Saturday, 3 July 2010

Social entrepreneurship - from the horse's mouth


Yesterday at IESE, Barcelona I had the privilege of listening to possibly the most well-known of all social entrepreneurs, Prof. Mohammed Yunus of the Grameen Bank, Bangladesh. More or less single-handedly inventing the concept of microcredits, and helping millions of people in the process set up businesses. A lot of people are tagged “inspirational speaker” but this one really “walks the walk” – a Nobel Peace Prize winner, he’s made important things happen for good and reinvented business models. He's also extremely clever - makes you think "why didn't I think of that?" - and very funny.

Yunus works always from the bottom up, small operations which scale. And as a lateral thinker, he thinks that sometimes, knowing nothing about a subject is a distinct advantage. “When I had to set up the bank, it was quite easy”, says Yunus. “I just observed how ordinary banks worked…and then did exactly the opposite.” Operations local not central. Ownership by those involved, not third parties wanting a return. Prices based on what people can afford, not what the market dictates (what the market dictates for borrowing for people in poverty creates a "market failure" well-known to microeconomists). As Albert Einstein once observed, “We can't solve problems by using the same kind of thinking we used when we created them”.

In the Grameen Bank he set up, not only a microcredit system which put the loan sharks out of business in Bangladesh and helped millions of women out of poverty, but also transplanted the model, against the advice of many, to Queens, New York City, where it’s also been a great success. And a healthcare insurance system. And a nursing college. And a project to get necessary vitamins to undernourished kids. And a massive vegetable-growing project to prevent night blindness through lack of vitamin A. Oh, and a mobile phone company with 50% of the Bangladeshi market, using a single woman in each rural village as a reseller of mobile phone time. All practical, bottom-up solutions.

He appreciates that modern business is highly effective in making things happen, but believes it flawed in its motivations. He’s not against businesses making money, but wants to propose an alternative kind of business, the “social business”, to run alongside it. Whereas the definition of a social entrepreneur can be sometimes a bit blurry (for example, with-profit or not-for-profit?), he is, typically, very straightforward and precise. What have all these businesses got in common? Firstly they’re owned by the people who run them. In fact, Yunus has never owned a single share in any of these multi-billion dollar enterprises. And secondly, they don’t pay dividends but reinvest the profits. (Hmm, doesn’t this sound pretty similar to that radical thinking that we in the West call a co-operative…?) Social business, co-op, mutual, social entrepreneurship - call it what you will, it works.

Finally, what has he to say on the motive for business in general? In short, he agrees with something that my friend Prof. Miguel Ariño said on his blog last week: the first objective of business should not be profit, although this can be a by-product. It is there to satisfy a need or, as Yunus says, to solve a problem. And businesses are, in my opinion, generally much more effective at doing this, expanding and deploying more rapidly while making good use of their talented people, than other types of organisation.

Well that’s about as good an argument for social entrepreneurship – in whatever flavour you decide to pursue it – as I can think of.

6 comments:

  1. Yunus is a curious fellow. I read his book on social business and enjoyed it.

    His reluctance to state what is obvious from his views - that what he advocates is inherently anti-capitalist - is tempered by his acknowledgement that profit-maximisation is a perverse economic goal, and his correct reasoning that making a profit isn't problematic as long as that profit is owned by the people who create it and put to use for the greater good.

    The socialist economics that dare not speak its name!

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  2. Well, anti-capitalist I'm not sure, although he certainly isn't interested in profit himself. But what I like about him is he's smart enough to engage with businesspeople, and in doing so gets them to think a bit more altruistically - much better than doing what some do: vilify them as a group as "bad capitalists", thereby alienating them and creating an "us and them" separation. We don't have to go along with everything the business community says, but you get much better results with them inside the tent - or at least that's my view.

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  3. I totally agree about the morality. However the "business community"!? Come on, that makes it sound like they live in a little village somewhere ;-)

    What I meant by anti-capitalist is that some of the things he criticises are inherent parts of the capitalist system.

    Did you follow the creative capitalism debate by Bill Gates and others? It seems to have tailed off. I found that book very interesting - though a little disappointing that in the end, Gates refuses to concede a problem with the traditional capitalist firm. Yunus seems to understand that the exclusion of stakeholders (horrible word!) such as employees and the local community is problematic, but he doesn't it in terms of a criticism profit-maximising businesses.

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  4. Ok I have to admit you made me chuckle with the "village" comment. You're right that we sometimes think that there is a politically contiguous group called "business", when there isn't. I guess I meant that in this case the audience (a business school) is about as close as it gets to engaging with a representative group of evil capitalists.

    But terminology is interesting, isn't it? "Capitalist" is usually used with negative connotations (mainly because its derivation is Marxist), which is why I prefer not to use it, as I've nothing against business per se. For a start off, not all businesspeople are right-wing politically, although some obviously are. In my experience, a lot are primarily disengaged with politics but rightist if pushed. But my point is that I think you get more by engaging with business. After all, large parts of the economy will always be private, and should be. And others will always be state-owned. The interesting debate, as always, is where you draw the line - pretty much the whole of 20th and 21st century Western politics.

    By the way, Silicon Valley-style business is certainly fascinating. Having visited a few companies there - and they are very well-run indeed - I can certainly understand why they might start believing their own publicity. It's certainly interesting to see firms where unions don't take hold, not because they are excluded by unfair laws, but because the staff treatment is so good that there is no compelling argument to join one. But these firms are also living in a somewhat anomalous bubble, too.

    Anyway, I would agree that Gates is wrong - you can't solve all the world's problems with just government, business and voluntary sectors as they are. You need either to reform business in general, or create a fourth sector as Yunus suggests. And reforming business in general is wildly ambitious, if not actually impossible.

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  5. I've heard pro-business folk use capitalist in a positive sense - it's rare though.

    The distinction between politics and economics is interesting, too. Because after all public policy-making is an economic issue, and business is not free of policies over which there will be contestation.

    I've never found right/left wing metaphors helpful in politics. I think the point about businesspeople is that they will see their right to accumulate capital as central, regardless of other views they might hold. Certainly, there's hostility to democracy within the economy as it obviously disrupts profit-maximisation.

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