Is Social Business a Good Idea?
A couple years ago I wrote a review
of Creating a World Without Poverty, by Muhammad Yunus (that
link will take you there). In the book he introduced the idea
of a "social business," which I explained briefly.
These businesses are established for social purposes rather than
to make a profit, although making a "profit" of sorts
is often important as a way to expand them or to maintain a reserve
for safety. The key idea is that, unlike a charity, which must
constantly seek funding, a business that provides a needed service
to the poor is (or can be) sustained indefinitely by its own
Yunus did this himself with his Grameen Bank, which makes
micro-loans to lift people out of poverty. He also started a
company (together with the French company Danone) that makes
cheap yogurt to serve the purposes of employing poor women in
Bangladesh (as vendors) and getting proper nutrition to children.
Shortly after posting my review I received an email from someone
who had read it and was skeptical of the idea of a social business.
She pointed out that if Yunus and others do too much for the
poor they effectively take over government functions, leaving
political leaders free to neglect or never build essential programs.
She also thinks this leads to too much power for Yunus and organizations
like his Grameen Bank. She thought that the interest rates charged
by Grameen Bank are outrageous, and, finally, that the term "social
business" was just a meaningless play on words since all
business is done for our own selfish reasons. The rest of this
essay/article is my response to those criticisms.
Taking Over Government Functions
We can debate what the proper role of government is, but in
any case I personally wouldn't worry about private organizations
doing what needs to be done. If a business or other organization
is succeeds in some area it's because they provide something
that the government is not providing. It is a harsh argument
to say that the people should suffer the lack of something while
waiting for a government to step up and do something about it,
just because we want to exclude other organizations from "usurping"
It is a real possibility that an organization, even if founded
for doing good works, could gain a lot of power, but how it is
used is the issue, and governments in general don't have a better
history than any other groups or individuals on that count. In
fact, as shamefully as some corporations might behave, without
the power of force -- which, for the most part only governments
have -- they, and other organizations, at least have to get their
power by actually providing something people want and choose
Is Social Business a Meaningful Concept?
The term "social business" might be somewhat of
a play on words, but I think it still makes a valid distinction.
There is a clear difference between having profit as the ultimate
goal of a business versus some other purpose. When an organization
provides inexpensive medical care for the poor, for example,
they might charge fees and even take in more than their costs,
yet that does not mean they are pursuing a profit for its own
sake. The revenue makes it possible to continue this valuable
service, or even to discount or offer free services to the poorest
patients. The "profit" makes it possible to expand
their good work. That is nothing like owners of a business who
seek only to make money for themselves.
It is also worth mentioning (just to introduce a new idea)
that even if actions are taken for truly selfish reasons it isn't
necessarily a problem. Like myself, you might feel a selfish
interest in having a better world for as many people as possible
-- who actually thinks a worse world is good for them as individuals?
My sense is that self interest expands to include others as we
mature, but that is a different (and long) philosophical discussion.
Usurious Interest and Profits
As for the interest charged by micro-credit organizations
(and they are the prime examples of social businesses), I think
it is a matter of context. Grameen Bank does charge close to
20% annually, but I know from personal experience and reflection
that the rate is not all that matters. It is about the true usefulness
of the loan. I once loaned a friend $100 with $7 interest due
per month (84% annual interest, which is far higher than what
Grameen Bank charges), and he paid it back in a month. What did
he get for that $7, or 84% annual interest? He was able to buy
the tools he needed so he could accept a job offer. He was soon
making good money working at a job he enjoyed.
I've written about the idea of microcredit
usury in more detail before. I've even proposed a new moral definition
of usury. In general I think we have to give people some
credit for knowing when a loan makes sense for them. Had my friend
paid me $100 in interest he still was going to be better off
than if he couldn't take that job (and that is essentially the
test I suggested for whether a loan is usurious).
In the case of Grameen Bank there is another point, which
is that it takes some minimum amount of money to process loans.
Employees have to be hired, records kept, collection efforts
paid for, and so on. Naturally with small loans these costs eat
up a proportionally larger part of the interest revenue, and
so the rate has to be higher.
But again, the proper rate of interest or "profit"
is a matter of context. If a simple $120 loan to buy a bicycle
with baskets means easier access to markets for selling produce,
and so means a family can make $25 more per month -- $300 more
per year -- for all the years to come, where is the problem with
them paying $20 or even $30 in interest before repaying the loan
in full? Yunus was very aware of the risk of having profit as
even a secondary goal, but then that potential selfish pursuit
of money is not just an issue with social businesses. It's also
a risk in every charitable organization as well. Just consider
how much the top executives of many charities receive in compensation.
I like the idea of a business that serves the needs of the
poor in ways that other businesses, charitable organizations
or governments do not.