Creating a Social Business

I am starting up a business selling granola that I make. I have thought about this quite a bit and although it started as a response to a need to compliment our falling salaries, I really want it to have some sort of social purpose. The world is largely as it is because people like me have felt the need to make more money and have started profit maximizing businesses (PMB's) irregardless if that meant underpaying or cheating employees, damaging the environment, producing low quality products or using deceptive advertising. By publicly selling shares in the company they have even created a legal obligation to maximize profits for the shareholders.

Of course there have been noble attempts to assuage the guilt some feel for having done this by creating foundations that push corporate social responsibility (CSR), especially when educated consumers avoid patronizing companies that harm society. Unfortunately CSR is an inadequate response to this problem because in the end the company must turn a specific profit: this is the bottom line and any socially responsible action will never amount to more than window-dressing.

So, I'd like my granola selling business to be what Muhammad Yunus calls a social business. In short, it is a business with the explicit objective of creating "social benefits for those whose lives it touches." It is cause driven instead of profit driven. As a business it should earn a profit, although any surplus is reinvested in the business to be "passed on to the target group of beneficiaries in such forms as lower prices, better service, and greater accessibility." Turning a profit also assures sustainability for the pursuit of long term social goals.

As I see it, then, I have basically two options:

1. Compete in the luxury market and channel a percentage of earnings to an NGO that works to truly alleviate poverty. I am on the board of directors of a Grameen replica credit and loan cooperative (La Cooperativa DeTodas) and the money my business would send their way would be used as loans for poor women to start or strengthen their small businesses.

2. Target the granola to these same low-income women and their children and together with some yogurt producing friends of mine, offer nutritious, filling and cheap breakfast and school lunch food.

Of course I could do both as they don't seem mutually exclusive. Maybe I could start with option 1 and develop option 2 as circumstances permit.

So, I would like to do some crowdsourcing here. What do you all think? Which option is better? How should I set this up so that I don't lose track of the social goals while complimenting my income? Ideas are welcome!

Bending the Rules of Capitalism

“When the wrong man uses the right means, the right means work in the wrong way.”

I have been stricken even more than usual lately by the consequences of how our current economic model overlooks in far too many areas of human endeavor that which makes us happy and healthy in favor of that which makes at least some among us rich.

I read an interview with a medical doctor who was prohibited from practicing in her native Spain because she publicly decried how her fellow practitioners honored corporate agreements to dispense certain drugs instead of prescribing in response to real patient needs. Another example is how our food producers have spent the last 40 years selecting strains of crops based on their shelf life irregardless of how that renders most of them completely void of all nutritional value. Unlike doctors, leaders of the food industry have no commitment to anybody’s happiness or health.

This brings to mind a talk I heard the other day by the man in charge of corporate responsibility at McDonald’s (believe it or not!) who stated clearly in his talk and repeated during the question and answer period how McDonald’s would really like to make important reforms in the meat and dairy processing industries by buying grass-fed cows or “free-range” eggs for example, but that they don’t have enough clout to make any difference. Now, this guy is practically painting a target on his chest by saying this but I don’t think we gain anything by attacking or even analyzing such morally defunct fodder.

If we make an effort to try and understand where this guy is coming from, we can understand him better. Buying grass-fed cows or free-range eggs brings no benefit to McDonald’s unless it raises its profit margin, which it would not. It has no commitment that would lead us to expect anything more. Of course, sometime in the future when enough McDonald’s customers demand these changes, they will suddenly become profitable and surely then the food industry will make the necessary changes. Until then, don’t expect any miracles.

It is precisely this logic that Muhammad Yunus takes aim at in his book “Creating a World Without Poverty.” “Unfettered markets in their current form are not meant to solve social problems and instead may actually exacerbate poverty, disease, pollution, corruption, crime, and inequality.” … “I believe in free markets as sources of inspiration and freedom for all, not as architects of decadence for a small elite. … My experience has shown me that the free market – powerful and useful as it is – could address problems like global poverty and environmental degradation, but not if it must cater solely and relentlessly to the financial goals of its richest shareholders.”

He thus proposes a new type of business – one that “is totally dedicated to solving social and environmental problems. … In its organizational structure, this new business is basically the same as the existing profit-maximizing business. … But its underlying objective – and the criterion by which it should be evaluated – is to create social benefits for those whose lives it touches. … A social business is a company that is cause-driven rather than profit-driven, with the potential to act as a change agent for the world.”

He gives some interesting hypothetical examples before dedicating the rest of the book to chronicling his own existing social businesses: “A social business that designs and markets health insurance policies that provide affordable medical care to the poor.” As I have always felt that the insurance business was antithetical to happiness and health, this sounds really interesting.

