March 25, 2008 by SocProf and tagged Development, Economy, Education, Environment, Free Trade, Globalization, Microcredit, Poverty, Social Exclusion, Social Inequalities, Social Stratification, Sustainability, Technology
Muhammad Yunus’s latest book, Creating a World Without Poverty is meant to inspire and trigger a new social movement: the social business movement.
Muhammad Yunus is of course the founder of Grameen Bank and the founding father of microcredit. Over the years since its creation, Grameen has grown to include a whole family of companies dedicated to provide services to the poor while empowering them. In 2006, Muhammad Yunus and Grameen Bank were both awarded the Nobel Peace Prize. With this latest book, Yunus explores his ideas as to how we can take it further and make poverty history to be studied in “poverty museums.”
Yunus is not a lefty radical. He is a big promoter of globalization in many domains (culture, economics, politics). He believes in the potential of free trade to benefit the poorest on earth. He believes in the power of capitalism to generate wealth. But he’s no globalist. He is not naive as Thomas Friedman annoyingly is. Yunus lives in the real world. He know what is going on:
“Unfettered markets in their current forms are not meant to solve social problems and instead may actually exacerbate poverty, disease, pollution, corruption, crime and inequality. (…) Globalization, as a general business principle, can bring more benefits to the poor than any alternative. But without proper oversight and guidelines, globalization has the potential to be highly destructive.” (5)
Yunus persistently deplores the double standard operative in the global economy where the rules favor the already rich and powerful but do not allow the poor to fully participate. What he wants is a fair chance and a level playing field for the poor, as opposed to the current state of “financial imperialism.” (5)
But who can solve the enormous problems of the world? Yunus reviews all the possible actors but finds them necessary but wanting.
Governments have money and power on their sides but if governments could simply solve problems, we’d know by now. The issues are bureaucracy, corruption and cronyism (he uses the example of the American health care system as illustration of how government can work to actually preserve the privileges of the wealthy at the expenses of everyone else). Governments can get bogged down and dominated by vested interests.
Nonprofit organizations mean well but because they rely on donors for money, they spend enormous amounts of time fundraising. And if the donors lose interest, then help stops. Yunus also considers charity a form of trickle-down economics (which does not work in general) that maintains dependency.
Multilateral institutions are a development elite. They focus mainly on economic development. These institutions, whose objective was to reduce poverty, have failed because of their narrow focus on large-scale economic growth, such as increasing GDP. For the longest time, as long as GDP increased, then the World Bank assumed it was doing its job. Another problem with these institutions is that they do not see the poor as social actors, so, when the WB or the IMF loan money, they also explicitly state what the country is supposed to do with it and the government’s job is to toe the line. In a sense, Grameen Bank was founded on principles quite opposite to that of the World Bank.
He also cuts down to size the concept of socially responsible entrepreneurship and the concept of triple bottom line (financial profitability, social responsibility, environmental sustainability). Yunus considers Corporate Social Responsibility (CSR) to be window dressing. Companies continue to engage in questionable practices but if they give a tiny percentage of their profits to charity, then they cal claim the CSR label. Ultimately, these companies are still concerned first and foremost with the financial bottom line. CSR comes as an aside. A nice thing to do for PR.
Corporations are not designed to solve social problems. They are designed to generate profits, which is at the heart of capitalism. And capitalism, and by extension mainstream economics, suffers, according to Yunus, from a conceptualization failure: the view of human beings as one-dimensional beings, homo economicus, a construct which fails to fully grasp human nature and the complexities of what it means to be human.
“Our economic theory has created a one-dimensional world peopled by those who devote themselves to the game of free-market competition, in which victory is measure purely by profit. And since we are persuaded by the theory that the pursuit of profit is the best way to bring happiness to humankind, we enthusiastically imitate the theory, striving to transform ourselves into one-dimensional human beings. Instead of theory imitating reality, we force reality to imitate theory. (…) Yet, the reality is very different from the theory.” (18-19)
You mean Marcuse and Bourdieu were right?? Anyway, Yunus’s point is that a more accurate, multi-dimensional conception of humankind requires a different kind of business: a social business.
Presently, the dominant business for is the profit-maximizing business (PMB). Yunus proposes an alternative, and its promotion is the main goal of the book: the social business. A social business is a business, it is not a charity, it is not a non-profit. It operates on business principles and aims to cover its own costs, rather than rely on other funding as charities do. The difference between a social business and PMB is that the explicit goal of a social business is to solve a social problem, meet a social need and provide a social benefit. The product or service offered by a social business is not free. It charges a fee (and it can be extremely low fees) in order to cover its costs in order to be self-sustaining and to potentially grow and expand (much as Grameen Bank has done).
The major difference here is that the principle of profit maximization is replaced with the principle of social benefit. The success of a social business will not be measured by the size of its profits or the dividends distributed to its investors but how much of a positive impact it has had in solving, or at least alleviating, the social problem it was created to solve.
Another major difference between a PMB and a social business is that investors in a social business are entitled to recover the amount of their investment but the social business does NOT distribute dividends. Money made gets reinvested in the business itself. As Yunus puts it, a social business is a “non-loss, non-dividend business” (24). The point is to generate profits to better serve the poor of the planet. So, a social business is
Investors get their money back and remain owners of the company. But no dividends. Otherwise, then, social businesses will compete on the same terms as PMBs, against PMBs. Social businesses will target socially minded investors who are not in it for the money. Ideally, Yunus wants to have a social stock market where people could invest based on the success of various social businesses.
Two Types of Social Businesses
Yunus distinguishes two types of social businesses:
Type I: Companies that focus on providing social benefits rather than making a profit. The nature of the goods and services they provide is geared toward social benefit (food, housing, health care, education, etc.). These benefits can be social or environmental and they would be provided while covering the business’s costs through the sale of goods and services, with no dividends.
