Creating a World Without Poverty: Social Business
and the Future of Capitalism
1. A New
Kind of Business
Since the fall of the Soviet Union in 1991, free markets have
swept the globe. Free-market economics has taken root in China,
Southeast Asia, much of South America, Eastern Europe, and even
the former Soviet Union. There are many things that free
markets do extraordinarily well. When we look at countries with
long histories under capitalist systems—in Western Europe and
North America—we see evidence of great wealth. We also see
remarkable technological innovation, scientific discovery, and
educational and social progress. The emergence of modern
capitalism three hundred years ago made possible material
progress of a kind never before seen. Today, however—almost a
generation after the Soviet Union fell—a sense of
disillusionment is setting in.
To be sure, capitalism is thriving. Businesses continue to
grow, global trade is booming, multinational corporations are
spreading into markets in the developing world and the former
Soviet bloc, and technological advancements continue to
multiply. But not everyone is benefiting. Global income
distribution tells the story: Ninety-four percent of world
income goes to 40 percent of the people, while the other 60
percent must live on only 6 percent of world income. Half of the
world lives on two dollars a day or less, while almost a billion
people live on less than one dollar a day.
Poverty is not distributed evenly around the world; specific
regions suffer its worst effects. In sub-Saharan Africa, South
Asia, and Latin America, hundreds of millions of poor people
struggle for survival. Periodic disasters, such as the 2004
tsunami that devastated regions on the Indian Ocean, continue to
kill hundreds of thousands of poor and vulnerable people. The
divide between the global North and South—between the world’s
richest and the rest—has widened.
Some of the countries that have enjoyed economic success over
the past three decades have paid a heavy price, however. Since
China introduced economic reforms in the late 1970s, it has
experienced rapid economic growth, and, according to the World
Bank, over 400 million Chinese have escaped poverty. (As a
result, India has now become the nation with the largest
population of poor people, even though China has a bigger
But all of this progress has brought with it a worsening of
social problems. In their rush to grow, Chinese officials have
looked the other way when companies polluted the water and air.
And despite the improved lot of many poor, the divide between
the haves and have-nots is widening. As measured by technical
indicators such as the Gini coefficient, income inequality is
worse in China than in India.
Even in the United States, with its reputation as the richest
country on earth, social progress has been disappointing. After
two decades of slow progress, the number of people living in
poverty has increased in recent years. Some forty-seven million people, nearly a sixth of the
population, have no health insurance and have trouble getting
basic medical care. After the end of the Cold War, many hoped
for a "peace dividend"—defense spending could decline, and
social programs for education and medical care would increase.
But especially since September 11, 2001, the U.S. government
has focused on military action and security measures, ignoring
These global problems have not gone unnoticed. At the outset
of the new millennium, the entire world mobilized to address
them. In 2000, world leaders gathered at the United Nations and
pledged, among other goals, to reduce poverty by half by 2015.
But after half the time has elapsed, the results are
disappointing, and most observers think the Millennium Goals
will not be met. (My own country of Bangladesh, I'm happy to
say, is an exception. It is moving steadily to meet the goals
and is clearly on track to reduce poverty by half by 2015.)
What is wrong? In a world where the ideology of free
enterprise has no real challenger, why have free markets failed
so many people? As some nations march toward ever greater
prosperity, why has so much of the world been left behind?
The reason is simple. 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 support the idea of globalization—that free markets should
expand beyond national borders, allowing trade among nations
and a continuing flow of capital, and with governments wooing
international companies by offering them business facilities,
operating conveniences, and tax and regulatory advantages.
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
Global trade is like a hundred-lane highway criss-crossing
the world. If it is a free-for-all highway, with no stoplights,
speed limits, size restrictions, or even lane markers, its
surface will be taken over by the giant trucks from the world’s
most powerful economies. Small vehicles—a farmer's pickup truck
or Bangladesh's bullock carts and human-powered rickshaws—will
be forced off the highway.
In order to have win-win globalization, we must have fair
traffic laws, traffic signals, and traffic police. The rule of
"the strongest takes all" must be replaced by rules that ensure
that the poorest have a place on the highway. Otherwise the
global free market falls under the control of financial
In the same way, local, regional, and national markets need
reasonable rules and controls to protect the interests of the
poor. Without such controls, the rich can easily bend
conditions to their own benefit. The negative impact of
unlimited single-track capitalism is visible every day—in global
corporations that locate factories in the world’s poorest
countries, where cheap labor (including children) can be freely
exploited to increase profits; in companies that pollute the
air, water, and soil to save money on equipment and processes
that protect the environment; in deceptive marketing and
advertising campaigns that promote harmful or unnecessary
Above all, we see it in entire sectors of the economy that
ignore the poor, writing off half the world's population.
Instead, businesses in these sectors focus on selling luxury
items to people who don't need them, because that is where the
biggest profits are.
I believe in free markets as sources of inspiration and
freedom for all, not as architects of decadence for a small
elite. The world's richest countries, in North America, Europe,
and parts of Asia, have benefited enormously from the creative
energies, efficiencies, and dynamism that free markets produce.
I have devoted my life to bringing those same benefits to the
worlds most neglected people—the very poor, who are not factored
in when economists and business people speak about the market.
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.
Government the Answer?
