Social entrepreneurs start ventures to tackle social problems, and these ventures have the potential to outperform other social service providers in welfare states. We leverage theories of legitimacy and Varieties of Capitalism to examine national experts’ (N = 361) assessments of the efficiency of social enterprises relative to state and civil society. Our multilevel analysis across 11 welfare states shows that social enterprises are perceived as a more efficient solution to social problems when a liberal or socialist logic dominates a given state’s market coordination and social welfare provision. However, when institutional logics are in conflict, the assigned legitimacy of social entrepreneurship is diminished.

Introduction

Many highly developed countries with traditionally large welfare systems recently engaged in welfare state retrenchment to restructure and reduce welfare state policy provisions (Evers, 1990; Hall & Soskice, 2001; Pierson, 2001; Schröder, 2013; Starke, 2006). Scholars, entrepreneurs, policy makers, and other stakeholders increasingly emphasize social entrepreneurship as an important market-driven initiative in compensating the reductions in public welfare provision and argue that it can outperform and replace inefficient state and civil society organizations in capitalist welfare systems (Austin, Stevenson, & Wei-Skillern, 2006; Choi & Majumdar, 2014; Dacin, Dacin, & Tracey, 2011; Mair, 2010; OECD, 2011; Peredo & McLean, 2006). Social enterprises address pressing needs in disadvantaged communities and economies (Mair & Martí, ۲۰۰۹; Peredo & Chrisman, 2006); however, social enterprises in developed economies often face a serious struggle for legitimacy to gain appreciation from national constituents as social welfare providers that can compete with traditional social welfare systems (Chmelik, Musteen, & Ahsan, 2015; Short, Moss, & Lumpkin, 2009; Zahra, Gedajlovic, Neubaum, & Shulman, 2009). A growing body of cross-country institutional research demonstrates that the great variety in the prevalence of social entrepreneurship across capitalist welfare states is driven by national government interventions and entrepreneurship-specific cultural values (Estrin, Mickiewicz, & Stephan, 2013; Stephan, Uhlaner, & Stride, 2015; Terjesen, Lepoutre, Justo, & Bosma, 2012; Zhao & Lounsbury, 2016). The success of social enterprises that offer nation-wide (as opposed to ‘solely’ local community-based) solutions (Zahra et al., 2009) is strongly shaped by whether key national constituents (e.g., educators, policy makers, researchers, investors, and entrepreneurs) signal their approval of social enterprises’ ability to create more social benefits than state and civil society organizations (Chmelik et al., 2015; DiDomenico, Haugh, & Tracey, 2010; Katre & Salipante, 2012; Nicholls, 2010a, 2010b). Research across three developed economies (US, South Africa, and South Korea) suggests that social entrepreneurs engage in different sets of practices that help “overcome the lack of legitimacy and acceptance from external constituents” (Sunduramurthy, Zheng, Musteen, Francis, & Rhyne, 2016). Despite these important contributions to the relative value of social enterprise, there remains a lack of comparative research that goes beyond the entrepreneurs’ perspective and considers key national-constituent experts’ evaluation of the legitimacy of social enterprises in developed economies. Experts’ legitimacy assessments comprise an important field of inquiry because these experts “can speak out on important matters, as well as participate in forums and other events, thereby providing some measure of legitimacy and interest to the efforts of social entrepreneurs” (Korosec & Berman, 2006). Hence, exploring this gap can extend theory on the socio-political acceptance (Aldrich & Fiol, 1994) of social entrepreneurship as a means for social welfare provision and, as a consequence, explain how the ‘demand’ for social entrepreneurship is contingent on the state’s current system of political governance. The present study contributes to closing that gap by addressing the question: how do national experts evaluate the efficiency of social enterprises in solving social problems relative to the ability of state and civil society organizations? In our search for an answer, we build on legitimacy theory (Bitektine & Haack, 2015; Suddaby, Bitektine, & Haack, 2017) to argue that key national experts’ normative evaluations influence the perceived legitimacy of social entrepreneurship in a welfare state, and that they are embedded in the existing capitalist welfare system (Bitektine, 2011; Tost, 2011). We complement the legitimacy lens with a national institutional perspective rooted in the Varieties of Capitalism (VoC) framework (Hall & Gingerich, 2004, 2009) to theorize on how experts’ legitimacy judgments on social entrepreneurship are affected by the states’ degree of coordination of market-based activities (market governance sphere) and the extent of current public welfare provision to address social problems (social governance sphere) (Hall & Gingerich, 2009; Hall & Soskice, 2001; Mair, 2010).