Muhammad
Yunus
Capitalism is interpreted
too narrowly
Many of the problems in the world remain unresolved because
we continue to interpret capitalism too narrowly. In this narrow
interpretation, we then create a one-dimensional human being to play the role
of entrepreneur. We insulate him from other dimensions of life, such as the
religious, the emotional, the political, and the social. He is dedicated to one
mission in his business life: maximizing profit. Masses of one-dimensional
human beings support him by backing him with their investment money to achieve
the same mission.
The free market game, we are told, works out beautifully with
one-dimensional investors and entrepreneurs. Have we been so mesmerized by the
success of the free market that we don’t dare to question it? Have we worked so
hard at transforming ourselves absolutely into one-dimensional human beings –
as conceptualized in economic theory – to facilitate the smooth functioning of
the free market mechanism?
Economic theory postulates that you contribute to society and
the world in the best possible manner when you concentrate on squeezing out the
maximum for yourself. Once you get your maximum, everybody else will get theirs
too. As we follow this policy, we sometimes begin to doubt whether we are doing
the right thing by imitating the entrepreneur created by theory. After all,
things don’t look too good around us. We nevertheless quickly brush off such
doubts by maintaining that bad things happen as a result of “market failures” –
well-functioning markets do not produce unpleasant results, do they?
I do not think things are going wrong due to “market
failure.” The causes lie much deeper. Let us be brave and admit that they are
the result of “conceptualization failure.” More specifically, it is the failure
of economic theory to capture the essence of human beings. Everyday human
beings are not one-dimensional entities; they are excitingly multi-dimensional
and indeed very colorful. Their emotions, beliefs, priorities, and behavior
patterns vary so greatly that they can be more aptly described by drawing an
analogy with the millions of colors and shades that are produced by mixing just
three basic colors in varying proportions.
Social business entrepreneurs
can play a key role in the market
Let us postulate a world with two kinds of people, both
one-dimensional but with different objectives: the profit maximizing kind and
the non-profit maximization kind. The second type is totally committed to
making a difference in the world; they are driven by social objectives. They
want to give other people a better chance in life. They want to achieve their
objectives by creating and supporting a special kind of enterprise. Such
businesses may or may not earn profit, but like any other business, they must
not incur losses. We could describe this new class of businesses as ‘non-loss’
businesses.
Do we find this second type of person in the real world? Yes,
we do. We are all familiar with ‘do-gooders.’ They are the people referred to
as ‘social entrepreneurs’ in formal parlance. Social entrepreneurship is in
fact an integral part of human history. Most people take pleasure in helping
others and all religions encourage this quality in human beings. Governments
reward social entrepreneurs with tax breaks and special legal facilities are
created so that they can create legal entities to pursue their objectives.
Some social entrepreneurs use money to achieve their
objectives; some just give away their time, labor, talent, and skill or make
other, useful contributions. Those who use money may or may not try to recover
part or all of the money they invest in their work by charging a fee or a
price.
Social entrepreneurs who use money can be classified into
four categories:
·
No cost recovery
·
Some cost recovery
·
Full cost recovery
·
More than full cost recovery
Once a social entrepreneur operates at 100 percent or beyond
the cost recovery point, he has actually graduated into another world, the
business world with its limitless expansion possibilities. This is a moment
worth celebrating. He has overcome the gravitational force of financial
dependence and is now ready for space travel! This is the critical moment of
significant institutional transformation. The social entrepreneur has migrated
from the world of philanthropy to the world of business. To distinguish him
from the first two types of entrepreneur listed earlier, we will call him a
‘social business entrepreneur.’
Social business entrepreneurs make the market-place more
interesting and competitive: interesting because two different kinds of
objectives are now at play, creating two different sets of frameworks for price
determination; competitive because there are now more players than before.
These new players can be as aggressive and enterprising at achieving their
goals as traditional entrepreneurs.
Social business entrepreneurs can become very powerful
players in national and international economies. If we were to add the assets
of all the social business entrepreneurs in the world today, the total would
represent the merest fraction of the global economy. This is not because these
assets lack growth potential, but because conceptually we neither recognize
their existence, nor make room for them in the market. They are considered
freaks and kept outside the mainstream economy. We do not pay attention to them
because we are blinded by prevailing theories.
If social business entrepreneurs exist in the real world – as
it seems they do – it makes no sense that they are not accommodated within
current conceptual frameworks. Once we have recognized social entrepreneurs,
the supportive institutions, policies, regulations, norms, and rules can be
developed to help them enter the mainstream.
The neoliberal free market is often considered ill equipped
to address social problems. Indeed, the market is often identified as a
significant contributor to social problems such as environmental hazards,
inequality, polarization of political power, health problems, unemployment,
ghettoes, crime, etc. Since the market is perceived as having no capacity to
solve social problems, this responsibility is handed over to the public sector.
This arrangement was widely considered the only solution until command
economies – such as in the former Soviet Union – were created in which the
state took over everything, abolishing the free market.
