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Messages - fatema nusrat chowdhury

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Very useful. Thank you.

Very useful. Thank you.

Very useful. Thank you.

Very useful. Thank you.

Making a Business Plan / Re: Business Plan Outline
« on: July 22, 2014, 10:05:10 AM »
Informative post

BBA Discussion Forum / Spending money VS purchasing happiness
« on: July 22, 2014, 09:58:53 AM »
If you think money can't buy happiness, you're not spending it right. The problem isn't that we don't have enough money—it's that we tend to spend it on things that don't contribute to happiness. If you follow core 5 principles of smarter spending money can buy happiness. Most people recognize that they need professional advice on how to earn, save, and invest their money. When it comes to spending that money, most people just follow their intuitions. But scientific research shows that those intuitions are often wrong. Happy Money explains why you can get more happiness for your money by following five principles, from choosing experiences over stuff to spending money on others. And the five principles can be used not only by individuals, but by companies seeking to create happier employees and provide "happier products" to their customers. companies from Google to Pepsi to Charmin have put these ideas into action. Along the way, luxury cars often provide no more pleasure than economy models, that commercials can enhance the enjoyment of watching television, and that residents of many cities frequently miss out on inexpensive pleasures in their hometowns.

Data from a large-scale national survey shows that we generally overestimate money’s effect on most people’s life satisfaction and happiness.

Principle 1: Give Experiences, Not Stuff – Giving things is okay, but the person receiving those things gets used to them, or what psychologists call habituated, quickly. A new 60-inch TV looks really big when you first get it, but it quickly becomes “normal” because you recalibrate your expectations about how big a TV should be. Instead, if you bought your partner a weekend trip to the city, the experience provides a set of memories that will last a lifetime.

Principle 2: Give the Gift of Anticipation - If you’re going to follow the first principle and are planning on buying your partner a special trip or vacation, schedule it for 6 months from now. Now, you may think a holiday gift trip should occur close in time to the holidays. However, by waiting a few months your partner not only gets the joy of learning they are going on a fantastic trip, but also gets to enjoy looking forward to it for several months. All of that anticipation makes the trip that much more enjoyable.

Principle 3: Focus on Giving Quantity - If you’re trying to decide between getting your partner one big present or several little presents, a few smaller gifts are the way to go. By giving several gifts, the receiver’s enjoyment extends over a longer period of time. One very expensive handbag produces a lot of joy, but a stocking stuffed with several smaller items like earrings, a scarf, lipstick, and tickets to the movies goes a long way.

Principle 4: Use the Right Information to Pick a Gift – Finding a gift that your partner will actually like can be difficult. To make the proper choice, you can either rely on your own thoughts and intuition about your partner’s likes and dislikes, or you can rely on what large numbers of others say. For example, if your partner enjoys watching movies, how will you know which DVD or Blu-ray to get? You could go with what you think your partner would like, or you could see what movies others like by going to a site like, where thousands of viewers and hundreds of critics weigh in on a movie’s quality. Although you may have your doubts about the merits of a maudlin film like Before Midnight, you may be better off basing your decision on ratings from the 27,000+ website users.

Principle 5: Give to Help Others Rather than Yourself – Rather than by for yourself, or even your partner, spend some money helping others. At some point in your life, you get to the point where anything you really want, you already have, or you simply purchase for yourself.

So, are you getting the biggest happiness bang for your buck?

The annual national budget is usually the most explicit articulation of the government's latest economic thinking and policy intentions. It is, therefore, essential that we put careful attention to the underlying strategies and policies and not just the numbers. While the numbers need to be consistent with the underlying strategies and policies, sometimes they are not owing to the lack of adequate analytically capacities and institutional capabilities to generate the right data. It is important, therefore, to focus on both because just looking at numbers might be misleading. In this article I will focus on the strategy part and review the numbers in follow up pieces.

