Our economy is sick. Compartmentalization prevents us from healing it.

Part 1: How compartmentalization infects the economy

In collaboration with Elizabeth Lepro

This is the first essay in a two-part series about compartmentalization. Stay tuned for Part II.

In my first essay on Substack, I wrote about companies and nonprofits interested in maximizing their impact. In it, I presented a logical fallacy I call the Compartmentalization Complex:

“The Compartmentalization Complex describes the church-and-state separation between how organizations—especially capital-rich corporations—do business and how they do good. The values that drive an organization’s philanthropic initiatives are often ignored when it comes to their business strategy. When organizations can afford to pump up their impact metrics, they can ignore the harm they do in terms of worker exploitation and environmental destruction. Achieving impact, for these organizations, doesn’t require any values-oriented operational changes because their charitable giving appears considerable.”

I provided the example of advertising agencies that had been certified B Corps—meaning they committed to upholding certain environmental standards—while maintaining some of the highest-polluting oil companies as major clients. Similarly, a nonprofit may be doing great work toward its mission, but treating its team members poorly. For example, a 2019 report revealed toxicity was endemic to the working culture at the NGO Amnesty International.

We see compartmentalization at work when oil companies take “climate pledges” to cut carbon emissions while lobbying against governmental policies that would support a healthier climate. We see it in the corporatization of social justice, in which systemic issues causing real social harm are flattened and diluted as they become opportunities to turn a quick buck. We know that marketing ploys like Pride-themed clothing lines are not genuine because when they fail to generate income—worse, when they cost a company money or anger the political establishment—they’re nixed. Compartmentalization allows businesses to tack performative social good initiatives onto their business models when it suits them, and discard those initiatives when they don’t.

Now, I’d like to extend this discussion about compartmentalization further, because it isn’t just something that happens within organizations. A compartmentalized mindset affects the way we think about impact up and down the chain, at both macro- and micro-levels.

By macro-level, I mean a systems-level; the way we compartmentalize the economy. At this level, “impact” is cordoned off into its own sector, rather than considered an essential part of every sector. By micro-level, I mean the way compartmentalization affects our individual behavior, informing our understanding of our own capacity for social change. Individual compartmentalization is part of what makes us feel defeated when we consider structuring our lives based on a collectivist values system.

Ironically, I’m going to split up my thoughts about compartmentalization into two parts. I focus on the macro-level here, in Part I, where I define compartmentalization at an economy-scale, explain how it leads to ineffectual solutions, and offer jumping-off points for how people in decision-making positions, especially entrepreneurs, can de-compartmentalize to further their impact. In Part II, I’ll talk about the micro-level, and how shifting our individual mindset can help us make values-aligned changes in our lives at and outside of work.

What use is the impact sector, really?

At its most basic, “impact” just refers to causal effect. It acknowledges that the actions you take affect others, yourself, and our environment, in ways that are both clearly traceable and infinitely complex. Every single thing you do, from brushing your teeth in the morning to flying across the country on an airplane, has an impact.

But when we talk about impact in the 21st century working world, we assign it its own distinct definition: “Impact” is what NGOs and nonprofits do. Or, it’s what corporations do when they set aside funds for philanthropic initiatives. Or, it’s what social entrepreneurs—founders whose businesses specifically address social or environmental issues—work toward in the “impact sector.” In this framework, providing clean water to a village in Africa is impact. Providing warm meals to the hungry is impact. A website agency? That’s not impact. A furniture company? Not impact.

Why do I think this sector-ization is damaging? Because according to the World Economic Forum, only about 3 percent of businesses worldwide are considered social enterprises. That means that the vast majority of the economy is not run by social entrepreneurs, it’s run by traditional businesses. Compartmentalizing the work of the “impact sector” from everything else makes traditional business owners feel as if they are not core members of the movement toward a more equitable society. If they aren’t on the “front lines” with activists, NGOs, and social entrepreneurs, then they aren’t responsible for creating change, nor are they in the position to do so.

The reality is, we’re all on the front lines. As Sam Pressler writes, “a local community is fundamentally enmeshed in its local economy.” If you own a plot of the economy, you have the power to tend to your plot in pursuit of a healthier collective.

Conventional thinking is that the “impact sector” is a band-aid meant to address the wounds inflicted by a pool of greedy abusers operating within a mostly functioning economy. In reality, these are not wounds at all, but the expected symptoms of a disease that infects all corners of our economy. Many social enterprises, despite their best intentions, are trying to heal these wounds while they themselves are infected with the disease.

I’ve spoken with social entrepreneurs who harbor the desire to become multi-millionaires or even billionaires. They don’t acknowledge that in order to make that amount of money, they will inevitably have to emulate mechanisms of accumulation and extraction that, at their most damaging, destroy the environment and leave people without homes, healthcare, and equal access to opportunity. When their mission statements revolve around important issues like women’s empowerment or decarbonization, social entrepreneurs aren’t held to the same standards of accountability as their purely profit-oriented counterparts.

From my perspective, what makes a business impactful isn’t just about whether it fits into the impact sector, but also how it operates internally, which includes such considerations as earnings distribution. Any organizational model that focuses a percentage of its energy on accumulating wealth for shareholders (including founders and investors) can drive inequality, a societal stressor that has been connected to homicide rates, imprisonment, drug abuse, child wellbeing, social mobility, and public trust.

