"Markets in the Social Sector. Three Analyses of the Legitimacy of Using Market Tools to Provide Social Services"

The literature on markets in the social sector portrays an intense debate on the outcomes that this process brings and the values that it embodies. There is a shared concern that market goals carry fundamental trade-offs that deteriorate the performance and values of organizations that ought to contribute to a social purpose. Altogether, criticisms rest on the claim that markets tend to prioritize goals and actions that are less socially desirable than those that their nonprofits and public counterparts pursue, and, thus, introducing market tools in the social sector is deemed ineffective and inappropriate. Regardless of such criticisms, companies engaging in social services or nonprofits assuming business strategies emerge as a consequence of government failure and public services scarcity, particularly in developing contexts. Thus, analyzing such critique becomes necessary to reevaluate the conditions under which markets may bring further social development or even challenge its underlying assumptions.
Notwithstanding the prolific number of works on the topic, insights from institutional theory and the literature on legitimacy as a social evaluation render a valuable yet underutilized perspective on the matter. In particular, both theoretical perspectives account for the role of social beliefs in attributing legitimacy to nascent organizational forms, particularly those known as social enterprises. With that perspective in mind, the overarching research question underlying the three papers that compose my dissertation is how existing beliefs and assumptions at the micro- and the macro-levels hinder the acceptance of organizations that pursue social goals through market tools, even when no other governmental or nonprofit organization undertakes the same tasks or functions.
The first paper analyzes the notion of mission drift, a term that conveys that organizations neglect their social mission for the sake of financial goals. The literature on mission drift features a multiplicity of assumptions and empirical approaches that hinder further theoretical clarification of the phenomenon. To address this gap, I undertook an integrative review of the literature on mission drift. The paper analyzes the defining attributes of the concept, as well as the assumptions underlying past studies. The contribution of my review is three-fold: first, I classify the literature as a continuum that goes from understanding mission drift as an organizational property to a view that stresses the role of audiences’ perceptions of organizational behavior. Secondly, I reinterpret mission drift as a matter of attribution or a social judgment that depends on conflicting pragmatic and moral demands. Finally, I argue that perceptions of mission drift create a paradox, for social enterprises must navigate conflicting demands that may lead to negative appraisals about their performance and values, even though they fulfill a social task that no alternative organization undertakes.
The second paper starts from the viewpoint that legitimacy is a perception anchored in human cognition and social evaluations. The study builds upon a case study of the commercialization of education in Peru and analyses the contents of individual judgments and collective debates to understand what hinders the attribution of legitimacy to social enterprises. The study explores the contents of individual judgments and collective narratives on using market tools to provide a social service and points to the source of (il)legitimacy attribution. By analyzing the interactions between the micro- and macro-levels, the study unearths four determinants whereby one collective judgment becomes dominant and reaches the status of a generalized perception. Finally, the paper refines the multi-level view of the legitimacy processes by pointing to moral rhetoric as one highly effective strategy that groups use to persuade others about their narratives. Altogether, the study improves our theoretical understanding of the legitimacy processes under the boundary conditions of top-down changes, that is, where regulatory frameworks evolve faster than social beliefs.
The third paper starts from the assumption that organizations must respond to the demands of their audiences if they want to maintain or recover legitimacy. Accordingly, researchers have inquired into the macro- and meso-level forces that antecede and explain the responses that organizations choose. My third paper provides a complementary perspective: micro- and multi-level processes are critical to theorizing the interactions between organizations and their audiences when unprecedented events trigger controversies regarding the rights and responsibilities of each party. The research builds on the case study of the interactions between a for-profit school provider in Peru and its customers after the Covid-19 outbreak. I put forward a conceptual model of the interactions between the micro- and the macro-levels that hinder the solution of conflicts between organizations and audiences. Alongside this, the research points to the contents of managers’ evaluations that prevent companies from choosing satisfactory responses when they cannot resort to a standard repertoire of reactions. Finally, the study provides a picture of the perils of the legitimizing processes in contexts where the responsibilities and rights of each agent involved are not easy to determine.