Social Business and the Future of Capitalism

Highlights from Creating A World Without Poverty - Social Business and the Future of Capitalism by Muhammad Yunus

PMB's = Profit maximizing businesses

CRS = corporate social responsibility takes two primary forms and may be built on good intentions but some misuse the concept:
1.) Do no harm to people or the planet (unless that means sacrificing profit)
2.) Do good for people and the planet (as long a you can do so without sacrificing profits)

"We will do the socially responsible thing - so long as it doesn't prevent us from making the largest possible profit."

By nature - corporations are not equipped to deal with social problems, to make a profit is the goal, not to solve difficult social issues

Social Business = entrepreneurs set up these type of businesses not to achieve unlimited personal gain, but to pursue specific social goals...

New type of business - dedicated to solving social and environmental problems....same as PMB's but they differ in their objectives

Like all businesses - they employ workers, create goods and services, and provide these to customers for a price consistent with their objectives

Primary criterion - emphasis is on creating social benefits for those whose lives it touches

Definition - A social business is a company that is cause driven rather than profit driven, with the potential to act as a change agent for the world...it is not a charity, it is a business in every sense except that investors who support it do not take profits out of the company except to recoup the original investment over a period of time. (on continuum = this could be just recouping the original investment or the original investment plus a minimum rate of interest, 1-3%)

Non-profit / NGO's - are different in that they don't recover their total costs, depending instead on charitable donations, foundation grants, or gov't support to implement their programs. They are forced to spend part of their time fund raising.

Social business - operated in accordance with for-profit management principles...aiming at full recovery, or more, as it concentrates on creating products or services that provide a social benefit. It pursues this goal by charging sustainable market prices/fees for the products and services it creates.

Generate - profitable sales revenues while creating benefits to society....(if it has to rely on subsidies and donations to cover the costs it is not a social business), just another non-profit charity

Expanded definition: "Thus, a social business is designed and operated as a business enterprise, with products, services, customers, markets, expenses, and revenues - but with the profit-maximization principle replaced by the social-benefit principle. Rather than seeking to amass the highest possible level of financial profit to be enjoyed by the investors, the social business seeks to achieve a social objective."....and I might add, while making a profit.

Profits - unlike non-profits/charities , social business has owners who are entitled to recoup their investments.....(can't incur losses indefinitely) - it might be defined as a non-loss, non-dividend business.

Surplus = rather than being passed on to investors, is reinvested in the business. Ultimately it is plowed back into the target market group of beneficiaries in such forms as lower prices, better services, and greater accessibility.

Profitability - is important to social business, first to pay back investors, and secondly to support the pursuit of long-term social goals....

Long term road map - generating a surplus enables the social business to expand its horizons in many ways.....expanding its market share and locations, improving quality, efficiencies, research and development, introducing new technologies, innovations etc....

Bottom line - of social business is to operate without incurring losses while serving the people and the planet - and in particular those among us who are most disadvantaged, in the best possible manner.

Why invest in social business: investors can get the same satisfaction they get from philanthropy, as giving to a charity, but eventually getting their investment back to use again and again.

Differences:
1.) social business is self-sustaining, self-propelling, self-perpetuating, self-expanding, continuing to grow
2.) investors get their money back and can re-invest
3.) exciting opportunity for business minded people to give back doing what they do best - running a business with the purpose of creatively tackling social problems
4.) investor not only gets money back, but can remain an owner and help the company decide its future course of action
5.) marketplace now has some new and exciting options - as social business enters the market on equal footing, (not public relations window), they operate in the same market place with PMB's
6.) consumers can decide on whether to support social benefits organizations or PMB's in the same marketplace
7.) social businesses also compete with one another, for customers, investors, etc.
8.) adds new kind of competition to the marketplace - one based on social benefits achieved

Key - social business brings the advantages of free-market competition into the world of social improvement....(competition has always been a powerful positive force for change)

Early stage - of social business development without clear outlines - they will unfold over time

Differences between social business and social entrepreneur:
Social entrepreneur - is a very broad idea and is generally defined as any innovative initiative to help people - it may be economic, or non-economic, for-profit or not-for-profit. Best known is Ashoka Foundation and Bill Drayton, Skoll Foundation, Schwab Foundation for Social Entreprenenurship with the mission to find, support and encourage social entrepreneurs around the world

Subset - social business is a specific subset of social entrepreneurship (but not all social entrepreneur's are working in a social business)

Some of my thoughts:
Hybrid - he doesn't think it is possible in the real world to operate business with two conflicting goals of profit maximization and social benefits....he thinks they gradually migrate towards maximizing profit at the expense of social missions....

Another way - some (like Open Hand) have worked at combining the dynamism of self-sufficiency / sustainable business with the pursuit of worthy social goals through the creation of nonprofit organizations that sell socially beneficial products and services. He doesn't see these as true social businesses as defined above. Partly because they generally achieve only partial cost recovery, which means that they do not attain the "lift-off velocity" that would enable them to escape the gravitional pull of dependence on charity.

Main draw back - these organizations don't have the investor-owner feature that distinguishes social businesses, creating a source of funds with an interest in ensuring both the efficiency and effectiveness of the social benefits generated by the business.