Many people assume that if free markets can’t solve social
problems, government can. Just as private businesses are devoted
to individual profit, government is supposed to represent the
interests of society as a whole. Therefore, it seems logical to
believe that large-scale social problems should be the province
Government can help create the kind of world we all want to
live in. There are certain social functions that can't be
organized by private individuals or private
organizations—national defense, a central bank to regulate the
money supply and the banking business, a public school system,
and a national health service to ensure medical care for all and
minimize the effects of epidemics. Equally important,
government establishes and enforces the rules that control and
limit capitalism—the traffic laws. In the world economy, rules
and regulations concerning globalization are still being
debated. An international economic regulatory regime has yet to
fully emerge. But on the national and local levels, many
governments do a good job of policing free markets. This is
especially true in the industrialized world, where capitalism
has a long history and where democratic governments have
gradually implemented reasonable regulatory systems.
The traffic laws for free markets oversee inspection of food
and medicine and include prohibitions against consumer fraud,
against selling dangerous or defective products, against false
advertising and violation of contracts, and against polluting
the environment. These laws also create and regulate the
information framework within which business is conducted—the
operation of stock markets, disclosure of company financial
information, and standardized accounting and auditing practices.
These rules ensure that business is conducted on a level playing
The traffic laws for business are not perfect, and they are
not always enforced well. Thus some companies still deceive
consumers, foul the environment, or defraud investors. These
problems are especially serious in the developing world, with
its often weak or corrupt governments. In the developed world,
governments usually perform their regulatory tasks reasonably
well, although starting in the 1980s, conservative politicians
have taken every opportunity to undermine government
However, even an excellent government regulatory regime for
business is not enough to ensure that serious social problems
will be confronted, much less solved. It can affect the way
business is done, but it cannot address the areas that business
neglects. Business cannot be mandated to fix problems; it needs
an incentive to want to do so. Traffic rules can make a place
for small cars and trucks and even rickshaws on the global
economic highway. But what about the millions of people who
don't own even a modest vehicle? What about the millions of
women and children whose basic human needs go unmet? How can the
bottom half of the world’s population be brought into the
mainstream world economy and given the capability to compete in
the free market? Economic stop signs and traffic police can’t
make this happen.
Governments have long tried to address these problems. During
the late Middle Ages, England had Poor Laws to help those who
might otherwise starve. Modern governments have programs that
address social problems and employ doctors, nurses, teachers,
scientists, social workers, and researchers to try to alleviate
In some countries, government agencies have made headway in
the battle against poverty, disease, and other social ills. Such
is the case with overpopulation in Bangladesh, which is one of
the world's most densely populated countries, with 145 million
people in a land area the size of Wisconsin. Or, to put it
another way, if the entire population of the world were
squeezed into the area of the United States of America, the
resulting population density would be slightly less than
exists in Bangladesh today! However, Bangladesh has made genuine
progress in alleviating population pressure. In the last three
decades, the average number of children per mother has fallen
from 6.3 in 1975 to 3.3 in 1999, and the decline continues. This
remarkable improvement is largely due to government efforts,
including the provision of family planning products,
information, and services through clinics around the country.
Development and poverty-alleviation efforts by nongovernmental
organizations, or NGOs, as well as Grameen Bank have also played
an important role.
Governments can do much to address social problems. They are
large and powerful, with access to almost every corner of
society, and through taxes they can mobilize vast resources.
Even the governments of poor countries, where tax revenues are
modest, can get international funds in the form of grants and
low-interest loans. So it is tempting to simply dump our world’s
social problems into the lap of government and say, "Here, fix
But if this approach were effective, the problems would have
been solved long ago. Their persistence makes it clear that
government alone does not provide the answer. Why not?
There are a number of reasons. One is that governments can be
inefficient, slow, prone to corruption, bureaucratic, and
self-perpetuating. These are all side effects of the advantages
governments possess: Their vast size, power, and reach almost
inevitably make them unwieldy as well as attractive to those who
want to use them to amass power and wealth for themselves.
Government is often good at creating things but not so good
at shutting them down when they are no longer needed or become
burdens. Vested interests—especially jobs—are created with any
new institution. In Bangladesh, for example, workers whose sole
job was to wind the clocks on the mantelpieces of government
administrators retained their positions, and their salaries,
for many years after wind-up clocks were superseded by
Politics also stands in the way of efficiency in government.
Of course, "politics" can mean "accountability." The fact that
groups of people demand that government serve their interests
and put pressure on their representatives to uphold those
interests is an essential feature of democracy.
But this same aspect of government sometimes means that
progress is thwarted in favor of the interests of one or more
powerful groups. For example, look at the illogical,
jerry-rigged, and inefficient health-care system in the United
States, which leaves tens of millions of people with no health
insurance. Reform of this system has so far been impossible
because of powerful insurance and pharmaceutical companies.
These inherent weaknesses of government help to explain why
the state-controlled economies of the Soviet era ultimately
collapsed. They also explain why people around the world are
dissatisfied with state-sponsored solutions to social problems.
Government must do its part to help alleviate our worst
problems, but government alone cannot solve them.
Contribution of Nonprofit Organizations
Frustrated with government, many people who care about the
problems of the world have started nonprofit organizations.
Nonprofits may take various forms and go under many names:
not-for-profits, nongovernmental organizations, charitable
organizations, benevolent societies, philanthropic foundations,
and so on.
Charity is rooted in basic human concern for other humans.
Every major religion requires its followers to give to the
needy. Especially in times of emergency, nonprofit groups help
get aid to desperate people. Generous assistance from people
within the country and around the world has saved tens of
thousands of lives in Bangladesh after floods and tidal waves.
