05.16.10

Capitalism's Makeover Economist

No one has done more to revolutionize development around the world than Nobel Prize-winner Muhammad Yunus. His new book, Building Social Business, offers a clear blueprint for the kind of company that can help the poor AND make money.

Capitalism needs a makeover and Muhammad Yunus, as a Nobel Prize-winner, leader of the microcredit revolution, and the enormously successful founder of the Grameen family of businesses, has set out on a new quest to make business look—and do—good. He’s keyed into a pattern that we’ve seen repeating in the developing countries where we work: Nonprofit and private-sector organizations seem in danger of never realizing that their simultaneous growth isn’t a coincidence. To guide the growing sense of this disconnect among talented and ambitious young leaders and entrepreneurs, Muhammad Yunus has packaged his latest experiences in Building Social Businesses: The New Kind of Capitalism That Services Humanity’s Most Pressing Needs. Yunus writes with a voice that is part life coach, traffic cop, and preacher, exhorting the world to create an entirely new type of organization that is not a business, not a nonprofit, and also, not a replacement for either of the above. With the success of the Grameen family of companies behind him and the support of consultancies and academic programs to nurture his latest movement, we look forward to seeing how and where the social business idea finds traction and evolves.

“All it takes is $27 to start a multinational corporation”

Yunus, the co-recipient of the 2006 Nobel Peace Prize and the pioneer of the microcredit movement, is now pushing the world to re-imagine the boundaries between the goals of the businesses sector and those of donor-funded nonprofits by suggesting a new movement combining the two: “social business enterprises.” A social business is a “cause-driven” business devoted to helping vulnerable communities in which investors/owners may slowly recoup money invested, but do not earn any dividend. The goal is for the companies to run as efficiently as traditional, profit-oriented companies. However, unlike donor-funded social organizations, they generate sufficient revenue to be financially viable and reinvest surplus earnings into expanding the company’s core work to enhance quality of life, as opposed to shareholder pockets.

Inspired by Yunus’ call to action, a number of multinational corporations, social activists, and entrepreneurs have launched highly visible social businesses. Adidas has ventured to create the “one euro shoe,” the French corporation Veolia has partnered with the Grameen Foundation to figure out a way to deliver safe, clean drinking water to rural villages for one taka per liter, and Intel, BASF, and Danone have also joined the fray. For the rest of us who haven’t yet acquired the Yunus touch for turning competitive multinationals into social ambassadors, working in resource-poor settings still means pushing the traditional boundaries between nonprofits and the private sector to meet our collective goals. But Yunus isn’t about to leave us hanging—here are some points we thought were worth sharing:

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Building Social Business: The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs By Muhammad Yunus 256 pages. PublicAffairs. $25.99. ()

Social businesses focus on reshaping the relationship between employees and owners

The social business model has the potential for changing employment relationships by using market forces to transform the way work is done. In the Social Business Type II model, as exemplified by the worker-owned textile company Grameen Otto, a venture can become a profitable venture if the entity is owned by the “poor and disadvantaged.” The model holds great potential for empowering workers to create better opportunities for themselves. In Manmeet Kaur’s work on labor in India’s informal economies, she worked with a membership-based organization called LabourNet that transitioned from a NGO to a private company where workers and employers saw the incentive of interacting in a fairer manner. However, as a business with a social agenda as its core, it struggled to adapt its goals to traditional for-profit company and NGO structures. Yunus suggests that this is exactly the sort of challenge that a social business is built to solve.

Social businesses search for financial models to value investments for social good

Yunus calls for a new class of investors that understand the complicated costs and investments involved in sustaining social businesses. In the future he envisions, cities can set up funds to support social businesses that contribute to the infrastructure and development of citizen needs. Community Lab, a business-driven nonprofit co-founded by Prabhjot Singh and colleagues, is working with developing country governments to build integrated management systems to improve the effectiveness of coordinated social development. In India, Manmeet Kaur worked with LabourNet and its sister social enterprise Maya Organic to guide investors through the importance of investing in training and outreach strategies that did not seem to yield immediate returns. Sometimes the business case unfolds on the tails of common social sense.

Social businesses that start small and think big will grow as they respond to their environment

“All it takes is $27 to start a multinational corporation”: That’s how all the greats tell it. Yunus regularly recounts how his small start in lending money to women in Bangladesh has led him to a whirlwind of activity that is turning old models of profit and charity on their heads. The good thing is that the Grameen movement is part of a general shift in the climate for the socially driven businesses that are springing up wherever there is a problem that needs solving. But it’s hard to understate the value of Yunus’ advice, even as his own ambitions are tempered by the challenging realities of catering to developing markets. In the Millennium Villages across sub-Saharan Africa, where we have worked alongside colleagues in agriculture, education, and business development to build scalable primary-care health systems, it’s taken years of dedicated work with communities to understand how to implement “tried and true” solutions. Just as Grameen is rapidly moving its network to contribute to challenges like the Millennium Development Goals, the Millennium Village Project continues to focus on this core mission as the seed of village-level projects grows to national scale.

Taking great social goals from the idea stage to sustainable implementation needs collective thought

Even for corporations like Intel and Adidas, building viable business models and finding the appropriate blend of investors for such ventures remains a daunting challenge. The Grameen foundation and its innovative enterprises have established a number of nonprofit, for-profit, and social business entities that are launching path-breaking new social ventures, advising major corporations on how to strategize in resource-poor contexts, and experimenting with new innovations to benefit innovators with developing and financing creative, high impact social ventures on a large scale. Going forward, to realize the potential of the social business concept, much work remains to tackle tough questions about the viability of the model. For example, what distinguishes a social business from a business that produces something of value to people’s welfare? How should surplus revenue be reinvested in a way that expands social objectives? How do you attract dedicated talent to build and sustain financially risky business ventures?

To call Yunus’ vision ambitious is an understatement, but an exciting one to watch unfold as we all work to figure out the new choreography of the global economy. Yunus is no novice when it comes to spawning new fields. The principled call for a "Social Business" of his formulation has already inspired a number of leading corporations, academics, and social activists to perk up their ears and start talking.

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Prabhjot Singh develops low-resource health systems in domestic and international settings at The Earth Institute of Columbia University and the Community Lab. He grew up in Nairobi and lives in Manhattan.

Manmeet Kaur builds social enterprises that improve opportunities for low-income workers. She has worked in India, South Africa, and the U.S. and is based at Columbia University.