The world today is witnessing capitalism at its worst. The system, after producing a global depression in the 1930s, and recovering from it to give the world the longest and most prosperous expansion in the history of mankind, is once again flirting with catastrophe that threatens to unravel the whole system. To anyone cognizant of economic history, it is an unseemly sight to see the world's most affluent societies beset with mounting public and private debt that are shaking the foundations of hitherto prosperous economies; to see unemployment in the double digits and youth unemployment even at 50% in some pockets of Europe. Laissez faire financial capitalism that took roots in the 21st century soon unravelled in the severest financial crisis from which world markets are yet to recover. In the wake of this crisis, trillions of dollars worth of equities and housing values vanished literally into thin air making millions of citizens across Europe and North America feel poorer and radically cut consumption, the engine that drove capitalist economies for decades. As affluent societies get a taste of humble living by cutting down on their spending habits, less affluent societies and those living in poverty could feel the pinch as the demand for their products and services fall off. In consequence, the global economy slows down or falters in its forward march.
Globalisation, an offshoot of the capitalist economic system, did unleash the forces of trade, growth and poverty reduction across the globe for a long period. But now it seems the day of reckoning is upon us. Or, is it? It was Joseph Schumpeter, writing about the capitalist system, who coined the expression “creative destruction”. Is the present predicament simply a reflection of the destructive process within capitalism, to be followed eventually by more innovation? It comes after what was considered by Alan Greenspan, the former Chairman of the US Federal Reserve System, as “financial innovation”, which was then allowed free reign from the trappings of prudential financial regulation. As a result, corporate “greed” ran amok on Wall Street and beyond. Much of the world today is getting a taste of the consequences of the financial collapse that ensued. But what is now certain is that far too many people around the globe are afflicted with the negative consequences of the destructive process inherent in capitalism and addressing their call for resuscitation has become a global imperative.
Along comes Nobel Peace Laureate Professor Muhammad Yunus with a new initiative -- Social Business -- a kind of business that is created to address a social problem, like child malnutrition in Bangladesh. Indeed, a wider definition of social business would include any business which has a social rather than financial objective. But Yunus narrows his focus. He argues that the malaise that is inherent in capitalism has its origin in the assumption of human beings as unidirectional -- seekers of maximum profits to enrich themselves. That need not be so. He argues there is a selfish and a selfless side to all individuals. It would then be possible to create social businesses to solve social problems by harnessing the selfless motivations in people. These could be business enterprises driven not by the motive to maximise profits but to address a social problem that causes suffering to large sections of society. By suggesting this he is not negating the fundamental tenets of capitalism governed by free markets, competition and private ownership. Rather, by calling it a business, he is at ease with all these principles except to say that businesses need not always be driven by the motive of profit maximisation. Investors could have the option of exploiting capitalism to do “social good”. In his latest book, Building Social Business: The New Kind of Capitalism that Serves Humanity's Most Pressing Needs, Yunus asserts that a Social Business is “Operated as a business enterprise, with products, services, customers, markets, expenses, and revenues -- but with the profit-maximising principle replaced by the social-benefit principle”. This is clearly a deviation from traditional non-profit enterprises established to provide health care, education and a host of social benefits to the poor and needy. Those enterprises typically rely on donation from generous individuals or corporations. Without such donations or fund-raising initiatives, these enterprises lack sustainability. A social business, on the other hand, has to be set up as a commercially viable proposition, i.e. they must generate surplus to reinvest and sustain or expand the business. They cannot be running at a loss. Since maximising profits is not the objective, the social good, such as solving child malnutrition, could be provided at a price that is affordable to the poor, but below what the market could bear. I believe the strongest case he makes for such a business is by arguing that a charity dollar has only one life, a social business dollar can be recycled multiple times. The key point is to develop a viable business model that pays its way while solving a nagging social problem.
Sifting through Yunus' book on social business, one sees the emergence of a new form of investment, where investors pursue altruistic rather than material goals. A social business then becomes a “no-loss, no dividend company designed to address a social problem”. The purpose of the investment is purely to achieve one or more social objectives through the operation of the company; no personal gain is desired by the investors. The company must cover all costs, make a profit, and at the same time achieve a social objective, such as, healthcare for the poor, housing for the poor, financial services for the poor, nutrition for malnourished children, providing safe drinking water, introducing renewable energy and so on.