Yet nonprofits alone have proven to be an inadequate response
to social problems. The persistence and even worsening of global
poverty, endemic disease, homelessness, famine, and pollution
are sufficient evidence that charity by itself cannot do the
job. Charity too has a significant built-in weakness: It relies
on a steady stream of donations by generous individuals,
organizations, or government agencies. When these funds fall
short, the good works stop. And as almost any director of a
nonprofit organization will tell you, there is never enough
money to take care of all the needs. Even when the economy is
strong and people have full purses, there is a limit to the
portion of their income they will donate to charity. And in hard
times, when the needs of the unfortunate are greatest, giving
slows down. Charity is a form of trickle-down economics; if the
trickle stops, so does help for the needy.
Relying on donations creates other problems. In countries
where the social needs are greatest—Bangladesh, elsewhere in
South Asia, and in large parts of Latin America and sub-Saharan
Africa—the resources available for charity are usually very
small. And it is often difficult to get donors from the richest
countries to take a sustained interest in giving to distant
countries they may never have visited, to benefit people they
will never know. This is understandable, but it leaves serious
social problems in those countries unaddressed.
The problems become even greater in times of crisis—when a
natural disaster strikes, when war causes population upheavals
and suffering, when an epidemic strikes, or when environmental
collapse makes whole districts unlivable. The demand for charity
quickly outpaces the supply. And today, with news and
information constantly coming in from around the world, the
demands for our attention and concern have never been greater.
Dramatic disasters reported on television absorb the lion's
share of charitable giving, while less publicized calamities
that may be equally destructive are ignored. And eventually,
"compassion fatigue" sets in, and people simply stop giving.
As a result, there is a built-in ceiling to the reach and
effectiveness of nonprofit organizations. The need to
constantly raise funds from donors uses up the time and energy
of nonprofit leaders, when they should be planning the growth
and expansion of their programs. No wonder they don't make much
progress in their battles against social problems.
For all the good work that nonprofits, NGOs, and foundations
do, they cannot be expected to solve the world's social ills.
The very nature of these organizations as defined by society
makes that virtually impossible.
Institutions—The Development Elite
There is another category of organizations known as
multilateral institutions. These are sponsored and funded
by governments. Their mission is to eliminate poverty by
promoting economic development in countries and regions that are
lagging behind the prosperous nations of the northern
hemisphere. Among the multilateral institutions, the World Bank
leads the way. The World Bank has a private sector window
called the International Finance Corporation. There are also
four regional development banks, which closely follow the lead
of the World Bank.
Unfortunately, in practice, the multilaterals have not
achieved much in attaining their professed social goals either.
Like governments, they are bureaucratic, conservative,
slow-moving, and often self-serving. Like nonprofits, they are
chronically underfunded, difficult to rely upon, and often
inconsistent in their policies. As a result, the hundreds of
billions of dollars they have invested over the past several
decades have been largely ineffective—especially when measured
against the goal of alleviating problems like global poverty.
Multilateral institutions like the World Bank name
elimination of poverty as their overarching goal. But they focus
exclusively on pursuing this goal through large-scale economic
growth. This means that, as long as gross domestic product (GDP)
is increasing in a country or a region, the World Bank feels
that it is achieving its mission. This growth may be
excruciatingly slow; it may be occurring without any benefits to
the poor; it may even be occurring at the expense of the
poor—but none of this persuades the World Bank to change its
Growth is extremely important in bringing down poverty—there
is no doubt about it. But to think that the only way to reduce
poverty is to promote growth drives the policymaker to a
straight theoretical path of building infrastructure to promote
industrialization and mechanization.
There is a debate about the type of growth we should pursue
based on serious concerns about the hazards of the World Bank's
approach. "Pro-poor growth" and "anti-poor growth" are often
treated as separate policy options. But my concern is different.
Even if the policymaker identifies and works only for pro-poor
growth, he is still missing the real issue. The objective of the
policymaker is obviously to generate a spin in the economy so
that the poor people are drawn into the spin. But in this
conceptualization, the poor people are looked at as objects. In
this frame of mind, policymakers miss the tremendous potential
of the poor, particularly poor women and the children of poor
families. They cannot see the poor as independent actors. They
worry about the health, the education, and the jobs of the poor.
They cannot see that the poor people can be actors themselves.
The poor can be self-employed entrepreneurs and create jobs for
Furthermore, in their pursuit of growth, policymakers are
focusing on efforts to energize well-established institutions.
It never occurs to them that these institutions themselves may
be contributing to creating or sustaining poverty. Institutions
and policies that created poverty cannot be entrusted with the
task of eliminating it. Instead, new institutions designed to
solve the problems of the poor need to be created.
Another problem arises from the channel that donors use for
the selection and implementation of projects. Both bilateral and
multilateral donors work almost exclusively through the
government machine. To make a real impact, they should be open
to all segments of society and be prepared to utilize the
creative capacity that is lying outside the government. I am
sure that once donors begin to reach beyond the government,
they'll come up with many exciting innovations. They can start
with small projects and then let them grow if they see positive
Over the years, I have been watching the difference between
the business styles of the World Bank and Grameen Bank.
