Transforming Capitalism: Social Entrepeneurs

I want to call attention to this article  by Dr. Muhammed Yunus, renowned economist and founder of the Grameen Bank in Bangladesh–which started the movement to eradicate poverty, not with “top-down” programs or with handouts, but through “micro-credit loans” to the very poor for starting or expanding very small businesses.  Yunus and the Grameen Bank won the 2006 Nobel Peace Prize for his efforts–which have been duplicated many times around the world.  These no interest loans have a better than 95% repayment rate–much higher than ordinary, for -profit loans. 

 Yunus argues that we need an expanded view of capitalism.  Alongside for-profit companies who seek just to maximize profits, he argues for the creation of “social businesses” with “social entrepeneurs” who use capitalist principles to create a better world.  Social businesses do not seek to maximize profit, but to make the world better–but they cannot lose money. Like all businesses, they must, at least break even to work–and they may make profits, but their “bottom line” will be measured differently than in ordinary, for profit businesses.  The Grameen Bank and other micro-credit lending institutions are, of course, the primary example.  Yunus expands on this in his Nobel Lecture.

But I know of an example, personally.  I have a friend here in Kentucky who has an engineering degree and, with partners, has taken an abandoned hydro-electric plant and refurbished it. In a state where Coal is king, how do a group of entrepeneurs who want to provide cheap, clean, energy and work against global warming do their part?  They have to fight a political bureacracy designed to reward King Coal and make it harder for anything to rival the King.  But eventually they get through all that:  Kentucky has many rivers and hydroelectric power is clean energy.  As they gain customers, they will have a steady income stream that will allow them to launch a new project:  a solar energy plant.  Although costs are coming down, solar power is costly enough that they expect to lose money on that project.  They don’t care as long as the hydroelectric plant income is enough for them to absorb the losses.  These friends of mine do not have a business model of maximizing profit:  Their “bottom line” is measured in the amount of carbon they prevent from going into the air.  Although they need to make enough money for the businesses to work, they live fairly simply, and have no plans to get rich.  They are social entrepeneurs.

Social businesses function on a non-profit, non-loss model.  Investors get their money back, but no monetary dividend, no profit.  All profits are plowed back into the business. The bottom line is making the world better.  In many parts of the world, there are legal and other barriers to the creation and sustaining of social businesses, but these are being overcome.  A truly free market will have room for both profit-maximizing and social businesses.  But people are multidimensional–even those in business to make money like to sleep nights.   If we recognize that businesses have other responsibilities than just to maximize the profits of shareholders, then even for profit businesses will begin to take on more social responsibility–sometimes without even waiting for a government regulation to force them to do so!

The Grameen Bank has turned beggars into small business owners.  A small group of Kentucky entrepeneurs is working for clean energy with a bottom line measured in units of carbon taken from the air.  “Socially responsible investing” has become a major movement.

Maybe the world doesn’t have to be divided into “capitalist pigs” and “naive do gooders” after all.