I recently started rereading a book by Nobel Peace Prize winner, Muhammad Yunus. In it, he speaks about the impact of information and clean energy technology. I have copy/pasted a few chapters from his book titled: “Creating a World Without Poverty: Social Business and the Future of Capitalism” (this post is really long):
A New Kind of Business
Since the fall of the Soviet Union in 1991, free markets have swept the globe. Free-market economics has taken root in China, Southeast Asia, much of South America, Eastern Europe, and even the former Soviet Union. There are many things that free markets do extraordinarily well. When we look at countries with long histories under capitalist systems—in Western Europe and North America— we see evidence of great wealth. We also see remarkable technological innovation, scientific discovery, and educational and social progress. The emergence of modern capitalism three hundred years ago made possible material progress of a kind never before seen. Today, however— almost a generation after the Soviet Union fell—a sense of disillusionment is setting in.
To be sure, capitalism is thriving. Businesses continue to grow, global trade is booming, multinational corporations are spreading into markets in the developing world and the former Soviet bloc, and technological advancements continue to multiply. But not everyone is benefiting. Global income distribution tells the story: Ninety-four percent of world income goes to 40 percent of the people, while the other 60 percent must live on only 6 percent of world income. Half of the world lives on two dollars a day or less, while almost a billion people live on less than one dollar a day.
Social Business: What It Is and What It Is Not
To make the structure of capitalism complete, we need to introduce another kind of business—one that recognizes the multidimensional nature of human beings. If we describe our existing companies as profit-maximizing businesses (PMBs), the new kind of business might be called social business. Entrepreneurs will set up social businesses not to achieve limited personal gain but to pursue specific social goals.
To free-market fundamentalists, this might seem blasphemous. The idea of a business with objectives other than profit has no place in their existing theology of capitalism. Yet surely no harm will be done to the free market if not all businesses are PMBs. Surely capitalism is amenable to improvements. And surely the stakes are too high to go on the way we have been going. By insisting that all businesses, by definition, must necessarily be PMBs and by treating this as some kind of axiomatic truth, we have created a world that ignores the multidimensional nature of human beings. As a result, businsses remain incapable of addressing many of our most pressing social problems. We need to recognize the real human being and his or her multifaceted desires. In order to do that, we need a new type of business that pursues goals other than making personal profit—a business that is totally dedicated to solving social and environmental problems.
Broadening the Marketplace
Since the late 1980s, I have been writing and talking about “social consciousness-driven enterprise” and creating for-profit and not-for-profit companies with very clear social objectives. No desire for personal gain on my part has entered into the equation; I have not created any for-profit company in which I own even a single share. It is the social purpose that motivates me in creating business enterprises. From my travels and my conversations with people around the world, I know I’m not the only person who feels this way. I am sure many people would like to create social-purpose companies if such entities were recognized by the economic system. It is a major failure of the current economic system that it cannot accommodate this basic human urge.
Over the last few years, I formulated my idea of social business more clearly and began speaking about it wherever I could. I discussed social business in radio, TV, and newspaper interviews, in sessions of the World Economic Forum, in private gatherings of high-net-worth individuals seeking constructive ways to invest their funds, and in meetings like the Skoll Foundation conferences on Social Entrepreneurship at the Said School of Business at Oxford University. At the same time, I realized that it would be important to create a real-life social business in order to demonstrate my ideas in a concrete fashion. That led to our decision to set up a series of eyecare hospitals
as a social business. In 2005, four of the Grameen companies—Grameen Byabosa Bikash, Grameen Kalyan, Grameen Shakti, and Grameen Telecom—stepped forward to be the social investors.
Another opportunity to create a social business came through my meeting with Groupe Danone chairman Franck Riboud in October 2005. As I’ve described, Grameen Danone company went into operation in early 2007, becoming our first real-life social business. The first eyecare hospital will open at the end of 2007. I hope we’ll continue to expand both these social businesses within and outside Bangladesh. The Grameen Foundation has also launched two more social businesses during 2007. The first is a financial firm, Grameen Capital India, created in partnership with Citibank India and ICICI Bank, to facilitate access to local capital markets for Indian microfinance institutions
(MFIs), and its owners have agreed that they will not take any dividend out of this business. The second is Grameen-Jameel Pan Arab Microfinance, another financial firm that has been formed in partnership with the Abdul
Latif Jameel Group of Saudi Arabia. The objective of this company is poverty alleviation in the Arab world through microfinance. The company provides a suite of customized products and services for MFIs, including help with financing. Rather than distributing profits to its shareholders, it will recapitalize them—that is, reinvest them in expanding the business and making its services available to more client institutions.
