The Coming Fourth Sector

In the last couple of years there have been discussions about the convergence of the public, private and nonprofit sectors, some call this The Fourth Sector.  Up until now, there have been, for the most part, 3 separate sectors.  The government sector was separate and distinct from the private (or for-profit) sector which was separate and distinct from the nonprofit sector.  That’s not to say that there weren’t crossovers and partnerships and joint ventures.  There absolutely were.  Government has always been a huge funder of the nonprofit sector.  The business sector has always helped fund and lead (via board seats, etc.) the nonprofit sector.  The government provided incentives to the growth and development of the business sector, and so.

But the concept of the Fourth Sector is that the three sectors can no longer be separate entities.  In the Fourth Sector you have concepts like social capital markets where the nonprofit and for-profit sectors find and channel their capital in almost the same way.  Just as we invest in and grow successful businesses to scale, we will invest in and grow successful nonprofits to scale, often with the same sources of capital.  Good Capital and Investors Circle are just a couple of examples of this.  Also in the Fourth Sector, government becomes a venture capital fund for social innovation.  Government, along with business partners, provides growth capital to nonprofit organizations just as a for-profit venture capital fund would provide growth capital to a business.  I discussed Obama’s platform on a Social Innovation Fund like this in an earlier post.

In the Fourth Sector, the old rules don’t apply.  Government can act like a venture capitalist.  Nonprofits can scale their solutions like an entrepreneur scales her business.  Wealthy individuals can invest for financial return or social return or both.  Nonprofit fundraisers are no longer looking purely at philanthropic revenue; they are also exploring business revenue, investment revenue, growth capital, and other vehicles that in the past were only available to their for-profit counterparts.  The lines are blurred.  The idea is that each of the three sectors can build on the assets of the other two.  Businesses can and should start taking the social and community effects of their business into consideration as they grow.  Nonprofits should start thinking about exponential, not just incremental, growth and strategy, as successful businesses do.  Government should use their tremendous resources in more effective and efficient ways to achieve greater impact.-

The idea behind the Fourth Sector is a simple, yet profound, one.  By merging the three sectors we can, perhaps, have the best of three worlds.  At the very least, we can learn a lot from each other and move solutions to the many problems that plague us forward.

Tags: for-profit, Fourth Sector, government, nonprofit