Is a ‘third way’ for international development just a mirage?

9 April 2014
Comment

Are you old enough to remember Tony Blair’s (and Anthony Giddens’) ‘third way’, circa 1998?

Although it failed to take off as a catchphrase, its description of the big policy space between unbridled capitalism and rigid statism is now a fact of life in countries rich and poor. If not in North Korea, yet.

Indeed, the ‘third way’ concepts of market regulation, tax incentives, private-public partnerships and more are enough to make one wonder if, strictly speaking, the extreme book-ends of state-only and market-only exist at all. These are overlapping bundles of private and public responsibilities, often closely synchronised.

 

The social enterprise appeal

In international development, the twin pillars of market failure and state failure have likewise been established out for years. Similar conclusions have been reached about what kinds of public interventions and hybrid constructs might help deliver greater social impact, while relying mainly on the positive dynamism and innovation to be found in ‘well-regulated’ private markets –whatever those are.

More recently, thanks mainly to the burgeoning ‘impact investment’ industry, led by US-based private foundations, official aid attention has started to focus on a specific class of institution – usually labelled social enterprises (SE).

SE are described as capable of achieving both social impact and financial viability.

Forget the details for a minute. That deceptively simple sentence offers a hugely appealing spending prospect for international development agencies – small and judicious injections of capital and skills which seed self-sustaining engines of social change. Wow. Why not?

The next question is whether these prospects actually exist, in large enough numbers, and if they really do what it says on the tin?

 

What is social enterprise hype, and what is not?

An ODI report published last week unpacked old and new motives to deploy taxpayer resources in support of business models for social impact. It looked in detail at programmes funded by five major agencies, including USAID and DFID.

In my view, the agencies have yet to address the key distinction: whether an enterprise achieves social impact additionally to other (profit-related) objectives, or if it is motivated primarily by social impact.

Are we in danger of conflating everything, from small non-profit initiatives with a specific commercial element - an Oxfam shop perhaps? - right through to giant multinationals, who can tell good stories about the millions linked to their value chains, but  have other bottom lines to worry about as well? Another ODI paper delves further into where these boundaries lie.

This basic ambiguity can leave we-the-taxpayer struggling to find out if our money is well spent. When goals are unclear, so will be impact assessment. And it leaves a host of questions: Who benefits exactly, compared to what alternative? By how much? Who is subsidised and who is not and why? Which party bears what risks?

Without a better definition of our bottom-line goals for this public stake, in particular how we weigh up social returns against private ones, how can we be sure that this new ‘third way’ is not another mirage?