Why Social Enterprise Will Flourish During the Great Recession

recession-specialThe deterioration of the American economy has caused trouble for many nonprofits. State grants and private donors have been reluctant to use their depleted coffers to help fund social causes. In February of 2010, the Wall Street Journal reported that states allocated 5% less in 2009 and 4% less in 2010 to pay for health care, education and human services. Meanwhile, according to Giving USA Foundation, charitable giving fell by 3.6 percent last year, the second largest fall since 1956, when the foundation began conducting its surveys. Reeling from a drop in donations and government funding in the wake of economic recession, many American nonprofits are undergoing cutbacks and closings.

Despite this bleak situation, however, history suggests that social enterprises can and should flourish during these difficult economic times. The economic slowdown of the late 1970s induced the Reagan administration to cut funds that supported nonprofits. Janelle A. Kerlin of the Department of Public Management and Policy at Georgia State University observes that, “nonprofits in the civil society sphere seized upon the idea of commercial revenue generation as a way to replace the loss of government funds.” Thus, the roots of the modern social enterprise movement in the United States can be found in the economic climate produced by Reagan-era spending cuts.

Interestingly, the greatest fall in charitable giving occurred in 1974 (when giving fell 5.5 percent, adjusted for inflation), right around the time that the concept of social enterprise began to take hold among socially-responsible American businesspeople. The recession of the late 2000s has had similar effects, and many nonprofits are adapting to the lack of funding. Absent a reliable source of public funds and donations, nonprofits are forced to utilize market-oriented solutions to achieve their social goals. Indeed, in a recent Justmeans post, Marcia Stepanek points out that an increasing number of social entrepreneurs are coming from business backgrounds instead of the nonprofit sector. It appears that innovative market approaches are driving today’s socially-oriented organizations and businesses.

If innovation is what socially-oriented organizations and businesses need to survive in today’s economic climate, then these organizations will need to find employees with business-savvy to drive that innovation. Fortunately, the recession-era job market has produced a wealth of highly qualified applicants for nonprofits and social enterprises. In an article in Business Week Online from April 2010, Thomas W. Monaco, director of international advising and outreach at Columbia University, observed that, “Increasingly, the economy has forced students to get creative with job options.” Recent graduates faced with an anemic job market and professionals who have lost their jobs are seeking work with organizations that provide lower salaries but higher social value.

As a result, volunteer programs and social enterprises have received an increase in applications from highly qualified job seekers. The social enterprise sector is sure to benefit from an influx of talent and ambition. Business-savvy professionals, trained in applying sophisticated business planning, setting up credit unions, managing sales accounts and making efficient use of resources, are uniquely qualified to provide essential services to social enterprises.

With the economy struggling, the provision of social services is more important than ever. With Americans struggling to find work, access affordable health services and pay for education, innovative solutions to these problems are in high demand. Hopefully, the recession will create just the economic climate to make the field of social enterprise more robust and diverse as the economy continues to recover.

For more information on the emergence of social enterprise (in the U.S. and abroad), read Jerr Boschee’s “Merging the Profit Motive and Moral Imperatives: The Rise of Social Enterprise in the United States” (2010) and Janelle A Kerlin’s “A Comparative Analysis of the Global Emergence of Social Enterprise” (2010).