Exclusive Commentary

Social Innovation for Low-Income Communities: Turning Risk into Reward, By Stephen Goldsmith, Daniel Paul Professor of Government, Harvard Kennedy School

- Posted March 22, 2010


We stand at a challenging point, with income disparity continuing to grow and poverty concentrating itself again in our cities. Yet at the same time, somewhere in the country an entrepreneurial leader has solved an apparently intractable problem—high school graduation, neighborhood stabilization, the transition from welfare to work, and the like. Despite the proliferation of these relatively small successes, we continue to spend a massive but finite amount of government money on the same set of underperforming social services each year.

For our book, The Power of Social Innovation: How Civic Entrepreneurs Ignite Community Networks for Good, we have spent two years interviewing over 100 creative leaders in the emerging and hopeful “social innovation” movement now catching fire across the country. At the highest level, President Obama created the White House Office of Social Innovation, the Social Innovation Fund, and the competitive Race to the Top Fund for education. On a more local level, Mayor Michael Bloomberg provides the leading city hall example with his $200 million innovation fund, a model that governors and other mayors are studying. But what does ‘social innovation’ mean, and how does it relate to poverty and opportunity?

Social innovations are catalysts that bring together creativity, expertise, and a relentless focus on results to solve problems and dramatically improve performance across the system. These transformative innovations can be a new tool or program model, but can also be a civic realignment of existing actors in a social service delivery system, an infusion of new management acumen, or a new pipeline for volunteer or donor goodwill.

For example, one type of innovative organization combines a deeper understanding of communities and individual talents and absorbs part of the risk in order to help low-income people enter mainstream markets from which they have been excluded.

Greyston Bakery, which supplies restaurants across New York City and ice cream makers Ben & Jerry’s and Häagen-Dazs with brownies, is one such organization. It is a $5 million for-profit company with a second bottom line—social good.

Greyston employs people from the poorest neighborhoods in Yonkers, the fourth-largest city in New York State. Former CEO Julius Walls says that four out of every five Greyston employees have at some time been either arrested or incarcerated, did not graduate from high school, and possess limited literacy—making mainstream employment markets inaccessible.

Greyston succeeds as a business and in providing life-changing opportunity for its employees through three key ingredients. Anyone can walk in and fill out an application, and when a position opens he or she starts as an apprentice, making about $7 an hour with no benefits. Walls says, “If you perform, you have a job. If you don’t perform, we ask you to leave.” In this statement lies the second key ingredient: Greyston insists on a strong work ethic and commitment to quality from its employees. And third, Greyston provides supports for its struggling employees, helping them to find housing, child care, health care, after-school programs, GED prep, and tutoring—solutions to all of the things that could keep them from working.

Greyston sees opportunity where others see liability. Social entrepreneurs can also add multiple levels of value by underwriting financial risks that scare others.

The Reinvestment Fund’s Jeremy Nowak knew that low–income communities in Philadelphia and elsewhere have more buying power than most retailers think. He appealed to elected officials and local nonprofits such as the Food Trust, making the case for joining together to address the grocery gap. The coalition secured $10 million from the state for what they called the Fresh Food Financing Initiative (FFFI). Combined with almost $150 million in private capital, they provide capital improvement loans and grants for employee training and development to support 32 new or refurbished stores.

Many low and moderate–income communities have only one-third the access to fresh produce that residents in high–income communities have. As a result, citizens suffer a health penalty, and neighborhoods incur losses of jobs and tax revenues. In addition to improved access to healthy food options, Nowak estimates that these projects have created or preserved more than 2,600 jobs. Importantly, FFFI helps to reduce barriers to entry without losing the market discipline that predicts whether the operation will be able to become self-supporting.

Few would dispute that we need more efforts like Greyston Bakery and Fresh Food Financing Initiative to ignite the social progress we seek—especially organizations that straddle private markets and public/nonprofit sectors. Seeing opportunity where others see liability, investing financial or political capital to underwrite risk, and sharing the rewards, whether financial, political, or reputational, are the main lessons we took from these social innovators.

But we have found that for true transformation, communities must improve their capacity to identify, incubate, and grow innovations like those above. Transformation requires executing change across entire systems calcified by the momentum of the status quo, by political wrangling, and by a stunning lack of mechanisms for input from, or accountability to, the individuals we’re trying to help.

Government officials must also do their part. They can open the space for innovation by reevaluating rules and policies that protect incumbents, supporting capacity building among small yet effective providers, and using capital to create room for social “R&D.” Those responsible for spending taxpayer dollars a city councilor or state legislator as often as the head of a human service agency should also make decisions based on measurable results and real impact instead of good intentions or political maneuvering. The same is true for those controlling philanthropic foundations’ dollars.

Government should also favor interventions that are sufficiently connected to the low-income people and communities they’re trying to help, which allows them a deeper understanding of the risks and rewards of their entrance into employment, retail, and other markets. Raising our expectations of individual potential and responsibility is the first step in that direction.

Stephen Goldsmith is former mayor of Indianapolis, chair of the Corporation for National and Community Service under presidents Bush and Obama, and Daniel Paul Professor of Government at Harvard Kennedy School. He is author, with Gigi Georges and Tim Glynn Burke, of the book The Power of Social Innovation: How Civic Entrepreneurs Ignite Community Networks for Good (Jossey-Bass/Wiley).