From a strategic perspective, the budget speech has a number of attractive features that would be much appreciated for laying them out as a part of the government's economic policy making. If these policies and institutional reforms are properly implemented, this will be a major milestone for Bangladesh. These include: 1)    focus on decentralisation; 2)    modernisation of land market; 3)    raising public revenues by 4 percent of GDP over the next 5 years; 4)    modernisation of the tax system through emphasis on a progressive income tax system; 5) renewed commitment to a prudent macroeconomic strategy that keeps budget deficit under control and maintains monetary discipline to bring down inflation rate to 6 percent; 6) emphasis on public-private partnership (PPP) for infrastructure financing; 7) emphasis on manufacturing exports; 8) strengthening  infrastructure development; 9)    adoption of the National Social Protection Strategy, and 10) adoption of a green tax.

The merit of each of these proposed policies and institutional reforms is hard to question. Many of these reforms were on the table for a long time. It is naturally heartening to see the government's willingness to adopt these reforms explicitly. The main issue is whether the government has done its homework on the implementation side.

In the spirit of being constructive, let me provide some ideas about how the government might go about implementing them.

Decentralisation is by far the most challenging reform. it. But based on the results on the ground, it is not obvious that there is a full political buy-in at all levels of the government. The bottleneck has always been the sharing of power between the parliamentarians and the members of the local government. An added challenge is the decentralisation of fiscal powers. The government has taken the first step by establishing elected local governments. It now needs to go to the next step by legislating the devolution of spending and revenue authorities to local governments. The development of this legislation will require a lot of homework; but that can be easily acquired as there is considerable international experience that Bangladesh can learn from. The main challenge is to get the buy-in from the political leadership. Once this huge hurdle is crossed, the issues of capacity building or training will come in. Many development partners are willing to provide technical assistance to implement this critical reform.

The modernisation of the land market is an essential pre-requisite for modernising the economy. Land has become a binding constraint for manufacturing as well as for housing. It is arguably also the biggest source of corruption and conflict. Hence the proposed policy to computerise land records, improve land survey and simplify land transactions is a most welcome initiative. However, implementation will require substantial background work and technical assistance. There is also a need to assign proper institutional responsibility, define a time line for implementation and monitor progress. Along with this, registration and recordation process has to be simplified and the associated fee rationalised to avoid land valuation problems. A start can be made by requesting technical assistance from one of the donor agencies.

The task of getting 4 percent of GDP additional tax revenues over a 5-year period is ambitious but not impossible. The government has already made some significant gains in revenue mobilisation over the past few years. This year's budget is significant in that it also aims to modernise the tax structure by increasing reliance on a progressive income tax system. This is a much needed reform. For many years I have been writing on the subject pointing out the huge hole in the income tax system. In Bangladesh the top 10 percent of the population owns 35 percent of the national income while personal income taxes are a meager 1.5 percent of GDP.  This is reflection of a serious governance problem in Bangladesh, where the rich and powerful do not pay their fair share of taxes. So, the attempt in this budget to cover a part of the hole through a range of measures including taxation of capital gains from land and stocks is very much welcome.

But the budget goes only a part of the way. There are still a number of areas where reforms are needed. The income tax measures have to be broadened substantially with a well articulated income and property tax reform.  Without this broader reform, the 4 percent of GDP additional taxes will not likely materialise. Second, the budget continues to rely rather heavily on supplementary trade taxes that are not consistent with the objective of export diversification. These supplementary duties will have to be rationalised to reduce investment distortions. Third, the implementation of the NBR modernisation plan is very slow and needs to be substantially speeded up.

The prudent management of the macro economy has been a hallmark of Bangladesh's long-term development. So, the continued emphasis on this is welcome. Keeping the budget deficit at the 5 percent of GDP level is appropriate. Setting the inflation target at 6 percent is a smart move. However, there is a need to carefully watch the consistency of policies with these targets.

