For the greater good

As I understand it, social business has three defining characteristics. First, it is a non-profit enterprise. Second, it has a social purpose. Third, it is financially self-sustaining.

Written by Jean Drèze | Published: December 23, 2017 12:15:29 am

The non-profit private sector has also made important contributions in fields like culture, sports, entertainment, scientific research, legal aid, environmental protection, the news media, among others.

Book: A World of Three Zeros: The New Economics of Zero Poverty, Zero Unemployment, and Zero Carbon emissions
Author: Muhammad Yunus
Publisher: Hachette
Pages: 352
Price: Rs 599

The term ‘social business’ did not particularly appeal to me until I met Muhammad Yunus two years ago in Ahmedabad. It sounded like an oxymoron. Yunus, however, quickly persuaded me that there was something to the idea. Indeed, I had been interested in this idea for a long time, without knowing it by the name of social business.

As I understand it, social business has three defining characteristics. First, it is a non-profit enterprise. Second, it has a social purpose. Third, it is financially self-sustaining. The first two distinguish social business from conventional, profit-oriented business. The third differentiates social business from traditional social work based on donations, grants or other external support.

Seen in this light, social business is not a new idea. For instance, non-profit initiatives (including many that would qualify as a social businesses) have played a critical role in the provision of health and education around the world. The non-profit private sector has also made important contributions in fields like culture, sports, entertainment, scientific research, legal aid, environmental protection, the news media, among others.

Yunus, however, has taken the idea to a new plane. He believes that social business has a vast potential. This is not an idle belief — he has translated it into action by setting up a galaxy of social businesses around the world, starting with the iconic Grameen Bank. From Canada to Bangladesh and France to New Zealand, social businesses created or inspired by Yunus are helping to pull people out of poverty, protect the environment, design liberating technologies, and more.

Yunus’ recognition of the potential of social business is an important insight. A neo-classical economist might argue that social business is doomed, because the only way for a firm to survive in a competitive economy is to maximise profits. Yunus’ work refutes this reasoning and shows that, in fact, there is much room for social business in the real world. Indeed, in some countries more than 10 per cent of the workforce is already employed in the private non-profit sector.

How social business routinely succeeds in beating the competition from profit-maximizing firms is an interesting question. One possibility relates to what economists call ‘market failures’. In the field of health care, for instance, pervasive market failures (due, say, to externalities and asymmetric information) create a natural space for non-profit activity. Another possibility relates to worker motivation. In the profit-maximising firm, the employee basically slaves for the benefit of the boss. That is hardly exciting, so motivation needs to be created, typically through financial inducements.

In a social business, where workers cooperate for a common purpose, intrinsic motivation may be higher. A third possibility is that social business benefits from a lot of goodwill. As Yunus puts it: “When you are building an organisation whose mission is not to enrich any individual but rather to help make the world a better place…, most people are happy to support it…” Other reasons can also be invoked — social business could be a rich topic of economic research. What is clear is that, in many circumstances, social business has a comparative advantage.

Yunus goes a step further, and sees social business as a means of transforming the world — if not end capitalism, at least “build a new version of capitalism”. The two pillars of this alternative are social business and universal entrepreneurship. Social business will substantially replace profit-oriented business as more and more people seek to do something not only for themselves but also for others.

The other pillar, universal entrepreneurship, builds on the idea that all human beings have skills and creativity. Not all of them may wish to be part of a social business. But most of them can find gainful employment, if need be, by setting up their own enterprise. And social businesses will be there to help them.

This new system, Yunus claims, will achieve the “three zeros” — zero unemployment, zero poverty and zero net carbon emissions. Here, there is a loose end in the argument. It is one thing to say that social business and individual entrepreneurship have enormous potential, and another to claim that they can wipe out poverty or unemployment.

Even in the capitalist system, almost everyone is, in principle, employable in one way or another. Yet, people do find themselves unemployed for various reasons such as crop failures, financial crises, job-search problems, wage rigidities, technological change, and low consumer demand. It is not clear how social business and individual entrepreneurship are supposed to avert all these problems at once.

As for net carbon emissions, reducing them to zero requires not only private initiative but also government action on a global scale. The government gets little attention in Yunus’ book, though he does recognise the need for it to step in here and there.

There is a related gap in the book: it says virtually nothing about the limits and problems of social business. All the social-business initiatives discussed in the book sound like unmitigated successes. It is hard to believe that no social business has ever faced bankruptcy, corruption, incompetence or in-fighting.

This positive outlook, however, is also the charm of the book. Yunus is a practical idealist. He dreams big, but is also an astute businessman. He has inspired hundreds of people around the world to invest their time, energy and skills in efforts to solve urgent social problems. At times, he gets a little carried away with his own success, but a little intoxication can be forgiven to someone who has contributed so much to human progress.

Yunus’ faith in people’s concern for their fellow human beings is particularly refreshing. His vision of an alternative economic system builds on the possibility of nurturing people’s desire to help make the world a better place. You may or may agree, but quite likely, this upbeat book will give you greater confidence in the future of public-spiritedness.

Jean Dreze is a visiting professor at the department of Economics, Ranchi University

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