Economic Calculation and the Limits of Social Entrepreneurship

The problem of economic calculation is relevant outside the extremes of purely for-profit enterprise and socialist central planning: calculation is also a vital lens through which to view alternative forms of economic organization in the market economy. This chapter examines one such example: the growing field of social entrepreneurship. Although it attracts major interest in management studies, social entrepreneurship has received scant attention from economists. This chapter resolves this oversight by placing the theory of social entrepreneurship on an economic foundation. It outlines the economic meaning of social behavior and shows that conventional market entrepreneurship is deeply social, while at the same time, social ventures are inevitably bound up with some kind of profit motive. This implies that the line between social and conventional entrepreneurship is not as clear as is sometimes thought. Importantly, social enterprises must engage in economic calculation if they want to survive in competitive markets. This means they must rely on external prices for the goods and services they produce, as without them they cannot estimate the social opportunity costs of their decisions.