Lessons From Japan: Toward a More Perfect Social Sector

By: Chris Miller, The Mission Center L3C

I recently had the honor of attending a meeting in New York City with representatives from the Government of Japan who were in the United States on a fact finding mission to learn about social enterprise and, specifically, the prospect of bringing the hybrid L3C structure – a cross between a for-profit company with an explicitly charitable purpose analogous to that of a 501(c)3 – to the recently devastated island nation.

In addition to being amongst some of the leading thought leaders in American philanthropy including John Tyler, Vice President of the Kauffman Foundation, Steve Gunderson, CEO of the national Council on Foundations, Robert Lang, Father of the L3C movement and Michael Moreland, CEO of the Gates-funded Seedr, L3C, the small gathering provided an opportunity to imagine what form a nonprofit sector might take if we were able to go back a century and, with the full benefit of hindsight, structure a system that would proactively seek to make the most efficient and effective use of  philanthropic resources.

As difficult as it is to imagine from the perspective of an American philanthropist or nonprofit professional, Japan’s formal nonprofit sector has been in existence now for only 13 years. Formed in the wake of the devastating Kolbe earthquake of 1995, the current tragedy and accompanying social needs provided a powerful backdrop to the discussion of how might the Japanese government evolve its nascent social sector by adopting a new model of charitable impact through market-based initiatives like social enterprise and hybrid, for-profit charitable structures.

While the discussion that day was very much targeted to the practical matter of how these concepts and structures could help Japanese citizens in the near term, it also provided the opportunity to think on a more universal plane of what would we do different as a sector if offered a similar opportunity to rebuild ourselves from the ground up.

If given the opportunity to design anew the nonprofit sector in America would we purposefully create a system that, by and large, exists outside of the influences of the traditional capital markets? Or might we instead opt for one in which the markets dictate the flow of resources based on evidenced-based levels of social impact? Would we structure a tax-system that incentivizes philanthropic involvement based on the tax-deductibility of donations, or might we instead seek to invert this system in favor of one that encourages the use of investment vehicles that provide both a social and financial return? Would we still find it wise to have private foundations invest only a small percentage of its resources to charitable purposes while the majority is invested in stocks and bonds, paying dividends to profit motivated shareholders? Or would we instead push philanthropists to place a larger portion of their corpus in entities that have double or triple “bottom lines,” advancing both the social and financial interests of the foundation and its grantees?

At the end of the day, the question that was posed to us by our friends from Japan is, “what form would a sector take if the guiding principle underlying its existence was the most efficient and effective use of charitable resources?” While I left New York City with more questions than answers, the bottom line is that there is always a better way, or more innovative path, or more effective model for achieving social change and its incumbent us as leaders to push each other to achieve transformational impact by questioning our assumptions and challenging the status quo. The issues facing our neighborhoods, cities, states and nation are simply too important not to.

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