Theoretically, we are in the same business—helping people get
out of poverty. But the ways in which we pursue this goal are
Grameen Bank has always believed that if a borrower gets into
trouble and cannot pay back her loan, it is our responsibility
to help her. If we have a problem with our borrower, we tell
ourselves that she is right—that we must have made some mistake
in our policies or in our implementation of those policies. So
we go back and fix ourselves. We make our rules very flexible
so that they can be adjusted to the requirements of the
We also encourage our borrowers to make their own decisions
about how to use the loans. If a borrower asks a Grameen staff
member, "Please tell me what would be a good business idea for
me," the staff member is trained to respond this way: "I am
sorry, but I am not smart enough to give you a good business
idea. Grameen has lots of money, but no business ideas. That's
why Grameen has come to you. You have the idea, we have the
money. If Grameen had good business ideas, instead of giving the
money to you, it would use the money itself and make more
We want our borrowers to feel important. When a borrower
tries to shy away from a loan offer, saying that she has no
business experience and does not want to take money, we work to
convince her that she can come up with an idea for a business of
her own. Will this be her very first experience of business?
That is not a problem. Everything has to have a beginning
somewhere, we tell her.
It is quite different with the World Bank. If you are lucky
enough to be funded by them, they give you money. But they also
give you ideas, expertise, training, plans, principles, and
procedures. Your job is to follow the yellow lines, the green
lines, and the red lines—to read the instructions at each step
and obey them precisely. Yet, despite all this supervision, the
projects don't always work out as planned. And when this
happens, it is the recipient country that usually seems to bear
the blame and to suffer the consequences.
There are also big differences in the incentive systems in
the two organizations. In Grameen Bank, we have a five-star
evaluation and incentive system for our staff and our branches.
If a staff member maintains a 100 percent repayment record for
all his borrowers (usually 600), he gets a green star. If he
generates profit through his work, he gets another star—a blue
star. If he mobilizes more in deposits than the amount of his
outstanding loans, he gets a third star—a violet star. If he
makes sure all the children of all his borrowers are in school,
he gets a brown star. Finally, if all his borrowers move out of
poverty, he gets a red star. The staff member can display the
stars on his chest. He takes tremendous pride in this
By contrast, in the World Bank, a staff member's success is
linked to the amount of the loans he has successfully
negotiated, not the impact his work has made. We don't even
consider the amount of loans made by a staff member in our
There have been campaigns to close down the World Bank and
the International Monetary Fund. I have always opposed such
campaigns. These are important global institutions created for
very good causes. Rather than close them down, we should
overhaul them completely. The world has changed so much since
the time they were created, it is time to revisit them. It is
obvious that the present architecture and work procedures are
not adequate to do the job. If I were asked about my ideas, I'd
emphasize the following:
A new World
Bank should be open to both government and private
investors, with private investment following the social
business model I will describe.
work through governments, NGOs, and the new type of
organization I am proposing in this book—social businesses.
the International Finance Corporation, the World Bank should
have another window—a social business window.
president of the World Bank should be selected by a search
committee that will consider qualified candidates from
anywhere in the world.
Bank should work through semi-autonomous national branches,
each with its own board of advisors, rather than powerless
of the staff should be related to the quality of their work
and the impact it has made, not the volume of loans
negotiated. If a project fails or performs poorly, the staff
member involved in designing and promoting it should be held
Bank should grade all projects each year on the basis of
their impact on poverty reduction, and each country office
should be graded on the same basis.
Still another response to the persistence of global poverty
and other social ills has been a call for social responsibility
on the part of business. NGOs, social activists, and
politicians have put pressure on corporations to modify their
policies in regard to labor, the environment, product quality,
pricing, and fair trade.
To their credit, many businesses have responded. Not so long
ago, many executives managed corporations with a "public be
damned" attitude. They exploited their workers, polluted the
environment, adulterated their products, and committed
fraud—all in the name of profit. In most of the developed world,
those days are long gone. Government regulation is one reason
for this, and another is the movement for corporate social
Millions of people are now better informed than ever about
both the good and the bad things that corporations can do.
Newspapers, magazines, television, radio, and the Internet
investigate and publicize episodes of business wrongdoing. Many
customers will avoid patronizing companies that harm society.
As a result, most corporations are eager to create a positive
image. And this has given a strong push to CSR.
CSR takes two basic forms. One, which might be called "weak
CSR," has the credo: Do no harm to people or the planet
(unless that means sacrificing profit). Companies that
practice weak CSR are supposed to avoid selling defective
goods, dumping factory wastes into rivers or landfills, or
bribing government officials.
The second form, "strong CSR," says: Do good for people
and the planet (as long as you can do so without sacrificing
profit). Companies that practice strong CSR actively seek
out opportunities to benefit others as they do business. For
example, they may work to develop green products and practices,
provide educational opportunities and health plans for their
employees, and support initiatives to bring transparency and
fairness to government regulation of business.
Is CSR a force that is leading to positive change among
business leaders? Could it be that CSR is the mechanism we have
been searching for, the tool with which at least some of the
problems of society can be fixed?
Unfortunately, the answer is no. There are several reasons
The concept of socially responsible business is built on good
intentions. But some corporate leaders misuse the concept to
produce selfish benefits for their companies. Their philosophy
seems to be: Make as much money as you can, even if you exploit
the poor to do so—but then donate a tiny portion of the profits
for social causes or create a foundation to do things that will
promote your business interest. And then be sure to publicize
how generous you are!
For companies like these, CSR will always be mere window
dressing. In some cases, the same company that devotes a penny
to CSR spends 99 cents on moneymaking projects that make social
problems worse. This is not a formula for improving
There are a few companies whose leaders are sincerely
interested in social change. Their numbers are growing, as a
younger generation of managers rises to the top. Today's young
executives, raised on television and the Internet, are more
aware of social problems and more attuned to global concerns
than any previous generation. They care about issues like
climate change, child labor, the spread of AIDS, the rights of
women, and world poverty. As these young people become corporate
vice presidents, presidents, and CEOs, they bring these concerns
into the boardroom. These new leaders are trying to make CSR
into a core part of their business philosophy.