But this did not last long. With command economies gone, we
have returned to the artificial division of work between market and state. In
this arrangement, the market is the exclusive playground of the personal gain
seekers, overwhelmingly ignoring the common interest of the people and the
planet. In recent years, initiatives that make profit seekers aware of social
responsibilities while maintaining their profit-maximizing objective have
gained momentum. These sometimes take the form of self-imposed restrictions on
activities and/or of the creation of a philanthropic window with profit.
With the global economy continuing to expand year on year,
personal wealth in many developed countries reaching unimaginable heights,
technological innovations accelerating this trend, globalization threatening to
wipe weak economies and the poor off the map economically, it is time to
consider the case for social business entrepreneurs more seriously than before.
Not only is it unnecessary to leave the market solely to personal gain seekers,
it is extremely harmful to mankind as a whole. It is time to move away from a
narrow interpretation of capitalism and broaden the concept of the market by
giving full recognition to social business entrepreneurs. Once this has been
done, they can make the market work as efficiently for social goals as it does
for financial goals.
A social stock market
So, how do we encourage the creation of social business entrepreneurs?
What are the steps that we need to take to facilitate social business
entrepreneurs playing an increasingly larger role in the market place?
First, we must recognize social business entrepreneurs in our
theory. Students must learn that there are two kinds of businesses:
·
Business to make money
·
Business to do good.
Young people must learn that they have
choices to make about which kind of entrepreneur they would like to be. If we
broaden the interpretation of capitalism, they will have a wider choice to mix
these two basic types in proportions that suit their personal objectives.
Second, we must make social business entrepreneurs and social
business investors visible in the market-place. As long as social business
entrepreneurs operate within the cultural environment of the present stock
markets, they will be restricted by the existing trading norms and conditions.
Social business entrepreneurs must develop their own norms, standards,
measurements, evaluation criteria, and terminology. This can only be achieved
if we create a separate stock market for social business enterprises and
investors – a ‘social capital market.’ Investors could invest money in the
causes in which they believe and in the companies that they think are achieving
particular missions best. Some companies listed on this social capital market
may be excellent at achieving their missions, while simultaneously making very
attractive profits. Obviously, these companies will attract both social,
goal-oriented investors and personal, gain-oriented investors.
Making a profit does not disqualify an enterprise from being
a social business enterprise. The basic deciding factor is whether a social
goal is the enterprise’s overarching goal and is clearly reflected in its
decision-making. There will be well-defined, stringent entry and exit criteria
for a company to qualify for listing on the social capital market and, if
applicable, to lose that status. Soon companies will emerge that will succeed
in mixing social and personal goals. Investors must remain convinced that
companies listed on the social capital market are truly social business
enterprises.
To this end, I suggest several rules and guidelines. These
include:
·
Profit making by social business
enterprises is legitimate, under the condition that investors do not receive
any dividends or receive only token dividends. A social business enterprise is
designed and operated as a business enterprise to pass on all the benefits to
its customers. It reverses the profit maximization principle by means of the
benefit maximization principle.
·
Social business enterprises should
generate enough surpluses to repay the invested capital to the investors as
early as possible. It is up to the investors to decide how quickly they want
their money back. They may get their money back to reinvest in other social
business enterprises or in traditional profit maximizing enterprises. They may
even decide to reinvest the surplus in the same social business enterprise that
generated the profit.
·
Social business enterprises should
generate surpluses for their expansion, the improvement of quality, increased
efficiency, introduction of new technology, and innovative marketing to reach
the deeper low-income layers, particularly women, children, and disadvantaged communities.
·
Investors will need to be clear
that they are investing in a social business enterprise for a return that is
much broader than an immediate gain in dollar and cents. They invest in a
social business enterprise because they feel an urge to make a difference and
share their lives with other people. They invest because they feel that they
can contribute their creativity, innovativeness, and entrepreneurial abilities
to solve complex social and economic problems and, consequently, improve the
quality of people’s lives – including their own. If an investor wishes to
withdraw his investment from a social enterprise, he may do so by selling his
shares to the existing shareholders or to a new shareholder who accepts the
philosophy, practice, and conventions.
Until social stock exchanges are created, existing stock
exchanges could open a window to facilitate the trading of social business
enterprise stocks. All companies categorized as social business enterprises
could be listed under a separate category of companies. For easy recognition of
social business enterprises, each company could identify itself by adding the
suffix "SBE" to its name, as in Grameen Danone Foods SBE.
My feeling is that there are many people around the world who
are ready to make investments in social business enterprises if only they could
reach out to them. Foundations and philanthropists may find it very attractive
to invest part of their charity money in social business enterprises.
Together with the creation of a social stock market, we’ll
need to create rating agencies, appropriate impact assessment tools, indices to
understand which social business enterprise is doing more and/or better than
others, so that social investors are correctly guided. This industry will need
its Social Wall Street Journal and Social Financial Times to make all the
exciting stories, as well as the negative ones, and analyses known to keep
social entrepreneurs and investors properly informed and forewarned.
Within business schools, we can start producing social MBAs
to meet the demand of social business entrepreneurs and to prepare young people
to become social business entrepreneurs themselves. I think young people will
respond very enthusiastically to the challenge of making serious contributions
to the world by becoming social business entrepreneurs.
