• A second ‘invisible hand’ – Is this what drives social entrepreneurs?



    Adam Smith has two hands. More popularly known as the “invisible hand,” he introduced the theory in “The Wealth of Nations.” This refers to the pursuit of self-interest by individuals, which, in a free market, would drive them to create profit-driven organizations that lead to efficient economic outcomes. Less known is the second invisible hand, which refers to individuals’ sense of sympathy toward others. In “Theory of Moral Sentiments,” he acknowledges how human beings’ sense of attachment and desire to help others can, likewise, influence their economic behavior.

    Is this second invisible hand what drives social entrepreneurs? Filipe Santos, Academic Director of the Social Entrepreneurship Institute at INSEAD, seems to think so. And I tend to agree.

    In “Positive Theory of Social Entrepreneurship,” Santos argues that within each individual, there are two main drivers of behavior: self-interest, in which individuals derive utility from improving one’s welfare (in the words of Adam Smith, the strong human drive for “bettering one’s own situation”); and others-interest, in which individuals derive utility from improving the welfare of other members of society. He calls this behavioral assumption “heterogeneity of interests.”

    The strength of each driver, Santos hypothesizes, varies among individuals as some people may have more propensity for self-interest, while others may have more propensity for others-interest. While these propensities may change over time due to several factors (e.g., how people see others behaving, how much wealth people already have, and social expectations), the central argument remains: that individuals “will derive their utility from a balance of self-interested and others-interested outcomes.” This will consequently influence their behavior and the types of activities in which they will engage.

    At the aggregate level, this heterogeneity of interests could account for the heterogeneity of organizational forms that are present in the economic system. Individuals who have a similar balance of self-interest and others-interest are likely to associate with each other for organized action. Specifically, individuals who place a strong weight on self-interest will tend to form organizations focused on value appropriation, or those that are managed to maximize the benefits for their owners (e.g. commercial enterprises). Individuals who place a strong weight on others-interest will tend to associate with each other through organizations focused on value creation, or those that aim to maximize the benefits for others in society, whether or not they generate profit (e.g. charitable organizations, civic groups, social activist organizations and social enterprises).

    No wonder that an increasing number of “millennials” are attracted to the prospect of setting up their own social enterprises. In the Gawad Kalinga Enchanted Farm (GKEF), for example, we find several individuals coming from our top universities who chose to forego lucrative professional careers in big corporations to engage in social entrepreneurship. Among them are Ateneans Ron Dizon and Shanon Khadka of Bayani Brew and Xilca Alvarez of Gourmet Keso; and Lasallians Alvie Benitez of Golden Duck and Erika Ng Wong of Karabella Dairy. Take a bow, guys. Adam Smith must be applauding you.

    Raymund B. Habaradas is an associate professor at the Management and Organization Department of the Ramon V. Del Rosario College of Business of De La Salle University (DLSU), where he teaches Management of Organizations, Ethics and Corporate Social Responsibility, and Management Action Research. He is also the Director of the DLSU Center for Business Research and Development (CBRD) and Fellow of the Social Enterprise Research Network (SERN). He welcomes comments at rbhabaradas@yahoo.com. The views expressed above are the author’s and do not necessarily reflect the official position of DLSU, its faculty and its administrators.


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