This is a well-intended effort. But it runs up against a
basic problem. Corporate managers are responsible to those who
own the businesses they run—either private owners or
shareholders who invest through the stock market. In either
case, those owners have only one objective: To see the
monetary value of their investment grow. Thus, the managers
who report to them must strive for one result: To increase
the value of the company. And the only way to achieve this
is by increasing the company's profits. In feet, maximizing
profit is their legal obligation to their shareholders unless
the shareholders mandate otherwise.
Companies that profess a belief in CSR always do so with this
proviso, spoken or unspoken. In effect, they are saying, "We
will do the socially responsible thing—so long as it doesn't
prevent us from making the largest possible profit." Some
proponents of CSR say that pursuit of profit and social
responsibility need not be in conflict. Sometimes this is true.
Occasionally, through a happy accident, the needs of society and
opportunities for high profits happen to coincide.
But what happens when profit and CSR do not go
together? What about when the demands of the marketplace and the
long-term interests of society conflict? What will companies do?
Experience shows that profit always wins out. Since the
managers of a business are responsible to the owners or
shareholders, they must give profit the highest priority.
If they were to accept reduced profits to promote social
welfare, the owners would have reason to feel cheated and
consider corporate social responsibility as corporate financial
Thus, although advocates of CSR like to talk about the
"triple bottom line" of financial, social, and environmental
benefits by which companies should be measured, ultimately only
one bottom line calls the shots: financial profit.
Throughout the 1990s and into the new century, American auto
companies have produced gas-guzzling, super-sized SUVs, which
demand enormous resources to manufacture, use huge amounts of
fuel, and create terrible pollution. But they are very
popular—and very profitable—and car makers continue to build and
sell them by the millions. SUVs are bad for society, for the
environment, and for the world, but the big auto companies'
primary goal is to make profits, so they keep on doing something
very socially irresponsible.
This example illustrates the most fundamental problem with
CSR. By their nature, corporations are not equipped to deal with
social problems. It's not because business executives are
selfish, greedy, or bad. The problem lies with the very nature
of business. Even more profoundly, it lies with the concept of
business that is at the center of capitalism.
Is a Half-Developed Structure
Capitalism takes a narrow view of human nature, assuming that
people are one-dimensional beings concerned only with the
pursuit of maximum profit. The concept of the free market, as
generally understood, is based on this one-dimensional human
Mainstream free-market theory postulates that you are
contributing to the society and the world in the best possible
manner if you just concentrate on getting the most for yourself.
When believers in this theory see gloomy news on television,
they should begin to wonder whether the pursuit of profit is a
cure-all, but they usually dismiss their doubts, blaming all the
bad things in the world on "market failures." They have trained
their minds to believe that well-functioning markets simply
cannot produce unpleasant results.
I think things are going wrong not because of "market
failures." The problem is much deeper than that. Mainstream
free-market theory suffers from a "conceptualization failure," a
failure to capture the essence of what it is to be human.
In the conventional theory of business, we've created a
one-dimensional human being to play the role of business leader,
the so-called entrepreneur. We've insulated him from the rest of
life, the religious, emotional, political, and social. He is
dedicated to one mission only—maximize profit. He is supported
by other one-dimensional human beings who give him their
investment money to achieve that mission. To quote Oscar Wilde,
they know the price of everything and the value of nothing.
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 measured 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.
And today's world is so mesmerized by the success of
capitalism it does not dare doubt that system's underlying
Yet the reality is very different from the theory. People are
not one-dimensional entities; they are excitingly
multi-dimensional. Their emotions, beliefs, priorities, and
behavior patterns can best be compared to the millions of shades
we can produce from the three primary colors. Even the most
famous capitalists share a wide range of interests and drives,
which is why tycoons from Andrew Carnegie and the Rockefellers
to Bill Gates have ultimately turned away from the game of
profit to focus on higher objectives.
The presence of our multi-dimensional personalities means
that not every business should be bound to serve the single
objective of profit maximization.
And this is where the new concept of social business comes
Business: What It Is and What It Is Not
To make the structure of capitalism complete, we need to
introduce another kind of business—one that recognizes the
multidimensional nature of human beings. If we describe our
existing companies as profit-maximizing businesses (PMBs), the
new kind of business might be called social business.
Entrepreneurs will set up social businesses not to achieve
limited personal gain but to pursue specific social goals.
To free-market fundamentalists, this might seem blasphemous.
The idea of a business with objectives other than profit has no
place in their existing theology of capitalism. Yet surely no
harm will be done to the free market if not all businesses are
PMBs. Surely capitalism is amenable to improvements. And surely
the stakes are too high to go on the way we have been going. By
insisting that all businesses, by definition, must necessarily
be PMBs and by treating this as some kind of axiomatic truth, we
have created a world that ignores the multidimensional nature
of human beings. As a result, businesses remain incapable of
addressing many of our most pressing social problems.
We need to recognize the real human being and his or her
multi-faceted desires. In order to do that, we need a new type
of business that pursues goals other than making personal
profit—a business that is totally dedicated to solving social
and environmental problems.
