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The Social-Business Revolution

DHAKA – The global financial crisis of recent years has exposed serious flaws in the world’s financial system. Credit markets that were originally created to provide businesses with capital were manipulated by a handful of individuals and companies to serve the selfish goal of earning unrealistically high returns through financial engineering. People in developed countries have suffered as a result – witness unprecedented levels of unemployment in countries like Spain and Greece – but so have countless millions in developing countries that played no part in causing the crisis.

In fact, the persistence of many of the world’s social problems reflects our collective misinterpretation of the idea of capitalism. As a result, businesses are run for the sole purpose of maximizing profit, and humans are conceived as one-dimensional money-making machines.

But there is a missing component in our conception of the economic marketplace: social business. A social business is a non-dividend-paying company whose entire purpose is to solve a particular social or environmental problem. Shareholders can recoup their initial investment over time, but nothing beyond that. All profits are plowed back into the company to increase its reach or to improve the product or service that it provides.

The company’s board, management, and employees are focused on addressing the problem that the company was established to solve, and it measures its success and impact accordingly. Profitability serves the company’s need to cover its costs and its desire to grow, not investors’ wish to make money. The entrepreneur and investor in a social business is motivated by the desire to do good rather than to do well.

This kind of business has no place in our economic framework; only profit-maximizing companies do. While their proliferation has brought economic growth, jobs, and prosperity, it has also created today’s environmental, energy, food, and financial crises, in addition to widening income inequality and large pockets of poverty.

Social businesses are one way to create a balance between individual greed and collective imperatives. Companies, for example, could create social businesses in parallel with their for-profit businesses. Each entrepreneur or firm could create its own range of social businesses. They could also create social-business funds to pool resources from many investors – small, medium, or large – to capitalize new and existing social enterprises.

While social philanthropy by individuals or corporations is of course important, it has a fundamental limitation. A charity dollar only has one life: once it is used, it cannot be brought back. But a social-business dollar is immortal. It can be recycled without end. By addressing charitable objectives with social businesses, we can achieve them in a sustainable way.

Currently, government is left to address the problems created by profit-maximizing individuals and businesses. But government alone cannot solve them all, because it is, by design, slow-moving and not highly innovative – limitations that become increasingly constraining as problems grow and multiply. Individuals and companies are far more dynamic and creative, and they could easily address these problems more effectively through the creation of social businesses.

While the idea of a non-dividend-paying company may seem utopian to some, I am happy to report that more and more people and businesses are embracing the concept. We have created a series of social businesses in Bangladesh, and more are now springing up in Albania, Haiti, Colombia, Costa Rica, the United Kingdom, Japan, India, China, and Germany, among others. What we are seeing is that when we de-link business from the imperative to make money, we get an entirely different type of enterprise – one that specializes in using human creativity to solve human problems.

There is no problem or crisis faced by the world today that cannot be solved with human ingenuity and creativity. All we have to do is create the right institutional framework to unleash the creativity latent in all of us and focus it accordingly. Creating space for social business in our economies does just that.

In fact, we cannot resolve problems like unemployment by going back to the old system. That would just be putting a Band-Aid on a problem that requires major surgery. We must redesign and reconstruct the system from the ground up – an opportunity that today’s systemic crises provide. Indeed, I believe that we can create a world in which no one will be unemployed. The word “unemployment” will not make any sense to anybody.

Now is the time to begin creating this world. We must not miss our chance.