As the experience of 2010-12 shows, there is often a tendency to push the Bangladesh Bank to loosen its monetary policy to cover the shortage in fiscal policy or to compensate for policy failings in the stockmarket or public banks. This must be resisted. A particular risk is that the budget adopts a very ambitious development spending target and an attempt to implement this without adequate revenues or foreign loans could put pressure on monetary policy and compromise the inflation target. As chair of economic policy making, the finance minister will have to watch both the implementation of the budget and its consistency with inflation target and monetary policy.

The strategy for PPP financing of infrastructure has been on the cards for a while. But implementation record is poor. This is not a reflection on the Bangladesh economy. While political uncertainties are a problem, Bangladesh remains an attractive destination for private investment. What is lacking is a well-thought-out implementation strategy for PPP. International experience shows that securing PPP financing for large infrastructure projects requires a managing entity that is equipped with seasoned and competent technical staff who have knowledge and experience in developing, negotiating and supervising these projects. A proper legal framework providing internationally attractive guidelines and incentive policies is also required.  Bangladesh is lacking on both counts. PPP cannot be managed as a part of the day-to-day bureaucracy. Without these essential reforms the ambitious $11 billion plus PPP projects identified in the budget will not materialise.

The emphasis on manufacturing exports is appropriate. This is an essential element of a strategy to secure higher growth and employment. However, while the budget is strong on intentions it is weak on policies except in the garment sector. A major problem is the continued policy bias against exports provided by trade tariffs and supplementary duties. It is high time that the National Board of Revenue and the commerce ministry should get together to develop a trade tariff policy that reconciles revenue mobilisation with investor incentives.

In the search for revenues, the fiscal policy is completely oblivious of implications of the tariffs and supplementary duties for investment decisions. Research shows that the underlying incentive regime favours inefficient domestic production that may not even be consistent with manufacturing growth and employment targets. This has been a serious shortcoming of all the previous budgets and this budget is no exception.

The focus on infrastructure continues from the first budget of this government in FY2009. This is appropriate as the infrastructure deficit remains serious. Good progress has been made in the power sector.

In other areas the record is mixed. Primary energy continues to pose a challenge. The budget talks about increasing gas supply but there is no mention of a coal policy. The absence of a long-term primary fuel strategy remains a serious weakness of the government's energy policy.

In the transport sector the budget adopts a highly ambitious stance including the construction of the Padma bridge. The emphasis on transport is good but higher allocations through ADP are not enough.  A review of past experience shows a serious implementation constraint in the roads sector. Too many projects are ongoing with slow implementation. A better strategy would be to adopt a phased implementation plan with high-priority projects on the frontline along with time-bound completion plans.

Procurement continues to pose corruption problems and delays in infrastructure project implementation. I have been repeatedly emphasising the importance of doing turnkey projects for large infrastructure to avoid procurement debacles and capacity constraints. The government may want to think seriously about this. Reliance on development partners (such as World Bank, ADB, IDB, and JICA) for doing turnkey style large infrastructure projects can be instrumental in accelerating the supply of essential infrastructure.

I welcome the finance minister's announcement of the adoption of the National Social Protection Strategy (NSPS). It is high time that Bangladesh introduces a modern social protection system that seeks to provide predictable cash transfers to the poor and the vulnerable members of the society through a combination of budget transfers and employment-based social insurance. The adoption of the NSPS will be a major step forward in the government's effort to fight poverty and reduce social vulnerability. However, considerable preparatory work will be needed to implement the NSPS. Alongside, the proposed health insurance policy should also be implemented.

Finally, the idea of introducing a green tax is commendable. Considerable work needs to be done to make fiscal policy an effective instrument for fighting pollution and environmental degradation.  Yet, the signal sent through this move is an excellent step forward. The next step would be to prepare the groundwork for incorporating a system of taxes and subsidies in the future budgets for environmental management and climate change.

BBA Discussion Forum / Global economy: Tolerating the intolerable
« on: July 22, 2014, 09:23:28 AM »
The concentration of global wealth is a direct result of inequality in the distribution of political power.

there are issues and facts that are standing tall in front us, which we cannot and should not tolerate. This is because by tolerating these injustices, we belittle ourselves in front of our conscience. The subject that has triggered this judgement is the acute state of human inequality in our world.