I hope to keep adding more social businesses to the Grameen roster of companies as we move forward. More important, I expect other institutions to launch their own social businesses, especially after the publication of this book brings the idea into the consciousness of a wider audience around the world.
Who Will Invest in Social Business?
One of the questions I always get when I am explaining the concept of social business is, “Where will the money for social business come from?” Maybe the question arises because of a fundamental doubt: Why should anybody in his right mind invest his hard-earned money in something that yields no financial return?
It seems to be a reasonable question. Yet people are even crazier than that—they give away their hard-earned money to create foundations and to support charities! People by the millions make such contributions every year, totaling billions of dollars. If one compares this “crazy” behavior with the “craziness” of investing in social business, the latter suddenly looks much saner. After all, when you invest in social business, you get your money back and retain the ownership of a company that supports itself through earned income. So individual contributions, especially from affluent people who want to help improve the world, will be a major source of funding for social business. There is another ready source of money. Recently the very distinguished head of a major foundation said to me, “We have accumulated an endowment of nearly a billion dollars, and it is growing each year. Yet we don’t have enough attractive projects to donate our money to. Can you suggest some projects for us to support?” I’ve heard similar questions from many other foundation officials over the years. My quick answer was, “Why don’t you think about investing your money in social businesses? You’ll retain the flexibility to reuse the money in the future, if you want to. Or you can donate your money to a nonprofit organization that is specifically charged with investing in social businesses, just as the Green Children have done through Grameen Healthcare Trust. Ask for proposals, and see how many fascinating and innovative ones you get. You can do so much with your billion dollars.” Once foundations think about social business as a worthwhile target for support, the possibilities begin to seem unlimited. Microcredit can be a very attractive social business. Health care, information technology, renewable energy, environmental remediation, nutrition for the poor, and many other kinds of enterprises can be other arenas for interesting social businesses. Foundations, then, can be a great source of funds for social businesses. So can bilateral and multilateral donors, which can create Social Business Funds in each recipient country to provide equity, venture capital, and loans to social businesses. The World Bank and the regional development banks (the Asian Development Bank,African Development Bank, and Inter-American Bank) can create new lending windows to lend to social businesses. They can offer the same terms as they provide governments for investing the same types of projects the governments undertake -infrastructure, renewable energy, health, education, microcredit, and so on—providing the projects are operated as social businesses.
Social Business and a World Transformed
In time, more institutions to support the burgeoning universe of social businesses will emerge. We’ll need formal systems for the financing of social businesses, and social mutual funds like the Danone Communities Fund represent ust one of many possible options. Others include the creation of new commercial and savings banks that specialize in financing social business ventures, the emergence of social venture capitalists, and the birth of an after-market in social business investments. Investors will be able to buy and sell shares in social businesses just as they currently buy and sell shares in conventional PMBs. In time, all of these financing mechanisms and more will fall into place. A ull-fledged social stock market dedicated to trading social business shares will soon be needed. Again, it will be important to clearly define social business for the purpose of determining which companies are eligible to participate in his market. Investors must have confidence that companies listed in the social stock market are truly social businesses, not PMBs masquerading as social businesses. As the social stock market grows, eventually attracting thousands of companies that use business practices in pursuit of social objectives, millions of people around the world who care about the future of our species will devote time and energy to analyzing, tracking, and participating in this market. he prices of shares on the social stock market will reflect the consensus of social investors as to the longterm value of the company whose ownership they represent. However, that value will not be measured in terms of profit expectations, but rather in terms of the social benefit produced, since that is the primary objective the social investor seeks. It’s easy to imagine how the social stock market will bring new visibility and prominence to human, environmental, and economic goals, and to the organizations that work to pursue them. Every day, The Social Wall Street Journalwill report the latest news about the progress and setbacks experienced by social businesses around the world. We’ll read stories like this:
DHAKA, BANGLADESH: The CEO of People’s Sanitation, a social business devoted to providing high-quality sewer services, water treatment facilities, and environmentally friendly garbage disposal in urban areas throughout South Asia, announced the results of a new study showing that rates of infectious disease have fallen by 30 percent in cities served by the company. Shares of People’s Sanitation rose from 12.00 to 14.50 on the London Social Stock Market as a result. . . .