In the same way we connect oil and gas companies to environmental harm and acknowledge that it’s self-defeating when these companies fund climate initiatives on the side, we can draw a connection between social enterprises and societal harm. It’s self-defeating when social enterprise founders have monopolistic ambitions and unevenly distribute earnings, furthering inequality.

Through the lens of de-compartmentalization, any organization in any sector can see the ways in which they’re working against their own causes, and find opportunities to rethink their structures, externally and internally, toward more holistically beneficial ends.

What does a holistic approach to impact look like?

Instead of a limited and compartmentalized definition of impact, I suggest we use something more holistic, like Robyn Klingler-Vidra’s definition: “The economic, social, and environmental consequences of business activity, both positive and negative, independently of the intentionality of the activity.”

This definition is fitting because it doesn’t make any distinction between types of businesses or types of impact. It refers to the consequences of business activity, both positive and negative.

Using a holistic definition of impact, a coffee shop can be impact-oriented without pivoting to becoming a nonprofit or operating a charitable initiative. The coffee shop owner can investigate their supply chain, adjust earnings distribution to ensure everyone makes a comfortable living wage, look for ways to cut down on energy usage, and remove operational incentives and structures that drive endless growth and competition. Each of these touchpoints create the potential for impact maximization, if the owner thinks of their business as a fulcrum for change.

A useful way for me to think about how to do this for my own company has been to start with my ideal vision for the world. I imagine an economy that is more regenerative and redistributive, then I look at the way my company operates (my sphere of influence) and consider how to re-tool our processes to work toward that economy.

For example, when my co-founders and I first started our company, we established typical sales targets that would increase quarter over quarter. But if we acknowledge that an economy that grows endlessly at all costs is not compatible with the planet’s finite resources then our goal of uncapped quarter-over-quarter growth was at odds with our vision of the world. Instead, we created a framework for decision-making to ensure our business-level goals are consistent with our society-level goals. You can read about our commitments in my previous essay on the subject.

Challenges for entrepreneurs

I should make something clear: I’m not naively hopeful about the potential for all existing companies to integrate impact into their business strategies. Many companies that are investor-owned or publicly traded are essentially a lost cause when it comes to re-tooling for holistic impact, because the leaders of these companies are structurally bound to making decisions that prioritize growth. But bootstrapped or alternatively owned enterprises—can displace those companies, and will need to, in order for collectivist values to proliferate.

The challenge for new entrepreneurs, then, is to come up with a business model that is regenerative and redistributive but still has practical market viability. This requires taking on a certain level of risk, as is required of any entrepreneurial venture. In this case, however, that risk won’t lead to the conventional entrepreneurial reward of a huge financial payday, since accumulating inordinately high earnings often contributes to the exact societal issues we are trying to alleviate.

Buy-in, despite this risk, is required not just from founders, but also from the people they hire. Finding and convincing talent to join companies that are based on holistic, regenerative values presents a challenge: A collectivist business may not be able to offer the same career growth and reward structures people have come to expect from thriving conventional corporations. A successful career within a collectivist business environment may look different from the traditional corporate ladder; the relationship between an organization and a team member may be grounded as much in shared values as the simple time-for-money exchange. That said, there are scores of talented people seeking values-aligned work by going into the nonprofit sector every day, even in the face of low pay and potentially grueling work conditions. In a recent study, more than 50 percent of adults under the age of 45 say they would accept less money for a better work-life balance. If innovating entrepreneurs succeed in creating companies that offer values-alignment, life-work balance, and living wages, they will be presenting healthy new opportunities to these talented impact-minded job seekers.

The challenge for current entrepreneurs is to think about how their businesses can become more regenerative and redistributive. This may require recalibrating their business strategies and their personal financial upside. It may mean shifting ambitions away from dominating a sector, and instead toward collaborating to create a diverse business ecosystem that more equitably balances power and circulates capital.

This leads back to my example above, wherein a business owner looks for touchpoints to adjust their working processes. Here are a few more questions a business owner, in any industry, might consider:

• What considerations did you take when determining your product / service price?

• How does pricing determine your potential customer base, and what are the repercussions of serving only those customers?

• Is the product you're selling addressing a genuine need, or is it opportunistically capitalizing on societal trends you don't necessarily support?

• What are the effects of your marketing activities on people who experience them? Do they fuel insecurities and consumerism?

If an entrepreneur can’t conceive of a path to make their business align with collectivist values without going under, that may bring into question the foundational ethics of the business model itself. It may be that the business is fundamentally incompatible with these values and shuttering it is the best way forward.

I acknowledge that the pool of entrepreneurs in a position to take on these challenges will have a degree of privilege that allows them to take risks toward progressive, rather than commercial, ends. But many entrepreneurs—especially in high-risk industries, such as tech—have this privilege. If you are starting a business from scratch, you are taking on risk, and you have the ability to decide how to leverage your privilege. Savvy business sense has always relied on the ability to disrupt; to be the first to do something differently, creating a path for others to follow. The same is true when it comes to creating an economy that centers, rather than sidelines, impact.

If we leave all the impact-making to social enterprises and nonprofits, then we are asking a small percentage of organizations worldwide to do the impossible. We are asking them to create band-aids for the symptoms of a sick economy. Conversely, if more and more business owners with the ability to de-compartmentalize take the initiative to do so, we would work toward solutions that heal the disease at its core.