To illustrate what I mean, a recent Oxfam report points out that global inequality has deteriorated sharply over the last few decades. In fact the report states three critical issues. To start with, the study pinpoints that approximately half of the world’s wealth is now owned by 1% of the population. The study also notes that the wealth of the top 1% amounts to $110 trillion. That is 65 times the total wealth of the bottom 3.5 billion of world’s population. Lastly, the bottom half of the world’s population has the same as the richest 85 people in the world.

Of course, one can defend this economic phenomenon in two ways. First, some argue that those at the top 1% are there since they could create value for the industry through attaining innovation in their respective product or services, and there is no harm in realising the return to one’s decent labour.

Now, while this argument might appear convincing if you contemplate the top 1% only constitutes individuals like Bill Gates, Mark Zuckerberg, and Steve Jobs, the truth is the extreme concentration of global wealth we witness is a direct result of inequality in the distribution of political power.

Interest groups, corporations, or individuals who have the political leverage to shape policies have essentially used their positions to create rents in their industries, which we view as profits, dividends, and bonuses in their financial statements. An anecdotal example is the financial industry that rewarded gamblers for taking the world economy to a recession, and then the political class bailed them out without even ensuring a thorough punishment for the previous movers and shakers of the industry. In essence, people at the top have implicitly handcuffed the government from being effective regulators, a phenomenon that disproportionately benefits them.

Second, it is often argued that inequality in modern times simply means that while most are doing well, some are doing even better. Nothing could be further from the truth since what it means in contemporary times is that while some live quite lavishly, others live like mere animals.

To make this argument even more bluntly, it is worth revisiting the economic story of India that witnessed buoyant growth over the last two decades and, at present, is home to a few billionaires. In colonial India, some restaurants carried a sign on their door that said dogs and Indians were not allowed. Six decades after independence, can we really argue that the opportunities that are available to the have-nots are any different from those of a stray dog of India?

What is deeply disturbing is that our societies have not only started accepting such human inequality, but have also accepted the view that the development process that has produced such acute misery needs no revision. Probably that is why the dominant popular narrative in India views Ambani’s billion dollar 27-storey private residence – in a city where the majority lives in – as slum as India’s jewel.

To illustrate what has happened, Kaushik Basu, World Bank’s chief economist notes: “The bulk of India’s aggregate growth is occurring through a disproportionate rise in the incomes at the upper end of the income ladder.” Consequently, at present, 43% of all Indian children below the age of five are undernourished, and 48% stunted. Nearly half of Indian women of childbearing age are anemic. Other nations too have slowly realised this.

The protests surrounding the World Cup in Brazil opens up an imperative political debate concerning what the powerless will no longer accept in the name of superficial prestige. That is, when millions struggle to make a basic living, extravaganza in the midst of extreme inequality will no longer work as the opium that has historically allowed the haves to con the have-nots.

The truth is, the world that we have inherited intellectually knows that the way forward is not what is proposed by International Financial Institutions, or any super power. Today, the demand for greater distributive justice is not rooted in Marxist philosophy. Rather, it is an acknowledgement of the fact that most democracies are now effectively plutocracies, and extreme concentration of political power within the global political order means that a “few” decide what the rules of the game should be for the general underprivileged “many.” Thus, without challenging how politics effectively functions, there is no hope for attaining an equitable society across human space.

BBA Discussion Forum / GDP growth: the numbers game
« on: July 22, 2014, 09:18:06 AM »
The GDP growth numbers used in the FY2014-15 national budget

have come under considerable criticism from the national researchers. There is unhappiness regarding both the estimated GDP growth for FY2013-14 as well as the projected growth for FY2014-15. In this article I focus on this aspect of the budget numbers, looking at the underlying concerns and suggesting a way forward so that the debate could move away from the numbers game to the substantive policy issues and challenges relating to GDP growth and its measurement.