This brief treatment of the urgent need for and the exciting possibility opened by social businesses leaves many questions unanswered, reason for which I suggest you pick up the book if this idea intrigues you as it does me. The more effort we spend trying to make food production, environmental stewardship, quality health care, education and equality responsive to both current market forces and basic human desires for health and happiness, the longer we will delay our date with social justice.

Talks Given by Dr. Muhammad Yunus

The other day I had the privilege of hearing Dr. Muhammad Yunus speak twice. In the afternoon I attended a semi-intimate gathering with him and then in the evening I saw him speak in a large auditorium along with about 3,000 others.

I really enjoyed hearing him speak and I would like to share some highlights and reflections.

On both occasions he emphasized that poverty is imposed upon people and does not come from within them. Difficulty in genuinely understanding this comes from an academic or as he put it, birds-eye view of economics. This vantage point provides some distinct advantages for the economist, especially to decipher production, marketing and consumption patterns. However, the problems that people below are perceived to have cannot be clearly understood and what is not understood is invented to fit into seemingly harmonious theories and formulas. Without gaining a “worm’s-eye” view in which one can clearly understand problems faced, solutions will be misguided at best and damaging at worst. Gaining on the ground vision often leads to solutions which are completely opposite to and even inconceivable for the bird’s-eye economist, of which the Grameen bank is a perfect example. All of the economists and bankers told Mr. Yunus that he would never see the money he loaned to the very poor again because the poor are not creditworthy. Of course the very poor are not creditworthy for sizeable consumption loans, but manageable, productive loans can actually increase their creditworthiness by giving them the means to successfully pay back their loans.

This analysis got my mind wandering from the talk to Dr. Jeffry Sach’s book “The End of Poverty”, which takes a distinctively bird’s-eye view of economics and the history of development. What is most interesting to me is that both Sachs and Yunus aim towards basically the same end goal: eradicating extreme poverty. Sachs has gathered the world’s best minds in the field, galvanized a global Millennium Project and set in motion important initiatives upon which he draws to enrich his analysis. He puts his eggs in the basket of trade based, technology driven growth. However, he recognizes that along with financing humanitarian emergencies and public investments, official development assistance needs to be channeled to finance private small businesses and farm improvements “through microfinance programs and other schemes” (246). This would be aimed at raising household incomes, which seems to concur nicely with the micro-finance model created through the Grameen Bank.

However, the talk I heard the other night leads me to believe that even though they use the same vocabulary to name a key poverty eradication strategy, their visions differ in fundamental ways. The essence of Dr. Yunus’ vision is that typical business strategies aimed at accumulating capital and inserting people into the dominant production model, make them into drones, money mongering drones no less. Making money should be appreciated for just that, and not to be confused with the joy that comes from using our knowledge and talents to serve others. Recognizing that one’s prosperity depends on the prosperity of the rest of the surrounding community requires constantly contributing to that community welfare through actions that are aimed at only that and don’t have hidden agendas.

For a micro-credit program directed at the very poor, this means creating social enterprises in which money is made and communities are benefited. Capital is accumulated for the purpose of benefiting the community although the individual and her family are the most obvious beneficiaries.

Clearly, both visions are valid and complimentary as Dr. Sachs lobbies for creating “a global network of connections that reach from impoverished communities to the very centers of world power and wealth and back again” (242), an important element not present in the vision laid out by Dr. Yunus in these talks.

Wishing to illustrate the point that poverty is imposed upon people in a more colorful way, Dr. Yunus compared poor people to bonsai trees. Bonsai trees don’t use bonsai seeds. They come from full stature trees, but are planted within pots that don’t allow their roots to sustain any further growth. Anybody who has his/her “roots” constantly clipped has no opportunity to reach his/her full potential. Although the effects are permanent in some ways, transferring a bonsai tree to a space in which it can develop its roots will allow it to grow to previously unimagined heights. Micro-credit directed towards creating social enterprises has this very purpose and the testimonies he gave indicate that they fulfill this purpose more frequently than not.

As readers of this blog know, I am on the Board of Directors of a Grameen replica bank in Guayaquil where I live. It is a volunteer position, and as volunteers, all of us on the Board have a hard time finding the time we need to dedicate to the Bank to improve its performance and help achieve its objectives better. I am the only man on the Board and almost all of the other members are clients, very poor women who run subsistent oriented small businesses. The Board has formally asked me to redesign and lead the Bank’s client training efforts, in initiating participation in the Bank, in small business management and in human development. I have been seriously considering accepting this challenge even though I apparently don’t have the time it would require, and these talks have motivated me more than before. This is such a key aspect to micro-credit and to the prosperity of the bank and its clients that I think I need to look for ways to rearrange by schedule and activities to contribute to this noble cause. Well, I will keep you all posted!