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Good Fences: The Importance of Institutional Boundaries in The New Social Economy

Good Fences: The Importance of Institutional Boundaries in The New Social Economy

Rob Reich, Lucy Bernholz, and Chiara Cordelli

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New modes of funding and an ever-increasing focus on measurable outcomes have fundamentally changed the way in which nonprofits and social enterprises finance the production and distribution of social goods, both at the national and international level. Major legal changes in campaign finance (especially those emerging from the 2010 Supreme Court decision Citizens United v. Federal Election Commission) have transformed the roles that nonprofit organizations play in political campaigns and political advocacy in the United States. The rise of hybrid organizational forms such as flexible purpose corporations and benefit corporations ideally provides promising venues for the production and distribution of social goods with the potential to combine the efficiency and flexibility of commercial enterprises with the accountability and transparency of public actors, and the discipline of the market with the social mission of a public actor. Digital and mobile communications have expanded the ways in which we communicate, organize, network, and transact, which in turn has had profound effects on public, nonprofit, and commercial organizations, including the mechanisms for domestic and transnational fundraising (mobile phone donations, crowdfunding platforms, etc.) and coordination of nonprofit activity (Ushahidi, Google disaster organizing, flu tracking, etc.). Together, these changes add up to a new social economy—a dynamic and diverse set of enterprises that deploy private resources for the creation and sustenance of public goods and that shape the way these goods are distributed across society.

The emergence of this new social economy is an exciting development, full of potential to improve the financing, production, and distribution of public goods. Yet important questions surround this emerging economy and the changing structure of the nonprofit sector within it. What is, and what should be, the relationship between new sharing enterprises and more traditional nonprofit organizations? Have recent changes in the sphere of campaign finance— changes accelerated by the Supreme Court’s judgment in Citizens United— modified the balance between political and nonpolitical (e.g., charitable or welfare-based) activities within the nonprofit sector as a whole? Is the pressure on nonprofits to become more transparent and accountable as a consequence 4 Good Fences of their increasing political role compromising distinctive features of this sector, such as the traditional norms of anonymity that have long protected philanthropic donors? What is the future of impact investing and its relationship to more traditional forms of charitable giving and philanthropy? How is digital technology changing the production and provision of social goods and the structure of civil society, especially concerning our freedom to speak and associate and expectations of privacy when doing so? Is it feasible and desirable to crowdfund public goods or civic enterprises?

All these questions are joined together by the widespread awareness that the traditional separation between three sectors—the public, the private and the nonprofit or associational sector—is progressively eroding in the new social economy. Today, social goods are provided through a variety of financial mechanisms and organizational structures that mix together public, private, and nonprofit features, as well as digital and non-digital dimensions. In addition, the traditional functions of the three sectors are blurring: market mechanisms are used to support nonprofit enterprises; nonprofit enterprises are used to fund political activity; publicly funded goods are provided by privatelyowned companies, and so on. As a consequence of this, the traditional ways of accounting for the actions of the three sectors are blurring as well: quantitative metrics and outcome-based forms of measurement, more traditionally used in the business sector, are increasingly applied to nonprofit organizations and social enterprises. Norms of transparency and procedural fairness, traditionally limited to state action, are being progressively extended to private actors, and so on.

The common awareness that the institutional boundaries between sectors are blurring naturally raises the concern that the policy framework developed for the old tri-partite social economy is not up to the task of structuring and [The] traditional separation between three sectors—the public, the private and the nonprofit or associational sector— is progressively eroding in the new social economy. Good Fences 5 regulating the new social economy. The old rules are not adequate for the new tools. Yet it is impossible to propose, or even conceive of, appropriate policies unless one has an idea of where the boundaries, if any, between institutional mechanisms and organizational forms should be drawn in the first place. Simply announcing that one should draw lines between sectors in a way that “best solves problems” or “drives efficient results” is to beg the question. What work are we trying to accomplish, what problems are we trying to solve, through different enterprise forms and funding structures? How ought one decide how to structure and regulate the new social economy?

In order to answer this fundamental question, we must first ask whether one should only care about the production of outcomes (the social good or “impact”), regardless of the sector that produces it, or whether one should instead also care about how the division of roles and responsibility for producing social goods is allocated across sectors. In brief, do social outcomes alone matter or do the organizational structures or institutional mechanisms through which social outcomes are pursued matter as well? We cannot simply be guided by the question, “what works, and what works most efficiently?” We need also to ask and answer some questions about values. This is the subject of concern in this short essay.