The GDP estimates are provided by the Bangladesh Bureau of Statistics (BBS). As the primary national institution vested with the responsibility of providing best possible data for use by all, including policymakers, business and research, it produces a public good and as such has accountability to the entire nation. Citizens therefore expect BBS to provide unbiased, best possible data using existing resources and methodology. As an institution of a developing country it is logical to expect BBS to be evolving with capacities improving over time. Indeed we have seen a gradual improvement in BBS capabilities and we expect it to grow further.

Against the backdrop of the above, BBS has made progressive improvements in the estimation of GDP, although there are substantial gaps on the expenditure side of the national accounts. So, why is there unhappiness with the estimated GDP growth provided by BBS for FY2013-14? Do the critics have a better method and better information for estimating GDP growth? While I cannot answer on behalf of all the critics, I can explain my own concern. I certainly do not have better information or a better method for estimating GDP and its annual growth. I always rely on BBS data to analyse GDP trends and its composition in my research. However, in looking at these numbers I do try to understand and explain them in the context of related national and international events.

In the end, the estimated GDP of a year is a summary reflection of what has happened to economic activities in that year. These economic activities are affected by a range of factors including the level of domestic production, weather, domestic turbulence, domestic demand and external demand. If there is severe adverse weather, it is likely that the GDP growth will be adversely affected; if external demand collapses due to recession our exports will fall and lower the GDP growth; if there is domestic political turbulence the GDP growth will likely fall. In each case, the magnitude of the adverse effect will depend on the extent of the shock.

Bangladesh faced a major domestic shock in FY2013-14 in the form of political turbulence that caused some serious disruption to economic activities for a prolonged period. There are several estimates of underlying losses. Manufacturing production, trade and transport all got disrupted during those periods of political turmoil. It is therefore intuitive that GDP growth in FY2013-14 will be lower than in FY2012-13, which was a normal year. So, when BBS came up with a GDP growth rate of 6.12 percent for FY2013-14 as compared with growth rate of 6.01 percent in FY2012-13, like other researchers I would certainly like to question the credibility of this higher GDP growth in an abnormal year marked by serious disruption of economic activities. I cannot say with certainty whether the growth was 5.5 percent or 5.7 percent and so on, as some other critics have argued, but I do believe that the GDP growth for FY2013-14 should be significantly lower than that in FY2012-13.

I do not want to argue about a specific lower number because I do not have a better estimation method or better data, but I certainly would like to request BBS to analyse and explain the rational for the higher GDP growth for FY2013-14. What were the offsetting factors that more than neutralised the adverse effects of the political disruption? Since BBS knows the GDP numbers best, they must also be able to explain the determinants of growth and the contributing factors. Depending on the convincing power of that analysis, I am willing to change my mind. But until then I remain sceptical of the FY2013-14 GDP growth estimate.

The government has not taken the criticism of the growth of estimate of FY2013-14 GDP well. This is unfortunate for two reasons. First, if I were a policymaker I would gladly accept that the political turmoil must have cost the economy some loss of output and services. I would then dwell on the positive aspects of this development. I would point out that even with a serious political turmoil, the per capita GDP growth has been a solid 4.2 percent-4.5 percent (using the 5.4 percent-5.7 percent estimated GDP growth rate suggested by international organisations like the World Bank). Although below potential, this remains a substantial growth rate by international comparison. It shows the resilience of the Bangladesh economy to external and domestic shocks. It also demonstrates the potential of the economy to attain substantially higher growth rate in an environment of political stability, better governance and better policies.

Second, the government's response sends a wrong signal to BBS about the quality and reliability of the data. If the government is happy with the BBS estimates, the BBS will have no incentive to rethink and try to improve its work.