NEW YORK: At today’s annual investor’s meeting of Health Care for All, a social business that provides affordable health insurance for poor people in the United States, a new board of directors and executive vice president were elected by dissatisfied investors. “Over the last year, we’ve seen some progress toward achieving our goal of providing health insurance for every poor American,” the spokesperson of the major investors said. “But we think we can do better in the coming year. The new leadership we’ve selected today will help us reach that goal. . . . ”
Or this: TOKYO, JAPAN: Executives from two of the world’s leading social businesses, Global Water Supply, based in Tokyo and Agricultural Irrigation Industries, headquartered in Seoul, Korea, today announced plans to merge their organizations. Observers say the merger will produce greater efficiency and assist both companies in pursuing their mission of providing pure water at low cost to poor families and farmers in sixty countries of the developing world. Investors appear to agree, as shares of both companies rose on the Tokyo Social Exchange by over 30 percent in the wake of todays announcement. . . .
There will be a Social Dow Jones Index, reflecting the share values of some f the world’s largest, most important, and most broadly representative social businesses. The value of this index will rise and fall in response to news from the world of social development. As poverty, disease, homelessness, pollution, and violence decline, the popularity and value of the social businesses active in those causes will grow—and so will the value of the Social Dow Jones Index. Smart investors will listen for two numbers on the daily news report, and a good day will be one in which both the PMB Dow Jones and the Social Dow Jones finish on the upside. That will mean a day in which our world is getting richer in both economic terms and human terms. Magazines devoted to social business will appear on newsstands, and television programs featuring leading experts on social investment will pop up on the news networks. Managers of social mutual funds will compete to find companies that are developing the most innovative and powerful tools for promoting social progress, and those with the best investment records will find themselves honored with cover stories in publications that might be called Social Business Week or Social Fortune. Executives of leading PMBs like General Electric, Microsoft, and Toyota will continue to be lionized in the conventional business press. But their counterparts from the world’s top social businesses will now become equally famous. The CEOs of organizations that combat hunger, clean the air we breathe, and provide vaccinations for poor kids will become heroes to millions of people, students, and aspiring managers, their leadership strategies scrutinized and their exploits recounted in best-selling books. They’ll be receiving prestigious national and international awards and honors. Principles for managing social businesses will become an important part of business education. Students pursuing a Social MBA will be expected to master many of the same skills as their classmates in a traditional MBA program: finance, management, marketing, human resource development strategy, and so on—but designed from a completely different perspective. In addition, they will also take courses in topics that are relevant to the social business program, courses with titles like The Economics of Poverty, Maximizing Social Benefits to the Poor, Important Issues in Designing Social Business Programs, and Finding Solutions to Social Problems through the Free Market. Graduates of such programs will be in great demand—by social businesses, of course, but also by PMBs, nonprofit organizations, and government agencies, because of their unique combination of powerful analytic and quantitative skills with sophisticated, compassionate understanding of human beings and their needs.
More Than a Fantasy
Perhaps, to some, the idea of social business sounds purely fanciful, a fantasy of a world that can never be. But why? Who has given the ultimate verdict that people are motivated only by money—that the desire to do great things for he world can’t be just as powerful a driving force in human behavior? People get excited about all kinds of goals and activities. There are millions of young people around the world today for whom video games, hip-hop music, soccer, now-boarding, and posting content on the Internet are all-absorbing pursuits. They spend countless hours enjoying these activities, honing their skills, and discussing them with friends and strangers, and would gladly devote their lives to them if they could earn a living by doing so. They love these pursuits, which some people might consider trivial or foolish, because, to them, they are challenging, creative, competitive, and social. I’m convinced that most people, particularly young people, will become enormously excited about social business and its potential to transform the world. All that is lacking is the enabling social and economic structure that will make it possible, to teach the necessary skills, and to encourage participation. I hope all of these elements will be in place soon.
The existence of social businesses will offer an alternative career and life path to students and others who are hungry for a life rich in meaning beyond profit. Non-financial motivations will finally be recognized as the important drivers of human behavior that they are; the desire to do good for our fellow humans will be acknowledged as a legitimate and powerful factor in the world, rather than relegated to “charity” as it is today. Most important, the new social business arena will allow the poor themselves to express their enormous gifts for entrepreneurship, creating newfound abundance not only for themselves and their families but for the communities in which they live.