Difficult Economic Times? Yes. The Right Moment to Unleash a New Model of Social and Economic Progress? Absolutely.

By Nick O’Donohoe*

I suspect that, when the historians of the future look back at the post-credit-crisis decade, they will report the sort of changes in the economic and social Zeitgeist that happen only once or twice in a generation. They will record that the theories of market economics that drove growth, employment, unprecedented technological progress and rampant globalization over the previous 30 years had been challenged – not perhaps entirely replaced – but altered in a fundamental and far-reaching way.

They will teach their students that the model of market economics based largely on self-interest failed in at least one important respect: it neglected to deal with its own social consequences. They will note that, although more than three decades of growth and globalization had produced a richer and more prosperous society for many, it had not produced a fairer, more balanced and more equal society for most.

They will point to the global credit crisis as the catalyst for change: an event that created broad disillusionment with the financial sector and led to a fundamental re-evaluation of market principles; an event whose aftermath – including the fiscal crisis now spreading across the developed world – has already shown us that government cannot be the answer to the social consequences of an economy driven by self-interest, for the simple reason that it cannot afford to be.

If our current system is inadequate, what can we design to replace it? How can we harness the strength of the market to better address the negative social consequences it creates? Do we really just have binary choices – between public or private provision of education, health and other social services; between charities and aid agencies focused only on dire needs or corporations focused only on maximizing profits; between investors who can choose only to maximize their returns or make philanthropic donations? Is there a middle way? Is there a model that embraces the financial disciplines of market capitalism but also provides opportunity and support for the vulnerable, the dispossessed and the downright unfortunate?

There is.

Social enterprises balance a social mission with financial viability and sustainability, existing between the public sector and private markets in both the developed and developing world. Harnessing the power of social innovation must be front and centre in the transformative process underway. We need to unleash a whole new wave of social entrepreneurs and help existing models with proven impact grow to scale much more effectively.

We need to offer more products and opportunities to investors willing to direct at least some part of their portfolio to impact investing (broadly defined as investments intended to create positive social and/or environmental impacts beyond financial return). We need to help those governments that encourage this broader value system by helping them develop a policy agenda that supports it. We need to celebrate those companies that leverage their financial, human and technology capital to accelerate this change.

Over the next 12 months, the Global Agenda Council on Social Innovation will develop a toolkit that policy-makers can use to ensure they are doing all they can to encourage social innovation. The toolkit will highlight best practice in tax and regulatory policy. It will suggest legal forms that embrace social and financial values. It will consider the critical role of financial intermediaries that provide loans and equity financing to social enterprises.

The toolkit will also reference changes in the definition of fiduciary responsibility (beyond the narrow interpretation of solely maximizing returns) to allow trustees to become more flexible in supporting social enterprises as well as funds that seek to combine financial and social objectives. It will highlight the importance of providing technical assistance and investment to social enterprises in the developed and developing world. It will provide guidance on changes that can be made to ensure that charitable funds and foundations are able to act as catalysts for the emergence of the sector.

If we get it right, the economic historians of the future will look at this generation of leaders and be grateful. They will be grateful that they saw a challenge and seized an opportunity. They invested the time and money; they made difficult choices. They took the risk and transformed the prevailing model. They helped create a world that enriched the many and not just the few.

*Nick O’Donohoe is the Chief Executive Officer of Big Society Capital in the United Kingdom and a Member of the Global Agenda Council on Social Innovation. Previously, he was the Global Head of Research at JP Morgan.