In its organizational structure, this new business is
basically the same as the existing PMB. But it differs in its
objectives. Like other businesses, it employs workers, creates
goods or services, and provides these to customers for a price
consistent with its objective. But its underlying objective—and
the criterion by which it should be evaluated—is to create
social benefits for those whose lives it touches. The company
itself may earn a profit, but the investors who support it do
not take any profits out of the company except recouping an
amount equivalent to their original investment over a period of
time. 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.
A social business is not a charity. It is a business in every
sense. It has to recover its full costs while achieving its
social objective. When you are running a business, you think
differently and work differently than when you are running a
charity. And this makes all the difference in defining social
business and its impact on society.
There are many organizations in the world today that
concentrate on creating social benefit. Most do not
recover their total costs. Nonprofit organizations and
nongovernmental organizations rely on charitable donations,
foundation grants, or government support to implement their
programs. Most of their leaders are dedicated people doing
commendable work. But since they do not recover their costs from
their operations, they are forced to devote part of their time
and energy, sometimes a significant part, to raising money.
A social business is different. Operated in accordance with
management principles just like a traditional PMB, a social
business aims for full cost recovery, or more, even as it
concentrates on creating products or services that provide a
social benefit. It pursues this goal by charging a price or fee
for the products or services it creates.
How can the products or services sold by a social business
provide a social benefit? There are countless ways. For a few
business that manufactures and sells high-quality,
nutritious food products at very low prices to a targeted
market of poor and underfed children. These products can be
cheaper because they do not compete in the luxury market and
therefore don't require costly packaging or advertising,
and because the company that sells them is not compelled to
maximize its profit.
business that designs and markets health insurance policies
that provide affordable medical care to the poor.
business that develops renewable-energy systems and sells
them at reasonable prices to rural communities that
otherwise can't afford access to energy.
business that recycles garbage, sewage, and other waste
products that would otherwise generate pollution in poor or
politically powerless neighborhoods.
In each of these cases, and in the many other kinds of social
businesses that could be imagined, the company is providing a
product or service that generates sales revenue even as it
benefits the poor or society at large.
A social-objective-driven project that charges a price or fee
for its products or services but cannot cover its costs fully
does not qualify as a social business. As long as it has to rely
on subsidies and donations to cover its losses, such an
organization remains in the category of a charity. But once such
a project achieves full cost recovery, on a sustained basis, it
graduates into another world—the world of business. Only then
can it be called a social business.
The achievement of full cost recovery is a moment worth
celebrating. Once a social-objective-driven project overcomes
the gravitational force of financial dependence, it is ready
for space flight. Such a project is self-sustaining and enjoys
the potential for almost unlimited growth and expansion. And as
the social business grows, so do the benefits it provides to
Thus, a social business is designed and operated as a
business enterprise, with products, services, customers,
markets, expenses, and revenues—but with the profit-maximization
principle replaced by the social-benefit principle. Rather than
seeking to amass the highest possible level of financial profit
to be enjoyed by the investors, the social business seeks to
achieve a social objective.
Business Profits Stay within the Business
A social business differs from a charity or an NGO or a
nonprofit group in another important way. Unlike those
organizations, but like a traditional PMB, a social business
has owners who are entitled to recoup their investments. It may
be owned by one or more individuals, either as a sole
proprietorship or a partnership, or by one or more investors,
who pool their money to fund the social business and hire
professional managers to run it. It may be also owned by
government or a charity, or any combination of different kinds
Like any business, a social business cannot incur losses
indefinitely. But any profit it earns does not go to those who
invest in it. Thus, a social business might be defined as a
non-loss, non-dividend business. Rather than being passed on
to investors, the surplus generated by the social business is
reinvested in the business. Ultimately, it is passed on to the
target group of beneficiaries in such forms as lower prices,
better service, and greater accessibility.
Profitability is important to a social business. Wherever
possible, without compromising the social objective, social
businesses should make profit for two reasons: First, to pay
back its investors; and second, to support the pursuit of
long-term social goals.
Like a traditional PMB, a social business needs to have a
long-term road map. Generating a surplus enables the social
business to expand its horizons in many ways—by moving into new
geographic areas, improving the range or quality of goods or
services offered, mounting research and development efforts,
increasing process efficiencies, introducing new technologies,
or making innovations in marketing or service delivery so as to
reach deeper layers of low-income people.
However, the bottom line for the social business is to
operate without incurring losses while serving the people and
the planet—and in particular those among us who are most
disadvantaged—in the best possible manner.
How long will it take for investors to get back their
investment in a social business? That is up to the management of
the social business and the investors themselves. The proposed
payback period would be specified in the investment prospectus:
It might be five years, ten, or twenty. Investors could choose
the appropriate social business in which to invest partly on the
basis of this time frame and on their own anticipated needs, as
well as their preference for a particular social objective.
Once the initial investment funds are recouped, investors can
decide what to do with those funds. They might reinvest in the
same social business, invest in another social business or a PMB, or use the money for personal purposes. In any case, they
remain as much owners of the social business as before, and
have as much control over the company as before.
Why would investors put their money into a social business?
Generally speaking, people will invest in a social business for
the same kind of personal satisfaction that they can get from
philanthropy. The satisfaction may be even greater, since the
company they have created will continue to work for the intended
social benefit for more and more people without ever stopping.
The many billions of dollars that people around the world donate
to charitable causes every year demonstrate that they have a
hunger to give money in a way that will benefit other human
beings. But investing in a social business has several enormous
differences from philanthropy.