We will need to arrange financing for
social business entrepreneurs. New banking models need to be developed. New
angel investors will have to emerge. Social venture capitalists will have to
join hands with social business entrepreneurs.
The potential for social
business enterprises
I believe there are many potential developments that - once
understood – may fuel the growth of
social business enterprises. These include:
·
Existing companies of all shapes
and sizes may launch their own social business entrepreneurs to test the water.
A part of their annual profit may be devoted to the creation of social business
entrepreneurs as a part of their corporate social responsibility activities.
They may create social business enterprises themselves or they may partner
known or potential social business entrepreneurs. Specialized companies may be
created to provide matchmaking services between traditional entrepreneurs and
social business entrepreneurs in respect of possible partnerships.
·
Many companies with their own
foundations may create "Social Business Enterprise Investment Funds"
in addition to their philanthropic activities. The advantage of such a social
business enterprise fund would be that money would keep on growing, giving the
companies more financial power to create more social business enterprises.
·
Individual entrepreneurs who have
achieved success and/or suffered failures in conventional businesses may feel
an urge to try their creativity, talent, and management skills in establishing
and running their own social business enterprises. If they succeed at their
first social business enterprise, they may be so inspired that it may even
become a habit. They may discover just what an exciting business social
business can be.
·
International and bi-lateral donors
could start creating "Social Business Enterprise Funds" in recipient
countries to support social business enterprise initiatives.
·
Children of successful business
families could decide to devote themselves to social business enterprise
because their traditional businesses are already successful and there is little
challenge for them. They may be attracted by new challenges and the rewards of
social business enterprises.
·
Young entrepreneurs without inherited
businesses may decide to start out their careers with social business
enterprises rather than traditional businesses because they seem so ‘cool’.
How to make a start
One good way to get started would be to launch a design
competition for social business enterprises. There could be local, regional,
and global competition. Prizes for successful designs could come in the form of
equity financing for social enterprises and/or partnerships to implement social
projects. All the submitted social business proposals could be published so
that these could become the ‘open source’ starting points for social business
entrepreneurs in the next cycle.
A social business entrepreneur could even start the social
capital market as a social business enterprise. A business school or several
business schools could join hands to launch this as a project and trigger
serious business transactions.
We should not expect a social business enterprise to provide
all the answers to a social problem right from its founding. It will most
likely proceed one step at a time. Each step may lead to the next level of
achievement. Grameen Bank is a good example in this regard. I never had a
blueprint to follow when creating Grameen Bank. I took one step at a time,
always thinking that this step would be my last. But this was not to be. That
one step led me to another step – a step that was so interesting that is was
difficult to walk away. I faced this situation at every turn.
I started my work by giving small amounts of money to a few
poor people without any collateral. Then I realized how good these people felt
about these loans. I needed more money to expand the program. To access bank
money, I offered myself as a guarantor. To get the support of another bank, I
converted my project into the bank’s project. Later, I turned it into a central
bank project. Over time, I saw that the best strategy would be to create an
independent bank to do the work. So we did. We converted the project into a
formal bank, borrowing money from the central bank to lend money to the
borrowers. Donors became interested in our work and wanted to support us. We
received loans and grants from international donors. At one stage, we decided
to stop taking money from donors. This led us to focus on generating money internally
by mobilizing deposits. We soon arrived at a stage when Grameen Bank had more
money in deposits than it lent to borrowers. Today it lends out half a billion
US dollars a year in loans (an average of $130 per loan) to 6 million borrowers
without collateral and maintains a 99 per cent repayment record.
We introduced many programs in the bank: housing loans,
student loans, pension funds, loans to purchase mobile phones to become the
village telephone ladies, loans to beggars to become door-to-door salespeople
person. One led to another.
Besides Grameen Bank, we have also created many other
companies: a renewable energy company (Grameen Shakti), Grameen Healthcare
Services, Grameen Phone, Grameen Telecom, Grameen Agriculture, Grameen
Fisheries & Livestock, Grameen Communications, etc. The latest company that
we launched is of particular interesting to this chapter: a 50:50 joint venture
between Grameen and Danone called ‘Grameen Danone Foods, a Social Business
Enterprise’. (I include some relevant sections of the joint venture agreement
in the Appendix.) I invite all companies to think of creating social business
entrepreneurs as part of their business. They'll find it an exhilarating
experience.
We started out by assuming a world with
two kinds of people: one kind wants to make money; the other kind wants to do
good. But in the real world there are only people of one type with two types of
interests in varying proportions. It is important that we recognize these two
types of interests in our business world, because it is important for mankind
and the planet. As people become increasingly worried about the current state
of capitalism, the potential for social business entrepreneurs is growing. If
we create the right environment, social business entrepreneurs can use market
mechanisms significantly and make business an exciting place for fighting
social battles in ever more innovative and effective ways. Let us now get
serious about social business entrepreneurs. They can create hope for the
future of human society and brighten this gloomy world for us all.
[1] Partially based on a contribution to Nicholls, “Social
Entrepreneurship - New Models of Sustainable Change” Oxford University Press,
2006