Addressing social challenges

Innovation can help address various social challenges—social exclusion, poverty, substantial levels of inequalities, as well as health and demographic challenges. Innovation can address social exclusion by reducing unemployment and providing employment opportunities for disadvantaged groups. Moreover, new products and services (e.g. cheaper and simplified versions of existing goods) can help reduce inequalities and differences in living standards between groups in society. Innovation can also contribute towards addressing health challenges by providing more personal, predictive and preventive health care products. It can contribute towards addressing demographic challenges by helping elderly individuals stay healthier, live independently longer, and counteract the lessening of physical capabilities that become more prevalent with age. Finally, social innovation can help introduce new answers to social problems when conventional approaches have not allowed solutions.

What are social challenges?
National objectives go beyond aiming to promote economic growth and encourage employment, but also help address and resolve the following social challenges:
  • Social exclusion, poverty and inequalities. Individuals and groups in society may not have equal access to rights, opportunities (e.g.: employment), or resources (e.g. healthcare, education). This issue might involve youth or seniors, people with disabilities, migrants, specific social groups or the unemployed. This exclusion prevents individuals and groups from contributing to the economic, social and political life of their society, it could lead to social tensions and conflicts and negatively affect economic development. Moreover, excluding some groups results in an underutilised resource for economic activities.
  • Health and demographic challenges. While in 2010, the share of the OECD population over 65 years old was around 15%, it is expected to reach 26% by 2050 (OECD, 2011). The rising numbers of the elderly increase the demand for health care and the public expenditures related to health care services. Inactivity in older age groups increases the strains on social security and pension systems. Thus, findings ways of reducing and improving health care and related expenditures and fostering continued participation of the elderly in economic activities are important challenges.
How does innovation contribute towards addressing social challenges?
Innovation—both technical and organizational—can contribute towards addressing health challenges by providing more personal, predictive and preventive health care products. Recent scientific advances provide significant opportunities for innovations to improve the quality of human health, such as by the scientific discoveries.
  • Genomics and their interaction with environmental factors, as well as new technologies such as next-generation genomic sequencing, can support earlier, more accurate diagnosis and intervention, i.e. the practice of personalized medicine.
  • Electronic health records and biomedical data collections (e.g. human biobanks and genetic research data bases) are examples of innovations designed to reduce costs, increase efficiency and optimize the use of research outcomes.
  • Entirely new therapies are being developed via technologies based on stem cells, nanotechnology and synthetic biology. Emerging fields such as industrial biotechnology and environmental biotechnology can also affect human health and well-being.
Innovation can contribute towards addressing demographic challenges by helping elderly individuals stay healthier, live independently longer, and counteract the lessening of physical capabilities that become more prevalent with age. For instance, ICTs can improve safety and make the home environment easier to manage through user-friendly interfaces. ICT-enhanced equipment, processes and delivery mechanisms can help to increase the quantity, value and quality of services provided to older persons at equal or lower cost, especially for short- and medium-term health and social care. They can facilitate the tasks of informal care givers and personal assistance services.
Innovative products and services can also help reduce inequalities and differences in living standards between groups in a society. Such innovations may consist in cheaper and simplified versions of existing goods making them available to lower income groups (“frugal innovations” or “innovation for low and middle-income groups”). For instance, low-cost cars, laptops, and portable, pedal-powered washing machines have been developed with the aim of bringing some of the benefits of these products often taken for granted elsewhere in the world at low cost (OECD, 2013).
Innovation can also address social exclusion by reducing unemployment (see Contributions to growth and jobs for details), and providing employment opportunities for disadvantaged groups. Indeed, some innovations facilitate grassroots entrepreneurship and can help integrate previously marginalized groups into circuits of economic activities (“innovation by low- and middle-income groups”). For instance, mobile banking and other mobile applications have generated activities that were previously difficult to carry out. However, while there are many interesting case studies it is not clear how substantial the potential aggregate impact could be.
