Over the last decade the world of do-gooding has seemingly been taken over by MBAs. Social entrepreneurship, a field encompassing both mission-driven businesses and entrepreneurial nonprofits, professes to bring the efficiency, rigor, and cold, hard metrics of business to the most important causes on the planet. Does it really?
Not so much, says Dean Karlan, author of the recent book More Than Good Intentions. "The social entrepreneurship world is in a weird spot, to be honest with you. It’s a world full of rhetoric about impact investing, yet I have very rarely seen an investor actually take that seriously. When you look at the actual analysis it lacks rigor." He distinguishes between the type of scientific research done by his lab, Innovations for Poverty Action [1], with trials complete with control groups, and the type of data collection done in the vast majority of the nonprofit world, which is nothing more than a "monitoring exercise."
"Take microcredit. What they do is they track how many borrowers, what their repayment was, and whether the businesses grew over time. That is not telling you your impact at all because you don’t know what would have happened if you didn’t lend."
Though he doesn't single them out by name, Karlan's critique points to behemoths such as the Bill and Melinda Gates Foundation, the largest grantmaking institution in the U.S. "A lot of money comes from groups that have used quantitative tools in the dotcom world, and they push toward collecting data that doesn’t necessarily answer the question. Now you’ve burdened your organization with data collection so you can feel rigorous." At the same time, he says, the cost of doing the kind of randomized, controlled impact studies that his organization conducts can often be prohibitive, particularly for social enterprises that are tacking for growth and "sustainability" (meaning profitability). "Put on your investor hat. If you want to put a million dollars into a business, are you going to put 33% of that into an impact study? That blows up your return. As a result, I’ve seen very few businesses that are being pushed forward as social entrepreneurship that undergo simultaneous rigorous evaluation."
Still, Karlan does see some bright spots on the horizon as his work and that of Esther Duflo's Poverty Action Lab--which also does scientific assessments of poverty interventions--grows in popular acclaim. "There’s serious excitement and enthusiasm about impact evaulation among the biggies like Gates, Hewlett, Ford, the World Bank. It’s not unanimous--we still get pushback and some are more enthused than others. But many are starting to use impact evaluation to figure out how we should spend the next $100 billion over the next 10 years."
Read more about Esther Duflo's assessment of social impact in this month's Life in Beta column [2].