Type II: PMBs that are owned by the poor. Here, the social benefit comes from the generation of profit and dividends distributed to the poor who own the company. The main goal then is the reduction of poverty through profit maximizing. The goods and services provided are not necessarily social benefits. The social benefit is the very ownership of the company. Grameen Bank is a Type II business.
And it is possible to have social businesses combining I and II. What is not possible, and Yunus is adamant about this, is to have hybrids of PMBs and social businesses. Overtime the PMB side would always take over the social side.
Social business is not social entrepreneurship. Social business is a subset of social entrepreneurship, which is much broader. Social entrepreneurship covers any innovative idea to help people, irrespective of the framework designed to help them (profit or non-profit, business or not). Yunus is convinced of the success of social businesses because of his multi-dimensional (and very optimistic) view of humankind, where not everybody is obsessed with material accumulation.
The second part of Yunus’s book retraces the beginnings and the story of Grameen Bank (something he had already done in his previous book, Banker to the Poor). That story is now well-known. The interesting part of this section is how Yunus takes apart assumptions commonly made by charities or multilateral institutions regarding the poor and the correct path to development:
The first faulty assumption, already mentioned is that of homo economicus.
The second faulty assumption is that the only way to solve poverty is to create jobs that the poor will take and for which they will receive a salary. Developing a wage economy is that path to prosperity and development.
The third faulty assumption is that entrepreneurship is a rare quality that only a few select individuals possess.
The fourth faulty assumption is mainstream economic theory is blind to human beings (they are only “labor” or specific functioning robots in the production process) and especially not women and children while treating men as the default value. Dealing with women and children is the business of charity.
Which leads to the fifth faulty assumption is the focus in development thinking on material accumulation as the mark of success. Economic development counts, social development does not.
The Grameen experiment shows how misleading and damaging these assumptions are.
Grameen focused on self-employment and recognized the informal economy as REAL economy as well as the household as an economically productive unit. In so doing, it revealed that entrepreneurship is not a rare quality but quasi-universal. The poorest peasants in Bangladesh can come up with their own business plan in creative fashions. Heck, how creative do you have to be to survive on less than a dollar a day. Doesn’t the very fact that people survive in extreme poverty testify to their resilience and intelligence? Grameen is also famous for loaning money largely to women. There are good economic reasons for this: money loaned to women contributes more to social development. Finally, Yunus considers (along with Amartya Sen, I might add) that development is about “turning on the engines of creativity inside each person” and “changing the quality of life of the bottom half of the population” (56). And it is thanks to this innovative thinking that Grameen was able to expand into different domains of social businesses.
After all these developments, Yunus then focuses on poverty itself and in one short paragraph shows why he deserved the Nobel Price for Peace:
“Poverty doesn’t only condemn humans to lives of difficulty and unhappiness; it can expose them to life-threatening dangers. Because poverty denies people any semblance of control over their destiny, it is the ultimate denial of human rights. When freedom of speech or religion is violated in this country of that, global protests are often mobilized in response. Yet, when poverty violates the human rights of half the world’s population, most of us turn our heads away and get on with our lives.”
“Poverty is perhaps the most serious threat to world peace, even more dangerous than terrorism, religious fundamentalism, ethnic hatred, political rivalries, or any of the other forces that often cited as promoting violence and war. Poverty leads to hopelessness, which provokes people to desperate acts. Those with practically nothing have no good reason to refrain from violence, since even acts with only a small chance of improving their conditions seem better than doing nothing and accepting their fate with passivity. Poverty also creates economic refugees, leading to clashes between populations. It leads to bitter conflicts between peoples, clans, and nations over scarce resources – water, arable land, energy supplies and any saleable commodity” (105).
So, what makes anti-poverty programs work? Successful programs require a change in thinking: we need to stop treating global poverty as an intractable problem about which nothing can be done because it is so big. We also need to stop treating the poor as a social liability with nothing to contribute and no creative capacities. As a result, successful anti-poverty programs need
A clear operation definition of poverty specific for each country rather than the generic “living on less than one dollar a day”.
Good prioritization: the program should exclude the non-poor and the poorest should be the first targets of the program. Anti-poverty programs should not serve society as a whole, then the poor as trickle down effect, but the poor first and only. Women should be specifically included as targeted recipients. Such programs probably need to be created from scratch.
Long-term commitment from donors and investors.
And for Yunus, credit comes first because it allows the poor to immediately put their creative and survival skills to good use and breaks the cycle of economic exploitation that they have to resort to (such as money lenders) because there is no institutional support structure designed specifically for them. And charity is not the answer to this because it perpetuates relationships of dependency and dominance rather than creating self-reliance. How this would work concretely is developed in very fascinating details as Yunus describes all the different stages in the development of a social business bringing together Grameen and the food company, Danone (Dannon for the English-speaking world).
Yunus ends the last sections of the book with his vision of a world without poverty but also a world where social businesses contribute to solving social and environmental issues. At the same time, Yunus is not just a visionary, he has already envisioned the specific institutional framework to make it happen and how the new information and communication technologies can play the role of great leveler. This should be mandatory reading all management and business schools.
At the same time, there is also a clear warning to the rich countries and their unsustainable (and, yes, selfish) lifestyle that is crushing the poor and destroying the planet. It is his own version of Polanyi’s Paradox. But Yunus is optimistic that human creativity and ingenuity can provide sustainable solutions for all.
Let me end with another great quote:
“Once poverty is gone, we’ll need to build museums to display its horrors to future generations. They’ll wonder why poverty continued so long in human society – how a few people could live in luxury while billions dwelt in misery, deprivation and despair.” (223)
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