I have a similar concern about the projected GDP growth of 7.3 percent for FY2014-15 used in the budget. While the governments in many countries often make optimistic growth projections, in this particular instance I have a concern that the projected growth rate of 7.3 percent is based on wrong information about the national investment rate. The BBS estimates national investment rate at 28.7 percent for FY2013-14. If the investment rate was indeed 28.7 percent of GDP in FY2013-14 and it reaches 29-30 percent of GDP in FY2014-15, then with an incremental capital output ratio around 4 it looks reasonable that GDP growth rate would be in the 7 percent plus range in FY 2014-15. So, where is the catch?

The catch is in the reliability of the 28.7 percent investment rate estimated by the BBS. There are several problems with this estimate. First, BBS has not provided any analysis of how the 28.7 percent investment rate was obtained. Second, when comparing the investment number for FY2012-13 between the 1995-96 base and the 2005-06 base, total investment increases from Tk 2,786 billion to Tk 3,404 billion, a massive 22 percent increase.  This is even larger than the percent increase in rebased GDP.

How did BBS rediscover the missing Tk 618 billion of investment spending? This has several implications that are counter-intuitive. If this were correct than it suggests a significant increase in the capital intensity of production. The rebased GDP primarily accounts for underestimation in value added from informal activities that are likely to have very low capital intensity. So, this cannot explain all the increase in investment. For 1995-96 base, the data on components of investment for FY2012-13 published by BBS shows that 22 percent of investment is in terms of machinery and transport.  The remaining 78 percent is construction. Since machinery and transport is largely imported, the additional Tk 618 billion in the 2005-06 base must mainly reflect additional construction. This massive increase in estimated construction investment implies a large increase in the value added from construction. Surprisingly, the value added from construction for FY2012-13 in the 1995-96 base was Tk 899.8 billion whereas in the 2005-06 base its contribution was revised downwards to Tk 824.3 billion.

It is clear that the reliability of the rebased investment value for FY2012-13 is very low. Using that data for projecting investment for FY 2013-14 is therefore misleading. The story does not end here.  The BBS data for public investment for FY2012-13 and FY2013-14 is highly suspicious. In Bangladesh much of public investment is financed through the budget. Public enterprises and autonomous bodies have very little surplus and their investment is mostly funded by the budget. Similarly, own financing of local governments is very small and investment of local governments is mainly financed by the budget. Against this reality, while the budget shows public investment of Tk 532 billion for FY2012-13 and Tk 651 billion for FY2013-14, the BBS estimates public investment at Tk 796 billion for FY2012-13 and Tk 986 billion for FY2013-14.  This is incredible. Which public entity is funding additional investment to the tune of Tk 300 billion plus outside the budget? Where is this additional funding coming from? Clearly BBS expenditure accounting under the rebased GDP estimation is seriously flawed. The national budget cannot rely on these numbers to make any realistic growth and expenditure projections. By implication, the estimated revised savings rate is also suspect.

I draw three policy implications moving forward.  They are all very important and deserve serious attention of the policymakers.

First, the government's GDP growth assumption for FY2014-15 is optimistic. The shortfall in private and public investment observed in the first three years of the Sixth Five Year Plan has constrained the increase in the economy's capacity to go beyond the 6 percent growth rate during the four years of FY2010-FY2014. The political turmoil in FY2014 is likely to have prevented an improvement in the national rate of investment from the 24-25 percent of GDP observed in the first three years of the Plan. As such, even if the investment rate goes up by 1-2 percent of GDP in FY2014-15, which is optimistic, the GDP growth is not likely to reach the 7 percent plus range in view of the lag between investment and increase in production. Yet, policy effort must continue to achieve a 6 percent plus growth rate, which is certainly feasible. A 6 percent plus GDP growth rate would be a superior performance if achieved.

Second, renewed focus on higher investment from both public and private sectors is essential to lay the foundations for 7 percent plus GDP growth in the Seventh Five Year Plan. The government should learn from the experience of the Sixth Plan. The mid-term review of the Sixth Plan provides a useful analysis of the reasons for the shortfall in the investment effort and policies that would help increase the investment rate.