Social innovation (see Social innovation) seeks new answers to social problems is also an important tool to tackle social challenges and to respond to them when the market and the public sector fail to do so. In the past decade, such innovation has garnered particular attention from policy makers, academics, practitioners, and the general public. While past policy emphasis was placed on the non-profit sector as the “homeland of social innovation”, the private and the public sectors have since adopted the idea of social innovation, and this has obviously resulted in its wider application and new impetus and energy (OECD, 2010b)
Evidence on contributions of innovative entrepreneurship to addressing social exclusion and inequalities
Examples of innovative entrepreneurs who contribute to reducing inequality and social exclusion are numerous. A collection of concrete examples is provided in OECD publications (OECD, 2010, 2012a). Also, the Global Entrepreneurship Monitor (GEM) constructed a dataset on social entrepreneurial activities in 49 countries in 2009, using a household survey that indirectly identified social enterprises through questions to entrepreneurs on the predominance of the social mission, their innovativeness and their revenue model. This allows for some cross-country comparisons and an assessment of the level and characteristics of social entrepreneurial activity (Terjesen et al., 2009). As shown in Figure 1, the rate of social entrepreneurship as a percentage of the working age population varies between 0.4 in Brazil and 5.0 in the United States. In most countries the majority of social enterprises are early stage (under 42 months). However, these data include a wide range of enterprises, from not-for-profit social enterprises, to socially-oriented hybrid enterprises and economic- oriented hybrid social enterprises, and the prevalence of the different typologies varies significantly across countries (Figure 2).
Figure 1: Social entrepreneurship prevalence rate as a percentage of the working age population by enterprise maturity in selected countries in 2009
Source: Terjesen, S., J. Lepoutre, R. Justo and N. Bosma (2011) Global Entrepreneurship Monitor Report on Social Entrepreneurship
Figure 2. Stricly defined social enterprises by type in selected countries in 2009
Source: Terjesen, S., J. Lepoutre, R. Justo and N. Bosma (2011) Global Entrepreneurship Monitor Report on Social Entrepreneurship
More generally, the capacity of entrepreneurship to alleviate social inequalities by offering employment opportunities and by empowering certain groups has often been cited. For instance, women’s innovative entrepreneurship may help to change women’s position in society and create positive role models. However, the stable number of women employers in Europe and the United States, and the fact that female employers are still outnumbered by male employers across all countries (Figure 3), suggest that innovative entrepreneurship has not yet become an enabler for women.
Figure 3. Trends in employers and own account workers in EU-27 and the United States (thousands).
Source: Eurostat Labour Force Survey, 2000-10 for European Countries, and Current Population Survey annual averages for outgoing rotation groups for the United States (estimated numbers in thousands). For the United States, data include both incorporated and unincorporated self-employed. The number of incorporated self-employed with and without employees has been estimated on the basis of data from the Contingent and Alternative Work Arrangements Surveys.
Evidence on contributions of innovative entrepreneurship to addressing poverty reduction
A simple exploration of available data confirms that high rates of business registrations are a characteristic of successful economies and go along with rising income and poverty reduction. Figure 4 (panel A) shows that a measure of new entrepreneurial activity (the number of formal established businesses per 1,000 inhabitants in 2005) is positively correlated with income growth (change in income per capita between 2005 and 2010). A similar correlation is found when considering the stock of registered SMEs (enterprises with less than 50 employees) as a measure of entrepreneurship. The relationship between entrepreneurship and any decrease in poverty headcounts is much weaker (Figure 4, panel B). Slivinski (2012) finds a 2% decline in the poverty rate of a US State for every one percentage point increase in the rate of entrepreneurship.
Figure 4. Economies with higher entrepreneurship rates had larger increases in income per capita
Source: World Development Indicators
Self-employment, including both necessity and innovative entrepreneurship, is a relatively accessible route into employment for the poor, and a highly relevant source of income for families with low socio-economic status. There is a higher concentration of self-employed among both the poor and high-income earners. Figure 5 shows that the incidence of poverty in Europe is much higher among families whose income is obtained only from self-employment. This is partly due to the fact that earnings from self-employment are much more unequally distributed than wages and salaries: the income difference among top earners (first decile of family income) and low earners (bottom decile) in self-employment is much greater than among top and low wage earners (Figure 6).
