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Accelerating the Impact Economy: How Government Can Get Us Into Gear

Have you ever wondered whether government has a role to play in the impact economy? Deloitte has, and they believe that everyone from impact investors to social entrepreneurs should understand what government can do to grow the space. For this special bi-weekly series, the Skoll World Forum and Forbes have partnered with Deloitte to discuss policies, politics, and possibilities for government to accelerate the impact economy.

 
 

The Impact Economy Abroad: What the US Can Learn From the UK, India and Australia

Ross D. Rocketto

GovLab Innovation Fellow, GovLab

Rob Terrin

GovLab Innovation Fellow, GovLab

Shrupti Shah

Director, GovLab, Deloitte Consulting

What is the Impact Economy Anyway?

Shrupti Shah

Director, GovLab, Deloitte Consulting

Ross D. Rocketto

GovLab Innovation Fellow, GovLab

Rob Terrin

GovLab Innovation Fellow, GovLab

 

An Important New Task for the U.S. Government

Sonal Shah

Senior Fellow, Case Foundation

Jitinder Kohli

Director, Public Sector Practice, Monitor Deloitte

 

Setting the Table: Who’s Who in the Impact Economy

Setting the Table: Who’s Who in the Impact Economy

Shrupti Shah

Director, GovLab, Deloitte Consulting

Ross D. Rocketto

GovLab Innovation Fellow, GovLab

Rob Terrin

GovLab Innovation Fellow, GovLab

August 21, 2013

 

The last post in this series provided a broad overview of the Impact Economy. But what is it really? As stated by Jonathan Greenblatt of the White House Office of Social Innovation and Civic Participation, the Impact Economy is “where supply and demand converge, not on the notion of a market clearing price, but on the notion of a world-changing mission.” Unlike other markets, the actors involved in the Impact Economy are intentional about producing social and financial value. This focus on social and financial returns, with a clear articulation of the tradeoffs between the two, makes the Impact Economy unique as the actors are not defined by their role, but by their intent to create positive impact through market-based solutions.

Since this description is open to interpretation we thought it would be helpful to describe the organizations and types of investments that make up the Impact Economy, a few of which we’ll outline here. Let’s start with the broad categories of actors and how government supports each group.

  • Entrepreneurs – the “boots on the ground” in the Impact Economy. Entrepreneurs execute the business models to create both public and financial value. Examples of these entities include 501(c)3 organizations as well as for-profit corporate entities. For the purposes of this series they will be referred to as social enterprises.
  • Sources of capital – sources of capital distribute resources, by acting on their own behalf or as intermediaries, to entrepreneurs. Examples include individual investors, foundations, venture capital firms, etc.
  • Field builders – Field builders are entities that seek to fill market gaps by creating whole new areas of practice that engage a diverse set of stakeholders. Examples of field builders include foundations, government, academia, and support organizations.
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From an economic perspective, most of these actors fall either on the supply or demand side of capital markets. On the supply side there are the sources of capital or impact investors who “aim to solve social and environmental challenges while generating financial profit.” In capital markets money flows from the supply side to the demand side to entrepreneurs or the social enterprises. Field builders can be on either the supply or demand side and work with either impact investors or entrepreneurs to grow the space.

These groups interact with government through:

  • Regulation and enforcement – government can create and enforce rules and provide incentives for entrepreneurs, sources of capital, and field builders.
  • Taxation and subsidies – government has the ability to distribute money as subsidies or providing grants by raising taxes, taking on debt, cutting existing services, or some combination of the three. Many state and local governments have balanced budget requirements making it difficult borrow year-to-year.
  • Direct service provision – government can create social welfare programs like the Temporary Assistance for Needy Families (TANF) and the Supplemental Nutrition Assistance Program (SNAP).
  • Facilitate and convene – government can work with markets and organizations to elevate issues, share leading practices, and provide additional credibility to specific problems or proposals.

The current policy environment has difficulty supporting the Impact Economy both on the supply and demand sides. On the supply side, there are few incentives for investors or philanthropies giving to entities that blend social and financial return as their historical role was to incubate social solutions. On the demand side, the federal government does not currently recognize any legal forms that blend for-profit and not-for-profit business models.

For the space to reach its full potential, all organizations within the Impact Economy should understand that government has a role to play in further catalyzing market forces already underway. Likewise, government has an opportunity to be proactive in how it interacts within this ecosystem, whether it is on the supply side, demand side, or as a field builder.

The remainder of this series will focus building a shared understanding between the prominent actors in the Impact Economy and government.

 
 
 

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