelse is the managing director of The Big Issue. He has spent his working life as an art and creative director in the advertising and design industries before crossing the line to join the suits in the corporate world. For the past four years, his focus has been on social enterprise and cultural innovation.
Tanner Methvin is a partner at Impact Amplifier. He has been working in the social innovation field for the last 20 years, assisting private, a and non-profit organisations to build a more environmentally conscious, socially just and abundant world. www.impactamplifier.co.za
Republished with permission from The Big Issue
