NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, February 15, 2008

Bill Gates caused a stir in Davos last month with his call for “creative capitalism.” He pointed out that while capitalism is “responsible for the great innovations that have improved the lives of billions … to harness this power so it benefits everyone, we need to refine the system.”

I see traditional capitalism as a half-developed structure. It ignores the humanity within all of us.

Moneymaking is an important part of humanity, but it is not the only part. Caring, concern, sharing, empathy ? all of these aspects also must be considered when developing an economic framework that takes the whole person into account.

Enter the missing piece of the global development puzzle: social business. By Muhammad Yunus
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Dhaka, Bangladesh

Bill Gates caused a stir in Davos last month with his call for “creative capitalism.” He pointed out that while capitalism is “responsible for the great innovations that have improved the lives of billions … to harness this power so it benefits everyone, we need to refine the system.”

I see traditional capitalism as a half-developed structure. It ignores the humanity within all of us.

Moneymaking is an important part of humanity, but it is not the only part. Caring, concern, sharing, empathy ? all of these aspects also must be considered when developing an economic framework that takes the whole person into account.

Enter the missing piece of the global development puzzle: social business.

Social business ? not a charity

A social business is not a charity. It is a nonloss, nondividend company with a social objective. It aims to maximize the positive impact on society while earning enough to cover its costs, and, if possible, generate a surplus to help the business grow. The owner never intends to take any profit for himself.

As evidenced every day by religious ministers and practitioners, social activists, and philanthropists, making money is not always the only driving force. They may be a special group of people who makes it visible, but the desire to help others exists in various degrees in every human being.

Capitalism’s limits

Traditional capitalism doesn’t tap into that universal desire. Capitalism delivers limited results because it takes too narrow a view of human nature, assuming people are one-dimensional, concerned only with maximizing profits.

Capitalism has long been a source of prosperity, spurring industrial, technological, and social progress in North America and Western Europe. But even as standards of living rise, large numbers of people are still left behind.

While free markets have ushered in many benefits, these gains have bypassed too many of the world’s people, especially the poor.

And yet, in recent decades, powerful tools have been developed that leverage capitalism’s strengths to enrich the lives of those who get left behind.

Take microcredit. It has been a powerful tool in combating poverty, enabling the poorest of the poor to change their lives and provide for their families. Through these small, collateral-free loans with a nearly 100 percent return rate, borrowers ? mostly women ? have been able to harness entrepreneurial abilities inherent in them.

Microcredit is just one example of how a business approach can help alleviate poverty when we move beyond the idea that business by definition has to mean making financial profit for the owner.

We need social businesses to couple the human heart to the capitalist system. This is a sure way of meeting needs that either remain unmet or are met extremely inadequately through the efforts of philanthropy, charity, or welfare.

Traditional philanthropy and nonprofits generate a social gain, but they do not design their programs as self-sustaining business models. A charitable dollar can be used only once. A dollar invested in a self-sustaining social business is recycled endlessly.

A social business is designed to be both self-sustaining and to maximize social returns like patients treated, houses built, or health insurance extended to people who never had this coverage. An investor in a social business retains an ownership interest to hold management accountable and to get the investment back over time, but no dividends are expected, and any profits should be reinvested in the business or used to start new similar businesses.

Social businesses could be viewed akin to investment accounts, where the money is returned over time but the interest is paid in social dividends, rather than in economic profit.

Continue reading “How Social Business Can Create a World Without Poverty“