20 February 2008

Creating a World Without Poverty: Social Business and the Future of Capitalism by Muhammad Yunus, a Review

Can we unleash the power of free markets to solve the problems of poverty, hunger, and climate change? This is a question we ask all the time at The Green Skeptic. We believe in the power of free markets and the most creative business models to address the most pressing problems of the day.

Muhammad Yunus, founder of Grameen Bank, with which he pioneered microcredit and later received the Nobel Peace Prize, has written an engaging book that examines a new approach to purpose-driven business models: he calls it "social business."

In Creating a World Without Poverty: Social Business and the Future of Capitalism Dr. Yunus sets out to map a new way of doing business and doing good.

The social business concept is an outgrowth of Dr. Yunus's thinking that led to such projects as Grameen Phone, which is now the largest phone service provider in Bangladesh, the eye care hospitals Grameen is investing in, and Grameen Danone, a joint venture to produce and distribute affordable, fortified yogurt to malnourished children.

Social business uses the value creation of profit-driven business models -- the business must meet genuine market needs and generate a profit -- but turns the profits back into further value creation or directly into the social purpose being addressed by the business. In Yunus's model, the original investors receive only an amount equal to their initial investment or even less.

"Social business is the missing piece of the capitalist system," Yunus writes. "Introduction of it into the system may save the system by empowering it to address the overwhelming global concerns that now remain outside of mainstream business thinking."

Driving profits back into the original purpose, where profits essentially stay with the company as opposed to being distributed to shareholders, allows for greater growth potential and expansion. This is where social businesses, as conceived by Yunus, differ from non-profits, which traditionally rely on philanthropic capital for growth and stability.

I agree with Dr. Yunus that the traditional non-profit is an unsustainable model. "The social business dollar is much more powerful than the charity dollar," Yunus writes. "Whereas the charity dollar can be used only once, the social-business dollar recycles itself again and again, ad infinitum, to deliver benefits to more and more people."

Where I differ with Yunus is in his assertion that a profit-maximizing company (PMC) can't also serve a social purpose. I understand the argument that PMCs are beholden to the shareholders first, and maximizing their return on investment is job one. This can clearly lead to some conflicts.

But what if you are selective about your shareholders and state upfront that investors are allowed to take a small percentage of profits (say, 1-3 percent), and that the overage would be plowed back into the business for future value creation?

Yes there may be pressure from shareholders to create maximum value for them, but is there a way to ensure that Values don't conflict with value? I'm not convinced it's as black and white as Yunus makes it; perhaps there's room for a little gray.

Yunus is a consummate storyteller, as I've mentioned elsewhere on this blog. And even in the brief retelling of the Grameen story (necessary for those who haven't read his earlier book, Banker to the Poor), he captivates the reader. The stories lend a charm to what is otherwise a prescriptive book. He wants us to embrace the social business model and even offers some suggestions for how to get started.

In the end, Yunus believes it "is possible to eliminate poverty from our world because it is not natural to human beings -- it is artificially imposed on them." He has dedicated himself to "putting poverty in the museums once and for all" and implores us to join him in the fight.

We need only think of alternative ways to tap into the human potential. As Dr. Yunus said in his acceptance speech for the Nobel Prize in December 2006 (and reprinted in its entirety as an Epilogue to this book):

"By defining 'entrepreneur' in a broader way we can change the character of capitalism radically, and solve many of the unresolved social and economic problems within the scope of the free market. Let us suppose an entrepreneur, instead of having a single source of motivation (such as maximizing profit), now has two sources of motivation, which are mutually exclusive, but equally compelling-- a) maximization of profit and b) doing good to people and the world."

What a wonderful idea whose time has come. In Creating a World Without Poverty, Muhammad Yunus shows one path to realizing that vision.

(Disclosure: Muhammad Yunus is a member of Ashoka's Global Academy, a non-paid position; the views in this post are solely those of the author and do not reflect his current employer, Ashoka, or other organizations with which he is associated.)


Anonymous said...

I don't think "maximizing profits" has to be in conflict with "Doing good for other people". In fact, you want to maximize profits so the profits can be folded back into the business. What is needed is an understanding that many charitable functions need to be monitized just as he has done with loaning money to the poor. This often enpowers the people and provides the "charity" with the means to grow and sustain itself.

chris macrae said...

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JavIndio said...

How are you going to monetize the return of investment for providing education to a community? It's impossible, not everything can be monetize, in this life there are many things beyond money