First, the business one creates with social business is
self-sustaining. There is no need to pump in money every year.
It is self-propelling, self-perpetuating, and self-expanding.
Once it is set up, it continues to grow on its own. You get more
social benefits for your money.
Second, investors in a social business get their money back.
They can reinvest in the same or a different social business.
This way, the same money can bring more social benefits.
Since it is a business, businesspeople will find this as an
exciting opportunity not only to bring money to social business
but to leverage their own business skills and creativity to
solve social problems. Not only does the investor get his money
back, he still remains an owner of the company and decides its
future course of action. That's a very exciting prospect on its
the Landscape of Business
With the entry of social businesses, the marketplace suddenly
finds itself with some new and exciting options, and becomes a
more interesting, engaging, and competitive place. Social
concerns enter the marketplace on an equal footing, not through
the public relations window.
Social businesses will operate in the same marketplace with
PMBs. They will compete with them, try to outmaneuver them, and
seek to capture market share from them, just as other businesses
do. If a social business is offering a particular product or
service that is also available from a PMB, consumers will decide
where to buy, just as they now choose among competing PMBs. They
will consider price, quality, convenience, availability, brand
image, and all the other traditional factors that influence
consumer choices today.
Perhaps for some consumers, the social benefits created by
the social business will be an additional reason to buy from
it—just as some consumers today prefer to patronize companies
with a reputation for being worker-friendly, environmentally
conscious, or socially responsible. But for the most part,
social businesses will compete with PMBs on the same terms as we
see in traditional capitalist competition—and may the best
Social businesses will also compete with one another. If two
or more social businesses are operating in the same market,
consumers will have to decide which one to patronize. Again,
product and service quality will probably be the main
determining factor for most customers.
Social businesses will also compete for potential investors,
just as PMBs do. Of course, this will be a different kind of
competition than we see among PMBs.
Consider two profit-maximizing businesses that are competing
for investment dollars—two auto makers, for example. The
competition here will turn on which PMB is perceived as having
a greater future profit potential. If most investors believe
that company A is likely to be more profitable than company B,
they will rush to buy shares of company A stock, because they
expect to earn higher dividends in the future, and they also
expect to benefit from continuing growth in the overall value
(or equity) of the company. This launches a positive
cycle in which company A stock rises in price, making investors
By contrast, when two social businesses compete for
investors, the competition is based not on future profit
maximization but on social benefits achieved. Each social
business will claim that it is better positioned to serve the
people and the planet than its rival, and it will develop and
publicize a business plan to support that claim. Would-be social
investors will scrutinize those claims carefully. After all,
they are planning to invest their money with the goal of
benefiting society, and they will want to be sure that their
investment does the greatest possible good. Just as a
profit-minded investor seeks to maximize expectations of future
dividends and equity growth, a social investor wants to find out
how close the company is getting in solving the social problem
it is addressing.
Thus, competing social businesses will push each other to
improve their efficiency and to serve the people and the planet
better. This is one of the great powers of the social-business
concept: It brings the advantages of free-market competition
into the world of social improvement.
Competition in the marketplace of ideas almost always has a
powerful positive impact. When a large number of people are
vying to do the best possible job of developing and refining an
idea—and when the flow of money toward them and their company
depends on the outcome of the competition—the overall level of
everyone's performance rises dramatically. We see this
beneficial effect of competition in many arenas. Intense
competition among makers of personal computers, for example, has
caused the price of PCs to fall dramatically even as their
speed, power, and other features have improved. The rise of
Japanese manufacturers of cars and electronic products forced
U.S. and European companies to improve the quality of their
goods so as to compete for both customers and investors.
By creating a competitive marketplace for social-benefit
investing, the concept of social business brings the same kind
of positive pressure to bear among those who seek to serve the
disadvantaged people of the world.
Competition among social businesses will be different in
quality than competition among PMBs. PMB competition is about
making more money. If you lose, you get financially hurt. Social
business competition will be about pride, about establishing
which team is best able to achieve the social objective.
Competitors will remain friends. They will learn from each
other. They can merge with each other at any time to become a
stronger social force. And they will feel happy to see another
social business entering the same area of business, rather than
To attract investors, I propose the creation of a separate
stock market, which could be called the social stock market.
Only social businesses will be listed there. (See chapter 8 for
a detailed description of this concept.) The existence of a
public marketplace for trading shares in social businesses will
have many benefits. It will create liquidity, making it easy
for shareholders to move in and out of social investments, just
as they currently do with investments in PMBs. It will generate
public scrutiny and evaluation of social businesses, providing a
layer of "natural regulation" to supplement any government
regulation that will need to be created to avoid the usual
problems of the marketplace: deception, false reporting,
inflated claims, disguised businesses, and so on. And it will
raise the public profile of the social-business concept,
attracting even more money and energy from investors and
Two Kinds of
At this stage in the development of the concept of social
business, we can only glimpse its general outlines. In the years
to come, as social businesses begin to spring up around the
world, new features and forms of social business will
undoubtedly be developed. But from today’s vantage point, I
propose two possible kinds of social businesses.
The first I have already described: Companies that focus on
providing a social benefit rather than on maximizing profit for
the owners, and that are owned by investors who seek social
benefits such as poverty reduction, health care for the poor,
social justice, global sustainability, and so on, seeking
psychological, emotional, and spiritual satisfactions rather
than financial reward.
