Capitalism has been criticised for prioritising profit over social value, but what if it could achieve both? What if it could be reshaped so it can generate social and environmental benefits whilst being financially sustainable?
These topics are explored in powerful research that has been the catalyst for far-reaching change in the emerging economy of Chile. Led by Newcastle University Business School in collaboration with Professor Pablo Muñoz at University of Liverpool, the research has led to the implementation of key tools and policies that have enabled entrepreneurs to achieve major social benefits in this country.
The scope of the project
Undertaken by an inter-disciplinary team with expertise in public sector management, social accounting and entrepreneurship in developing countries, the research focused on the merits of funding social innovation and social enterprises through Social Impact Bonds (SIBs) – a financial instrument that pays a return based on the achievement of agreed social outcomes.
It also looked at the funding of entrepreneurship in emerging markets, with a particular focus on the wider social economy of Chile. Initially, researchers conducted a survey of 584 social entrepreneurs in Chile, along with a further 70 interviews.
The research identified several key challenges for the social enterprise sector regarding investment, growth, collaboration and the ability to measure social impact. In particular, the study revealed that the underperformance and lack of growth in the sector could be explained by the paucity of social impact measurement tools and collaborative working cultures in existence in Chile.
Dr Jonathan Kimmitt, who led the research at the business school, says: “Our research shows that social entrepreneurs’ capacity to measure their social impact improves their ability to compete in their marketplace and attract necessary investment that can help to grow their business. Also, working with other social entrepreneurs can lead to the development of new insights and perspectives and really help the entrepreneurs to understand the environment in which they operate.
“It follows that these entrepreneurs need a political and economic climate that allows collaboration to flourish and makes it easier for them to measure the social impact of their work. They need an environment that encourages them to invest in projects that drive social innovation and positive change.
“This is particularly important for the Chilean social economy, which is relatively underdeveloped. Therefore, we knew our research had the potential to drive change and help policymakers, social entrepreneurs and organisations that run business incubation units for start-ups.”
The potential of Social Impact Bonds (SIBs)
The key recommendation from the research was that SIBs had potential to develop the investment market in Chile’s social economy. As a direct result of this, the incoming Chilean government pledged to spend US $50 million on SIBs in its 2017 election manifesto – the most significant public policy commitment to SIBs from any emerging economy government.
To assist with the roll-out of SIBs in Chile, the researchers developed a diagnostic tool to help public sector organisations that commission SIBs to decide when a SIBs model may be an appropriate investment vehicle and where it may cause more harm than good.
This research has improved understanding of social entrepreneurship, and how to improve its effectiveness in terms of generating societal benefits. In turn, this prompted a significant decision by CORFO, the Chilean economic development agency, to re-design its social innovation seed funding programme (SSAF). Now SSAF applicants have to satisfy eligibility criteria based on social impact measurement tools and collaborative approaches.
It seems as though the changes have paid dividends. The modifications to SSAF took place in 2018 and by November 2020, the programme had supported 178 social entrepreneurship projects administered through incubator programmes, investing around £3 million.
The changes to SSAF have also had a significant positive impact on the social entrepreneurs and incubator managers.
Dr Kimmitt says:
“It has made social entrepreneurs think more about social impact and the ways in which positive social outcomes can drive improved performance."
"The SSAF changes have also enabled incubator managers to create a better environment for social entrepreneurs to generate positive benefits for society – by encouraging more collaborative working, for example, and putting more focus on social impact measurement techniques.”
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