In our fourth external contribution, Muhammad Yunus examines capitalism, the free market and the financial crisis in relation to the multiple sources of human happiness, bidding us consider the theory at the heart of ‘social business’.
Social Business Towards a New Future
The free market has resolved many problems, but it has also created new ones and left many challenges unsolved. It has given the world a framework for trade and manufacturing, provided an outlet for individual creativity, and ensured competition and economic growth. But it has also unleashed unfettered greed, caused environmental disasters, contributed to wars, and created inequitable societies. It has intensified economic problems of poverty, unemployment, and excluded the people at the bottom from everything.
The current form of capitalism leads to poverty as this wrongly defines human nature. In this interpretation, human beings engaged in business are portrayed as one-dimensional automatons whose only mission is to maximize profit. This is an extremely distorted picture of a human being. The essential fact about human beings is that they are multi-dimensional. Their happiness stems from many sources, not just from making money. But the traditional theory concludes that the optimal result for society will occur when each individual’s search for selfish benefit is given free rein. This distorted view of human nature represents the fatal flaw that over time has helped to create the multiple crises we face today.
In the context of the global financial crisis, it is paramount that we redesign the way finance is handled globally. Even if we can overcome the problem of the financial crisis, we will still be left with some fundamental questions about the effectiveness of capitalism in tackling many other unresolved problems. In my view the theoretical framework of capitalism that is in practice today is a half-done structure.
I propose a different structure of the market itself – a second type of business to operate in the same market alongside the existing kind of profit maximizing business. I am not opposed to the current type of business model (although I call for many improvements in it like many others do). This new type of business I am calling “social business,” because it is for the collective benefit of others – mostly for the poorest and most difficult to reach segment of our society.
The goods and services created by a social business are designed to solve social, economic, and environmental problem—for example, by improving health care, cleaning the environment, or enhancing educational opportunities. Investors in a social business can get back their investment money, but they will not take any dividends from the company. Profit will be ploughed back into the company to expand its outreach and improve the quality of its product or service. This idea is encapsulated in this simple definition of a social business: “a non-loss, non-dividend company with a social objective.”
The example of Grameen Danone social business can make it easier to understand. Grameen Danone’ business strategy is radically different from traditional businesses. This social business creates yogurt fortified with micro-nutrients which are missing in the mal-nourished children of Bangladesh. Because it is a social business, Grameen and Danone will never take any dividend out of the company beyond recouping the initial investment. The bottom line for the company is to see how many children overcome their nutrition deficiency each year. Apart from ensuring that rural children have access to an affordable product that helps them combat malnutrition, the Grameen Danone yogurt factory in Bogra also helps the local economy by providing steady work for livestock farmers, as well as the ladies who go out and sell the yogurt in the countryside.
There are many other social businesses that are functioning in Bangladesh, Germany, India, Algeria, Cambodia and other countries. Unlike philanthropy, these social businesses are centered around sustainability and returning the initial investment to stakeholders. Once a social business breaks even they begin repaying the initial investment, which is an attractive concept to many investors. As long as a business covers its cost, solve a social problem and the owner does not take any profit from the company, you have a social business running.
I have faith in the new young generation. They are ready to become the kind of citizens who will not be obsessed with making money, but will think of solving the problems of the world. They are more interested in issues of other people and want to make a difference in the world. They are looking for a meaningful life. Social business can help them to discover that each one of them has the capacity to change the whole world. It is only a question of making use of that capacity.