To tackle the complex challenges of climate change and inequality, a systemic, bottom-up approach is needed, even in challenging times. With escalating tensions in Ukraine, a growing Sino-American rivalry, and many economies grappling with high debts and inflation, overcoming these challenges may seem practically impossible. However, a holistic approach can still yield progress, even under unfavorable conditions.
Conventional development strategies that rely heavily on international trade and investment are losing their effectiveness in an increasingly divided global economy. Moreover, national governments and multilateral development banks are struggling to balance the demands of climate action, pandemic recovery, debt repayment, and in some cases, conflict.
The problem of poverty, inequality, climate change, and environmental degradation is systemic and complex. However, most prevailing policy approaches focus on devising separate solutions to specific problems or specific facets of problems, with little regard for how their solutions – and the underlying problems – interact.
According to environmental scientist Donella Meadows, a system is “an interconnected set of elements that is coherently organized in a way that achieves something.” Our planetary system is failing because humans have organized the elements they can control in ways that produce negative outcomes. To optimize the functioning of our social, ecological, and economic systems and ensure human and planetary well-being, we must recognize their interconnected nature and address problems holistically.
Governments overwhelmingly embrace top-down, siloed solutions that are often ineffective. For example, when governments deploy specialized agencies to support rural village development, they increase transaction costs by delivering physical infrastructure piecemeal and failing to build shared databases that facilitate coordination. Weak ties to the local community can also undermine the efficacy of interventions. Meanwhile, multilateral action implemented by nation-states is often inefficient because the scale of multilateral development banks and aid agencies is simply too large, with individual entities and actors each operating according to its own goals and standards.
What is needed instead are bottom-up strategies underpinned by community-based and nonprofit social enterprises – entities with social objectives in addition to economic targets. Effective social enterprises are “dedicated to ‘doing good,'” but also “realize that good intentions are no substitute for organization and leadership, for accountability, performance, and results,” according to management guru Peter Drucker.
Micro, small, and medium-size enterprises (MSMEs) are better equipped than large corporations to deploy the mission-driven management that social enterprises require. MSMEs account for 90% of all businesses globally and 70-80% of total employment, despite often making little or no profit. Therefore, they are responsible for the livelihoods of billions of workers, making them invaluable repositories of knowledge about most people’s needs and interests.
These interests include ecological imperatives, which are inextricably linked to economic and social considerations. The poorest and most vulnerable tend to be most affected by environmental hazards, from pollution to natural disasters. At the same time, poverty can drive communities to over-exploit natural resources, like forests and fish stocks, in a desperate search for income.
Unfortunately, MSMEs lack access to formal capital markets and the holistic policy and institutional framework that would enable them to act as effective social enterprises. A 2015 UN Development Programme report found that these shortcomings significantly impede social-enterprise development.
Meanwhile, a small number of massive firms enjoy enormous wealth and market power, often translated into policy influence. But even as multinationals tout their environmental, social, and governance goals, ESG considerations remain subordinate to profit maximization. Less connected to local communities, these firms are not well-suited to provide the kind of bottom-up micro-solutions that, taken together, bring about systemic change.
Effective social enterprises realize that good intentions are no substitute for organization, leadership, accountability, performance, and results. They need access to formal capital markets and a consistent legal environment that would enable them to act as effective social enterprises. However, a UN Development Programme report found that these shortcomings significantly impede social-enterprise development.
Large firms enjoy enormous wealth and market power, often translated into policy influence, but they are not well-suited to provide bottom-up micro-solutions that, taken together, bring about systemic change. They are less connected to local communities, making them less effective in addressing ecological imperatives that are inextricably linked to economic and social considerations. The poorest and most vulnerable tend to be most affected by environmental hazards, while poverty can drive communities to over-exploit natural resources in a desperate search for income.
Technology has enabled the creation of a “global knowledge commons” through which social enterprises can access the knowhow and financing they need through trusted accreditation. We have the tools, resources, and funding available to tackle the collective challenges we face. However, more must be done to make the most of these assets. Existing technology, knowhow, and business models must be leveraged to help social enterprises achieve sustainability and impact.
In summary, a systemic, bottom-up approach that recognizes the interconnected nature of our social, ecological, and economic systems is necessary to address poverty, inequality, climate change, and environmental degradation. Social enterprises, particularly MSMEs, could play a crucial role in achieving this goal. Effective social enterprises require access to formal capital markets, a consistent legal environment, and a holistic policy and institutional framework. Technology can enable social enterprises to access the knowhow and financing they need to achieve sustainability and impact.