A Theory of Social Entrepreneurship

Social entrepreneurship is a growing field of economic activity and academic interest. Social entrepreneurs and the social oriented organizations they create have become important actors in our economic system, organizing resources into productive activities and creating value for society. Yet the very existence and economic role of social entrepreneurs seems at odds with our economic and organization theories which assume that economic action is driven by self-interested behaviour of individuals and profit-driven motivations of organizational actors. Social entrepreneurs are thus often seen as deviant economic actors, as “do-gooders” that want to help the poor or disadvantaged segments of the population. Despite the growing interest of academia about social entrepreneurship, there is currently no accepted theory that can bound the phenomena, define its distinctive domain of action, and guide research, practice, curricular development and public policy. The goal of this paper is to address this gap by developing a positive theory of social entrepreneurship that relies on economic and organization theory arguments to explain its societal role as opposed to moral or ethical arguments. By bringing the notion of others-interest into the realm of economic action and by focusing on the fundamental trade-off between value creation and value appropriation, I explain when situations of simultaneous market and government failure may arise, thus creating a unique role for a new type of institutional actor. I thus propose that social entrepreneurship is the pursuit of sustainable solutions to problems of neglected positive externalities. I further discuss when areas of positive externalities are likely to be neglected by other institutional actors. I also derive the central logic of action of social entrepreneurs as one of empowerment, as opposed to the traditional logic of control that dominates theories of strategy. This paper suggests that social entrepreneurship is the 2 nd invisible hand of Adam Smith, being driven by others-interest not self-interest. Social entrepreneurship is the mechanism that leads societies to more efficient economic outcomes by ensuring that positive externalities are systematic explored for the benefit of society. The theory allows to distinguish social entrepreneurship from other types of organized behaviour, such as entrepreneurship, corporate social responsibility and philanthropy. This paper thus establishes a clear and well bounded theoretical frame capable of advancing scholarly research and education in social entrepreneurship. The proposed theory has important implications for innovation policy. Knowledge creation, technology development and education are all areas with important positive externalities, generating spillovers that benefit society. Governments have a key role in promoting and harnessing these spillovers through traditional policy mechanism based on incentive alignment such as intellectual property laws and subsidies for green energy. These mechanisms are based on mainstream economic thinking that assumes self-interested actors and considers that the challenge of public actors is to align private incentives with social goals. Yet, this approach has been challenged by the success and widespread adoption of innovative business models such as open-source software development (e.g. Linux), open source knowledge creation (e.g. Wikipedia) community-based IT educational projects (e.g. CDI in Brazil) and technology adaptation and transfer to emerging economies (e.g. Sekem in Egypt). These models show us is that there is a new type of economic actor in society – the social entrepreneur. Social entrepreneurs are driven by a different set of motivations and behaviours and tend to develop new types of institutions and business models. Policy-makers need to understand how this new actor behaves, why it is so powerful in innovating for the public good, and how social entrepreneurs can be supported and promoted. This paper thus provides the conceptual framework that enables the development of innovation policies that harness the power of social entrepreneurship to solve some of the most fundamental societal problems of our age.