The Contours of Social Business

Tuesday, August 17, 2010

I disagree with Nobel laureate Muhammad Yunus.

This is no small matter. For good reason, Yunus is a living legend among social business types. He pioneered microcredit to the poor at a time when my professor C.K. Prahalad (alas, no longer alive) had not even coined the phrase “bottom of the pyramid”, let alone written the best-selling book about finding fortune there.

Yunus believes that markets have a role in social business, but that role is limited to one that makes the business “just sustainable”. In Yunus’ view, social businesses can be profit-making, but that profit has to be ploughed back into the company. Beyond that, markets should be kept at bay.

In an ideal world, social business shouldn’t exist. If all the organized actors in economic society—the government, businesses and philanthropies—did their job well, this hybrid animal called social business would not be necessary. The government would ensure fair play and a safety net, businesses would provide employment, make available goods and services as well as pay taxes, and private philanthropies would support causes beyond what the government can do. Then why all the fuss and buzz?

In India, social businesses are required precisely because the organized actors do their jobs imperfectly. Government schemes are grand and usually start with good intentions, but the implementation is most often quite poor. Through improper design, shoddy workmanship, insufficient supervision and debilitating graft, many efforts come to naught. Businesses do play a constructive role in our economic society, but recent trends point to an alarming type of crony capitalism. Firms in industries that require government access—real estate, mining, oil and gas, infrastructure—appear to be hogging a disturbing piece of the economic action. This crowds out those businesses that seek to solve a social problem. The impact of philanthropies is quite limited. Indian philanthropy clings to its deep-seated cultural roots—bhiksha, zakat and the tithe play a role in enabling religious causes, but few large-scale social ones. And Western-style focused private philanthropies have only just arrived.

And so, social business.

Source: LiveMint (link opens in a new window)