As Dees notes, I think that assessing the “creation of value” is one of the biggest challenges one faces in the social sector. I also think we wade into some pretty muddy waters when we start comparing the economics of the social sector with the economics of the business sector. He seems to oversimplify the relationship between funders and social entrepreneurs, and I think misses the real value of that relationship and how similar it is to a business relationship. To describe the return on investment of a donation as “psychic income” really sells everyone short. It is true, that some people just write a check to feel like they have “done something” and enjoy the ensuing warm fuzzies. However, I think many donors, especially those operating on a local level, are consciously making an investment and are expecting tangible returns. If they regularly donate to the local watershed organization, and don’t see enough improvement in the condition of the river, they will most likely stop donating. They will stop being customers because they have determined the product is not worth the expense.
The real difference between the two sectors is that we hold the social sector to a much higher standard than business sector. He states that, “value is created in business when customers are willing to pay more than it costs to produce the good or service being sold.” Here, value creation is not necessarily about the effectiveness of the product, but instead about the willingness of others to purchase it. Value is about perception of effectiveness. For example, a lot of people might purchase an herbal cold remedy because they think it will make them feel better. If the take it and feel better, then they’ll probably buy it next time they feel sick. The value of this product comes from how well the customer can be convinced it is working, but who knows, maybe the cold just got better on its own. The for-profit world is a bit of a free-for-all, so customers aren’t always requiring rigorous medical studies to prove its effectiveness. However, in the social sector customers(donors) are a little more discerning. They operate more like shareholders in a company in that they often want tangible numbers demonstrating a return on their investment. For example, they want to know exactly how many high school children received nutritious breakfasts that year.
Where I think Dees hits the nail on the head is his description of how such tangible results are rare, “are the lower crime rates in an area due to the Block Watch, new policing techniques, or just a better economy?” However, in situations like this, I think the social sector operates a lot more like the business sector. Most people rely on a vague perception of value, rather than a scientific measurement of value. They donated to Block Watch, things got better, they’ll probably donate again.
In short, because this response is longer than I anticipated and a bit rambley, I think both business and social enterprise can survive on a vague perception of value, but more often than not social enterprise must also meet a stricter standard of tangible and measurable returns. I disagree with Dees--markets do work well for social entrepreneurs, but they must be prepared to work harder to prove that they are indeed creating value.
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