Article co-authored by Vanessa Kirsch and Kim Syman of New Profit Inc.
President Obama's new White House Office on Social Innovation and Civic Participation represents more than just another bureaucratic office. If leveraged effectively, this Office could transform how we solve our nation's most pressing domestic problems -- and ultimately move the needle on critical challenges in education, health care, poverty, joblessness, the environment, and more. Here's how.
Just as innovation in the private sector has been the key to our nation's longstanding economic prosperity, so too can innovation in the social sector provide the solutions we need to solve our nation's most challenging social ills. The social sector in its current form, however, fails to foster, support, and scale innovation. Fundamental shifts need to occur in the structure of the social sector in order for systems of innovation to truly take hold.
While many factors contribute to the current dynamics of the social sector, the lack of a clear metric of effectiveness -- such as profit -- makes it difficult for resources to flow to high-performing organizations that are achieving the greatest impact. Adam Smith's invisible hand is, essentially, directionless.
Hence, rather than capital flowing to social initiatives that are most effective, much of it goes to failing non-profits with suboptimal impact or whose footprint is limited and will not scale. Retailer John Wannamaker once famously quipped that "Half the money I spend on advertising is wasted. The trouble is I don't know which half." This is true in spades for philanthropic spending. The effectiveness of America's philanthropic dollars would be incalculably improved if they could be more astutely targeted.
The same principles apply to government funding too: government currently spends billions of dollars per year in education, workforce and economic development, public health, and related areas. But allocation of these resources rarely happens though a process that would enable us to identify and grow the most powerful innovations. For example, most contributions to entities that qualify for not-for-profit status are tax-deductible, but the same level of subsidy occurs regardless of performance, making these subsidies seemingly indiscriminate. We see education nonprofits that aim to help failing public schools receive the same tax subsidy regardless of whether they improve academic achievement. In short, the federal government is already subsidizing social innovation at massive scale, but not in a targeted or performance-based manner.
Enter the White House Office of Social Innovation and Civic Participation.
This Office can use its convening power to help break though some of the toughest barriers that have long prevented marketplaces that can grow social innovations from taking hold, like the lack of metrics that enable us to know what works and the need to invest in "bottom up" versus "top down" solutions. It can help catalyze a shift in the social sector that would better guide funding and support towards social enterprises that have impact.
How might the Social Innovation Office do this? It must have three priorities.
First, it must demonstrate a new way to solve social problems where government serves as an investor in innovations that are developed and identified by citizens outside of government who better understand the problems and can thus identify and support innovative solutions. The Obama Administration and Congress took the first step in this direction with the recently created Innovation Fund, included in the Edward M. Kennedy Serve America Act signed into law in April.
Second, the Office should guide more social innovators towards "bottom-up" initiatives, in preference to "trickle-down" philanthropy - because the societal impact of the former is typically greater. Bottom-up innovations, also known as disruptive innovations, enable a larger population of people who previously had limited access to expensive services to now enjoy them. By illustration, philanthropy has built most major concert halls, and funded most major symphony orchestras. These have enriched our culture, to be sure, but this largesse by the elites largely benefits the elites. Disruptive or bottom-up investments, like RCA's Victorola record players and Sony's transistor radios, brought music to those who couldn't afford the symphony in the concert hall. These disruptive innovations distributed music to a much broader population, even to the consumers who initially lacked concert hall fidelity, and transformed our society's consumption of music. Support for these types of disruptive innovations in the social sector could surface new, more effective, higher-impact solutions to our most stubborn social challenges, too.
Third, the Office should use the convening power of the White House to initiate a focus on impact and metrics. Specifically, the White House should help initiate a process by which categories of social innovations are agreed upon, and metrics can be defined for assessing the impact of innovations in each category on the social problems that they target. Just like independent rating agencies have developed methods for assessing the safety of investments in various securities, methods might emerge that help social investors categorize the type of impact that various social entrepreneurs hope to achieve, and to rate the present and potential effectiveness of their efforts to achieve that impact. Just as investors would never invest in securities whose risks were not balanced by potential returns, few philanthropists intend to dissipate their hard-earned capital propping up non-profits that are unlikely to succeed with their stated missions, and whose impact cannot scale. New methods for measuring risk and impact would help tremendously.
It goes without saying that the Office should also use its convening power to break down an antiquated assumption that all social innovation is the province of the non-profit sector. Our language, accounting conventions, capital markets and tax codes all amplify the binary belief that profit is the opposite of philanthropy and incompatible with social innovation. It isn't. For example, for-profit micro-lending is quickly upstaging non-profit spending by the World Bank as effective mechanisms for helping people escape poverty in nations around the world. All enterprises that hope to sustain their work need capital to survive and grow. We urge the White House to embrace this perspective and use its convening power to lift up social innovation without regard to tax status.
Some people might wonder whether government should even be in the business of fostering and directing social innovation. After all, the government's track record in initiating impactful innovations has been decidedly mixed: On the one hand, federal subsidies spawned America's system of state universities, which extended the availability of higher education to far more people than could be admitted to elite private colleges. And the miraculous potential of molecular medicine has emerged thanks, in no small measure, to funding from the National Institute of Health.
On the other hand, vast sums of taxpayer dollars have been wasted on innovations that proved foolish. Over $60 billion has been spent equipping schools with computers, for example, but with no measurable impact. And the billions wasted on oil shale as a solution to America's dependence on foreign oil in the 1970s parallel the billions being dissipated on biofuels in the present decade.
But with record unemployment, rising job loss, a high school dropout crisis, strained communities, and unprecedented economic restructuring, we don't have a choice but to innovate.
If the White House Office of Social Innovation can improve the context for social innovation, its impact will extend far beyond a new government bureaucracy -- it will transform the way we solve problems; create a powerful new alignment around impact; and foster an environment where government, the vast reservoirs of American philanthropy, and socially innovative entrepreneurs will spend less on things that don't work, and more on things that do.