Figure 5. The incidence of poverty is higher among families relying only on income from self-employment
Household poverty rate by source of income, Europe 2009
Source: European Union Statistics on Income and Living Conditions, elaborations on 2009 microdata. The poverty rate is defined at 60% of the median of equivalized household disposable income
Figure 6. Earnings from self-employment are much more unequally distributed than wages and salaries 
Ratio between household income of the top decile and of the bottom decile, by source of income
Source: European Union Statistics on Income and Living Conditions, elaborations on 2009 microdata. Data consider only families either with only income from self-employment, or with only income from wage employment. Income refers to equivalized household disposable income.
How many of the poor who start businesses manage to escape poverty? Very few studies have explored the links between entrepreneurial investments and socio-economic mobility. Holtz-Eakin et al. (2000) show that for individuals in the United States who began toward the bottom of the earnings distribution, continuous experience with self-employment was a successful strategy for moving ahead (relative to wage-earners). The result is just the opposite for those who started out toward the top. A more recent study finds that returns from self-employment are lower than those from wage employment for low skilled individuals, and for low-skilled women in particular (Lofstrom, 2008).
It is critical to get a better understanding of the factors that lead the poor to engage in innovative, rather than in survival, entrepreneurship. Access to financial resources is arguably among the most important ones. Financial exclusion limits profitable entrepreneurial investments, forcing the poor into micro and vulnerable business activities. Underdeveloped credit markets, where borrowers are selected on the basis of their ability to provide collateral, easily create poverty traps: poor women and men who do not have sufficient start-up funds or collateral stay out of the entrepreneurial markets and remain in poverty. Microcredit has successfully addressed the need of thousands of poor people worldwide for start-up financing. However, the microfinance promise (“making poverty history“) is still not fully realized. Studies based on randomized expansion of microcredit have observed relatively low take-up: 27% of households in urban India (Banerjee et al., 2009) and 16% of households in Morocco (Crépon et al., 2011) took out a loan when barriers to access were lowered. If not subsidised, microfinance institutions typically have to charge very high interest rates for their loans (higher than 40-50%).
Limited access to formal savings and bank loans constrains business growth in microenterprises. Dupas and Robinson (2009) show that female market vendors in rural Kenya increased their daily investments by between 38% and 56% when they were provided with interest-free bank accounts. There is ample evidence of high returns on capital in micro-businesses, generally much higher than market interest rates (Banerjee and Duflo, 2004; McKenzie and Woodruff, 2006). However, recent research shows that capital injections alone might not be enough to spur investments and growth, particularly among women entrepreneurs with low levels of autonomy in household and business decisions (De Mel et al., 2009).
Evidence on contributions of innovative entrepreneurship to addressing health and demographic challenges
Senior entrepreneurship can provide an opportunity for older people to remain active and contribute to society, which has the additional benefit of improving an older person’s quality of life, reducing their risk of landing in poverty (Jayo et al., 2010) and enhancing the social inclusion of older individuals (Kautonen et al., 2008). Yet evidence shows that, in EU member states, small proportions of older people are self-employed (Figure 7) and few are thinking of starting a business. Moreover, the size and growth rates of older people’s businesses tend to be small (OECD/EU, 2012), suggesting that most are not innovative, high-growth businesses. There could be some untapped potential in terms of entrepreneurship growth intentions, although senior people’s business activity may not be as dynamic as other age groups because their business decisions are often driven by lifestyle choices (OECD/EU, 2012).
Figure 7: Labour market activities of older people (Aged 55 to 69) in EU Member States (percent), 2000-2010
Source: Eurostat, Special tabulations of the Labour Force Survey
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