Sunday, November 23, 2014

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.

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    1. CommentedEnrique Woll Battistini

      I agree with Muhammad Yunus that the world would be a better place if human productive activity were organized around he Social-Business concept, and perhaps, that is where the world is headed in the long term. But I also agree with David Ivan Wangolo that solving the problems of society in a sustainable way is essential, and that to attain this, productivity, efficiency, and effectiveness are required, and thus profitability. Capitalism, unfair as it is, provides a significant measure of this today. Muhammad Yunus does not seem to disagree with this. I agree with Ben Leet that massive accumulation of personal wealth will eventually be viewed as socially destructive, repugnant, excessive, and selfish, and think that even now it is so when it does not align morally with the value contributed to society in this process, or with the corresponding resources invested, the risks taken, or the sacrifices made. I suspect that Muhammad Yunus agrees fully with this. One of the problems I see with Social-Business today is that it would not be funded sufficiently to reach a full bloom, especially when social savings are mostly in the hands of national and multinational corporations with quite different objectives. It would seem to be destined for financing by progressive governments in a neo-comunist world, a world defying the reality of human greed, devoid of taxes and private property: In sum, world of the future populated by superhumans. For the time being, I would advocate a system that would organize investment and production around the articulation of relevant existing private and public institutions on a global scale, focusing on environmentally friendly activities taking into account human nature in full.

    2. CommentedWangolo David Ivan

      I do not think that we can improve the potential to do good without the real capacity to do well. The social being of a community cannot be divorced from its well-being which has the elements of productivity, efficiency and effectiveness. We just need to rethink the whole misguided philosophy of capitalism in the sense that enterprises should remain created to solve problems of society in a sustainable=profitable way. Otherwise allocation of capital towards doing good, without doing well leads to a mis-allocation of resources. Nobody wants that!

    3. CommentedBen Leet

      84% of the world's wealth is held by 10% of its adults, and 44% in the hands of 1%, according to Credit Suisse Bank's World Wealth Report, 2012. In our present system assets are not allocated to enterprises unless a return on investment is a reasonable expectation, and are stored in non-productive speculative "investments". In the U.S. the mean average household net worth is $498,000 for all 118 million households, yet 50% of households own only 1.1% of all net worth which amounts to about $11,000 per family according to the latest SCF from the Federal Reserve. The top-wealthiest 1% in the U.S. own perhaps 45% of all wealth if assets placed in foreign tax-free tax-havens are accounted for, using the information from the recent McKinsey report from the Tax Justice Network. While global assets grew by 17% last year, unemployment grew to almost 200 million globally as reported by the International Labor Organization, a U.N. agency, in the NYTimes 1.23.13. As wages decrease, aggregate demand decreases, employment to population ratios decrease globally and in the U.S. the ratio has dropped from 64% in 2000 to 58% in 2012. A new model for the economy that includes Yunus' new corporations will emerge out of social necessity and fairness --- "maximizing shareholder value" and massive accumulation of personal wealth will be viewed as socially destructive, repugnant, excessive, selfish. "When there is more for me and less for you, even if you must die" will be recognized for what it is, immoral.

    4. CommentedWaleed Addas

      The idea of social businesses is as old as Islam and is not a new one. In Arabic usage this is called the system of Awqaf or in modern parlance "the system of trust funds". What Prof. Yunus is proposing is simply to apply the Islamic system of Wakaf, which is commendable since the Islamic system of economy and society is the most perfect system for the conduct of human activities. The problem is that many Muslim countries today are not practicing what they say they believe in. I hope the rest of the world will take the lead in this field too, in addition to Islamic banking and finance.

    5. CommentedTerry Mock

      Muhammad writes:

      "By addressing charitable objectives with social businesses, we can achieve them in a sustainable way."

      I agree, however, there is another proven way to achieve triple-bottom-line results from business:

      Co-ops: Sustainable Solution for Economic Growth
      By Sustainable Land Development Initiative | October 29th, 2012

      The Need for Industry Leadership
      By Sustainable Land Development Initiative | August 16th, 2010

      "Cooperative teamwork encourages an open exchange of ideas and generates integrated, whole-system solutions. In order to facilitate meaningful multi-stakeholder cooperation on the deepest levels, SLDI has organized itself as a member-owned for-profit cooperative. Industry professionals have the opportunity to earn an ownership stake in the organization through educational achievement, receive profit distributions, and participate in the governance of the organization. At the same time, they gain knowledge, recognition, access to unique technologies and valuable industry product and service opportunities...."