Third, the BBS is an essential national institution that provides public good. It must be treated as such rather than as an arm of the government. It must be equipped with resources that make it possible to generate the best possible data and verify the quality of data it produces. The data must be based on best available information and internationally acceptable methods. The resulting information must be accepted gracefully by the government even if they are not consistent with its expectations. The government must welcome independent reviews of data quality from other clients of BBS and use these reviews to improve its own understanding and inform policy making accordingly. Institutions like UNDP, World Bank and the IMF have considerable data management capabilities and BBS can benefit from technical assistance from these institutions to upgrade its capabilities.

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 unraveled 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 maximize 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-maximizing 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 maximizing 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.

The success of the company is measured not by the amount of profit but by the impact on people or the environment from fulfilling the social objective.

Unlike a charitable donation, investors get their capital back without interest or dividends. They derive satisfaction from achieving the social goal that was intended. Can such a business compete and thrive in the marketplace? Critics may raise a host of questions as the idea evolves and takes concrete shape while coming to terms with ground realities. Who are these investors? What are the incentives for management? For starters, some leading multinational corporations have come forward to put up funds for social businesses, on a no-loss, no dividend basis, e.g. French Danone, German BASF, Japanese Uniqlo, German Adidas and many more. Yunus himself has organised several businesses in Bangladesh along these principles: e.g. a nursing school, eye care centres, home solar systems, garment factories. The principal driving force seems to be an appealing one: you see a social problem, develop a sustainable business model to address it, rather than rely on charity. To finance social businesses, he proposes the institution of a Social Business Fund that could mobilise resources from private (corporate CSR or benevolent individuals) as well as pubic sources. SB Fund managers would then select or develop social business projects to be funded with capital from the Fund on a no-loss, no dividend basis. For a start, it would seem that businesses and corporations that have already accumulated profits will come forward to allocate part of their investible surplus in ventures for social good on the Yunus principle of no loss, no dividend. As an operational principle, therefore, it could be argued that social business works as a complement to rather than be a substitute of profit maximizing business. They could also be independent self-standing businesses with initial capital drawn from socially motivated individuals.

Taking a cue from his life's work, Yunus promotes social business rather than relying on charity as a way to address the social problems stemming from unemployment, lack of healthcare and education for the poor and even environmental degradation. Like micro-credit before it, Yunus' mission is to spread the message of social business around the globe. With his high international profile, he seems to be making some headway. Two global summits on social business, most recently in Vienna, have drawn the attention of world leaders and corporate executives, and brought delegates from some 60 countries. As an MDG advocate along with several eminent global personalities, Yunus has moved to include social business into the MDG agenda. In his turn, the UN Secretary General has entrusted Yunus with the task of mobilizing youth to engage in innovative and inclusive business models to accelerate reaching MDG goals. Some universities in USA, UK, Italy, Japan and Singapore, have taken steps to start social business courses or programmed in their curriculum. The Mayor of the German town of Wiesbaden recently declared the city a social business city. More cities in Europe are reportedly taking the cue. To be fair, there is still a long and arduous road ahead before social business becomes accepted doctrine as the humane side of capitalism that combines financial stability and job creation under the same banner.

To conclude, the world economy is still in turmoil. Taken together, it seems like Armageddon for the capitalist system as a whole, and the blame has been squarely placed on the relentless pursuit of profit turned corporate greed. Even in the most affluent societies, there is a strong cry for economic equity. Social business, by taking attention away from the pursuit of profit maximization, has the promise to offer some relief within the capitalist system without tearing it down. Much like its sister political system, democracy, of which Winston Churchill once exclaimed, “Democracy is the worst form of government except all those other forms that have been tried from time to time”. One could argue in the same vein that capitalism is the worst economic system except all those other systems that have been tried and are now defunct. Can social business rescue capitalism from its internal destructive forces? Only time will tell if that is a tall order -- or not.

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