Summary = well apparently he hasn't seen the likes of Open Hand - we are a small, ten year hybrid/experimental version of an "international-social-business-mission-emergent-faith- not-for-profit organziation" that is looking to grow into a more robust and innovative global social business with a variety of worldwide marketplace opportunities to serve the less fortunate among us....Amen.
More soon - over and out!
O'

Denmark and Social Justice Capitalism

Hey Hey C....

Just thinking of you as I was reading about Mill and your comments outlining the dis-ease (contemporary division) between individual freedom and social redistribution.

"Society cannot have both individual freedom and social redistrubution because taking away from some to benefit others is considered a violation of individual rights."

I am reminded of Denmark (and all of Scandinavia actually) and enjoyed the Time article entitled, "Denmark's Difference - high taxes, a welfare state, strong unions: how an unlikely formula delivers for the Danes."

Having been in Denmark and more recently Norway, I could relate to the reality of the theme highlighted in this article.

With living standards among the highest in the world and per capita income slightly behind the U.S.A., it amazingly has been able to distribute it far more equitably. Denmark has its fair share of smallish, forward looking companies that are well positioned in high growth areas and currently ranks third by the WEF in most competitive enconomies in the world.

Amazingly it accomplishes this with the second highest tax rate in capitalist nations, only behind Sweden, which is just behind Denmark in the competitiveness rankings. They have a generous welfare state, heavily unionized labor force and a minimum of five paid weeks off per year.

They have all manners of business friendly policies - including low corporate tax rates, few restrictions on trade, and it is the easiest place in Europe to fire people. They have come to call their approach "flexicurity" and it includes beefed up job-retraining programs, social protections and unemployment benefits that last up to four years. They also have free education, free health care, and a flexible labor market that adjusts well to the challenges of globalization.

Perhaps their size and homogeneity - 5.4 million people, one tribe with a thousand year history, help. They are more like an enormous clan than a modern melting pot of immigrants. They are also known for their stubborn informality and disrespect for authority. I have experienced first hand on several occassions these rather charming traits and would pick Danes (and Swedes and Norweigans) on my team before almost any other nationality. With clear goals they take the ball and run with it when given freedom and flexibility.

"....the fact that Denmark has combined a dynamic economy with a tax burden almost double that of the US gives the lie to many economic arguments made over the past quarter-century. There's more than one way, it turns our, to be competitive." Amen!
Cheers to the Danes,
O'

Grameen Danone - Social Business Partnership

Here are the highlights of the purpose for which Danone yougurt and Grameen of Bangladesh joined forces in a new social business venture started in 2006:

Purpose:
Mission: Reduce poverty by a unique proximity business model which brings daily nutrition to the poor.
The JV (joint venture) will be designed and operated as a social business enterprise and will aim at sharing the benefits with its community of stakeholders.

Specific objectives:
Daily healthy nutrition to the poor:
Allow lower income consumers of Bangladesh to have access (in terms of affordability and availability) to a range of tasty and nutritious foods and beverages on a daily basis, in order to improve their nutritional status.
More specifically, help children of Bangladesh grow strong, thanks to tasty, nutritious food and beverage products they can consume every day, so that they can have a better future.

A unique proximity business model:
Design a manufacturing and distribution model that involves local communities.

Reduce poverty:
Improve the economic conditions of the local bottom class-population by:

• Upstream: involving local suppliers (farmers) and helping them to improve their practices;
• Production: involve local population via a low cost/labor intensive manufacturing model;
• Downstream: contributing to the creation of jobs through the distribution model.

Creating a World Without Poverty - Social Business and the Future of Capitalism
by Muhammad Yunus

Creating A World Without Poverty

Social Business and the Future of Capitalism
by Muhammad Yunus

Winners of the NOBEL PEACE PRIZE (Muhammad Yunus & Grameen Bank)

"At Garmeen Bank, we had to develop our own definition of poverty so that we would be able to measure our success in helping people rise out of poverty through microcredit....so we developed a ten-point system that describes specific living conditions. Once a family has succeeded in clearing all ten of these hurdles, then we at Grameen Bank consider them to have escaped from poverty. The the ten points are:

1. The bank member and her family live in a tin-roofed housed or in a house worth at least $370. The family members sleep on cots or a bedstead rather than the floor.
2. The member and her family drink pure water from tube-wells, boiled water or arsenic-free water purified by the use of alum, purifying tablets, or pitcher filters.
3. All of the member's children who are physically and mentally fit and above the age of six either attend or have finished primary school.
4. The member's minimum weekly loan repayment installment is around $3.
5. All family members use a hygienic and sanitary latrine.
6. All family members have sufficient clothing to meet daily needs, including winter clothes, blankets, and mosquito netting.
7. The family has additional sources of income, such as a vegetable garden or fruit-bearing trees, to fall back on in times of need.
8. The member maintains an average annual balance of $75 in her savings account.
9. The member has the ability to feed her family three square meals a day throughout the year.
10. All family members are conscious about their health, can take immediate action for proper treatment, and can pay medical expenses in the event of illness.

The important point is that poverty must be clearly defined so that an anti-poverty program can have a clear target clientele and one or more clear objectives to attain."