The social problem solving revolution

Governments are increasingly looking outwards for solutions to social problems like obesity.

Revenue challenged governments at all levels need to urgently look beyond their usual field of reference and consider what non-traditional and external agents can bring to the problem solving table, argued William D. Eggers, global research director for Deloitte’s Public Sector practice, in our April/May 2014 issue.

There is very little that we haven’t asked from government in modern times. We ask it to keep us safe from terrorists and to protect our privacy; to prevent global economic meltdowns and stop the contagion of failing states; to bail out banks and contain the spiralling costs of an array of competing vital interests, from health care to education.

The sheer range and variety of these goals mean that government agencies often find themselves working at cross-purposes. Public health agencies fund obesity programs while the U.S. Department of Agriculture subsidises sugar. Transportation departments fight traffic congestion on the one hand while subsidising road use on the other. International development agencies provide aid to farmers in the developing world while trade barriers keep foreign agricultural goods out of Western markets.

Developing countries may lack such an ambitious public sector, but neither can they afford to produce one—at least not the same model as the West. For these countries, it would take decades for GDP growth to grow fast enough to support industrial-age government, with its soaring costs in health care and education. Consider India. Per-capita health-care spending in India would have to increase thirty-seven-fold to match Canadian spending levels. At current rates of growth, this wouldn’t happen until 2070—much too late, considering India’s rapidly growing middle class. India simply can’t afford to take the high-cost Western route. Increasingly, the West can’t either. The defining feature of Western style government—its success in catering to a wide variety of citizen needs—has become its greatest liability.

Governments are going broke while contorting themselves into ever-stranger positions to satisfy often contradictory constituent demands. In Colorado Springs, for instance, tight budgets led to reduced city services and, ultimately, a system in which community residents made à la carte purchases. If a neighbourhood wanted its street lamps to light up at dusk, it could pay the city a $125 fee. Keep the nearby park maintained? $2,500.

In Europe and North America, the great recession forced governments on a path of austerity, causing them to reduce their police forces and close schools, libraries, and hospitals they could simply no longer afford. And with debt growing at a rate of roughly $4 billion per day in the United States and more in Europe, fiscal constraints have become the new normal. So at both the low end and the high end of spending, governments have a desperate need for an alternative to a traditional top-down service model.

Fortunately, government is no longer the only game in town when it comes to societal problem solving. Society is witnessing a step change in how it deals with its own problems—a shift from a government-dominated model to one in which government is just one player among many. Over the last decade or so, a dizzying variety of new players has entered the societal problem-solving arena. Acumen and Ashoka, Kiva and Kaggle, Zipcar and Zimride, Recyclebank and RelayRides, SpaceX and M-Pesa, Branson and Bloomberg, Omidyar and Gates—the list is long and growing briskly. They operate within what we call a solution economy.

These new innovators are closing the widening gap between what governments provide and what citizens need. This approach promises better results, lower costs, and the best hope we have for public innovation in an era of fiscal constraints and unmet needs.

The Economy in Eliminating Problems

In the 1970s and 1980s, governments provided for the public good while the private sector largely stuck with Milton Friedman’s admonition that the social responsibility of business was to increase its profits. Thinking beyond the bottom line was viewed as unfocused or, even worse, a disservice to shareholders. Meanwhile, because outside the United States civil society tended to be relatively small and highly localised, individual citizens and communities were only able to organise with limited scope and scale, placing a heavy dependency on government.

Many problems went unsolved. The solutions that did emerge didn’t spread easily. Citizen needs, particularly those of the poor in the developing world, went unmet. Today, the landscape has changed dramatically. Citizens, businesses, entrepreneurs, and foundations often turn to each other rather than relying solely on the public sector to coordinate solutions to every problem. This is blurring, if not eliminating, decades old divisions of public and private sector responsibilities. Whereas the twentieth century was a time of sector specialisation, the twenty-first century has boundaries too fluid for, say, a public nutrition issue to be the sole province of government.

Blurred economic borders

A new economy has emerged at the borderlands where traditional sectors overlap. This economy trades in social outcomes; its currencies include public data, reputation, and social impact. Untapped markets are developed and drive financial returns. The business models are unusual, and the motivations range from new notions of public accountability to moral obligation to even shareholder value.

New problem-solving innovators and investors power the solution economy. These wavemakers assume many forms, including edgy social enterprises with the mentality of a Silicon Valley start-up, megafoundations, and Fortune 500 companies that now deliver social good on the path to profit.

They range from Ashoka, which deploys three thousand citizen changemakers in sixty countries, to the global pharmaceutical giants that annually give away billions of dollars in medicine to low-income citizens anywhere, from Africa to the United States.

Just how big are the contributions of these new players? Unlike government spending fi gures, this data has not been systematically tracked. Their impacts translate only tenuously into dollar terms. However, even a rough estimate suggests trillions of dollars in impact. Consider just a few data points. In 2009, private US philanthropy to developing countries exceeded official US government aid by almost $9 billion. In one survey of 184 global companies, the average company contributed about $22 million to philanthropy, with the group total exceeding $15 billion in just one year.

Even institutional investors have started funding groups that create public value. Socially responsible investing has grown into a $1 trillion industry. The solution economy represents not just an economic opportunity, but a new manner of solving entrenched societal problems. Equipped with new business models and lightweight technologies, the new problem solvers are less impeded by sectorial divides.

Whether a problem is public or private, social or commercial, economic or political is not what drives the design. Rather, the ability and energy to reach the previously unreachable, raise funds from untapped sources, and leverage social networks is fuelling new markets for solving entrenched societal problems. These multi-billion-dollar markets are forming around some of the world’s toughest problems, from fighting malaria to providing low cost housing to educating the poorest of the poor. In these solution markets businesses, social entrepreneurs, non-profits, and multi-national companies compete, coordinate, and collaborate to solve mega-problems.

Patch management

Instead of trying to patch a market failure, they create a market for the solution. Foundations, venture philanthropists, governments— and, often, private businesses themselves—act as funders, investors, and market makers. Unlike most government-driven programs that are limited by political borders, these emerging solutions spread nimbly across the globe. In less than a decade, Unilever’s Project Shakti microloan program for women in rural Indian villages expanded from seventeen saleswomen to forty-five thousand, serving three million Indian households; it is now spreading to Sri Lanka and Bangladesh. This all might inspire a touch of skepticism. You might be thinking something like this: We have markets in shoes, in homes, and in automobiles, but markets in societal outcomes? It seems illogical. Weren’t these big, wicked problems the very areas where we’ve experienced market failure in the first place—where government was forced to step in?

Take something like human trafficking. It’s easy to see how there can be a market in engaging in this awful practice, but can a market be constructed to help stop it? We assert that yes, you can create markets—or at least market mechanisms—around problems like environmental clean-up, transitioning from welfare to work, and even fighting human trafficking.

In fact, markets and economic ecosystems are developing around all manner of societal problems. The buyers in these markets purchase impacts or outcomes: healthier communities, kids who can read, reduced recidivism. Sellers provide the outcomes for the buyer: they design and sell cheap, solar-powered lights; write the code that tracks salmonella outbreaks using government data; and build the cross- sector networks to fight scourges like human trafficking. Government’s role has changed dramatically just in the past decade or two. Sometimes it is a funder, but usually not the only funder; sometimes it integrates all the players; sometimes it’s the market maker; sometimes it’s just one of many contributors to the solution; and sometimes all it has to do is get out of the way to let these solution markets work.

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