The second operates in a rather different fashion:
Profit-maximizing businesses that are owned by the poor or
disadvantaged. In this case, the social benefit is derived from
the fact that the dividends and equity growth produced by the
PMB will go to benefit the poor, thereby helping them to reduce
their poverty or even escape it altogether.
Notice the differences between these two kinds of social
businesses. In the first case, it is the nature of the
products, services, or operating systems of the business that
creates the social benefit. This kind of social business might
provide food, housing, health care, education, or other
worthwhile goods to help the poor; it might clean up the
environment, reduce social inequities, or work to alleviate ills
such as drug and alcohol abuse, domestic violence,
unemployment, or crime. Any business that can achieve
objectives like these while covering its costs through the sales
of goods or services and that pays no financial dividend to its
investors can be classified as a social business.
With the second type of social business, goods or services
produced might or might not create a social benefit. The social
benefit created by this kind of company comes from its
ownership. Because the ownership of shares of the business
belongs to the poor or disadvantaged (as defined by specific,
transparent criteria developed and enforced by the company
directors), any financial benefit generated by the company's
operations will go to help those in need.
Imagine that a poor rural region of a country is separated
from the main commercial centers by a river too deep, wide, and
wild to be forded by pedestrians or ordinary vehicles. The only
way to cross this river is by ferry, which provides expensive,
slow, and intermittent service. As a result, the area's poor
and low-income residents face economic and social handicaps
that depress their incomes, reduce availability of affordable
goods, and lower their access to education, health care, and
other vital services. In our example, we assume that the
national and local governments are unable to address the problem
because of lack of funds, political indifference, or other
shortcomings. (Although this is a hypothetical example, it
accurately describes conditions in much of the developing
Now suppose a private company is formed to build a new
highway and a safe, modern bridge to connect the rural area
with the commercial center of the country. This company could be
structured as a social business in two ways.
First, it could provide access to poor and low-income
residents at a discounted toll, while charging a commercial toll
to middle- and upper-class residents and to large commercial
organizations. (Obviously some kind of means-testing procedure
would be needed to verify the eligibility of poor people for the
discounted toll; perhaps the same kind of ID card that is used
to indicate eligibility for government welfare could be
accepted by the toll-takers.) The toll revenues would cover the
costs of building, operating, and maintaining the bridge and
highway, and, over time, they could be used to repay the funds
initially provided by investors. However, those investors would
receive no further profits. If profits beyond this are generated
by the tolls, they could be used to build additional
infrastructure to benefit the rural community—more roads and
bridges, for example, or perhaps some social businesses to
stimulate the local economy and create jobs.
Second, ownership of the bridge-and-highway company could
actually be put in the hands of the poor and lower-income
residents of the rural area. This could be done through the sale
of low-priced shares, purchased by them with loans provided by microcredit organizations or through credit that is later
recouped from the profit of the company. Further profits
generated by tolls could either be invested in new
infrastructure projects or paid in the form of dividends to the
poor and lower-income residents who own the company, thereby
benefiting them in direct financial fashion.
Grameen Bank makes small loans available without collateral
and at a reasonable cost to the poor, thereby enabling them to
start or expand tiny businesses and ultimately lift themselves
out of poverty. Grameen Bank would be a regular PMB if it were
owned by well-off investors. But it is not. Grameen Bank is
owned by the poor: Ninety-four percent of the ownership shares
of the institution are held by the borrowers themselves.
Thus, Grameen Bank is a social business by virtue of its
ownership structure. If a big bank like Grameen can be owned by
poor women in Bangladesh, any big company can be owned by poor
people, if we seriously come up with practical
And yes, a social business could also combine both
forms of benefit to the poor: It could follow a business plan
designed to produce social benefits through the nature of the
goods and services it creates and sells and also be owned
by the poor or disadvantaged.
Difference between Social Business and Social Entrepreneurship
Some people are puzzled when they hear about social business
for the first time. Most often, social business is equated with
social entrepreneurship. My friend Bill Drayton has built
a global movement around the concept of social entrepreneurship
through his Ashoka Foundation.
Decades ago, Bill became convinced that creative, innovative
thinking could be applied to solve seemingly intractable social
problems. He was excited to see that many people around the
world are doing just that, some of them without even realizing
that they fall into a very special group of people. One of the
first initiatives Bill undertook was to find these people and
to give them recognition by calling them Ashoka Fellows. Then he
upgraded his initiatives by organizing conferences, meetings,
and workshops to bring social entrepreneurs together, helping
them learn from each other, supporting them with small grants,
introducing them to donors, documenting their activities, and
producing videos that portrayed their work and philosophies.
Today, social entrepreneurship has become a recognized
movement. Besides Ashoka, there are several other foundations
dedicated to promoting social entrepreneurship, including the
Skoll Foundation, founded by Jeff Skoll (the first employee and
CEO of eBay), and the Schwab Foundation for Social
Entrepreneurship, founded by Klaus Schwab (the founder of the
World Economic Forum). They have made it their mission to find,
support, and encourage social entrepreneurs around the world.
Social entrepreneurship has become a popular concept among
both business people and the general public. The American
business magazine Fast Company publishes a list of the
twenty-five best social entrepreneurs every year, bringing
attention and funding to some of today's most effective social
service organizations. Social entrepreneurship has even become
an academic discipline, having found its way into the curricula
of some thirty U.S. business schools since the first course in
the subject was offered at Harvard in 1995 by Dr. J. Gregory
Dees, now at Duke University's Fuqua School of Business.
The concept of social entrepreneurship is very important. It
brings out the power of yearning in people to do something about
problems that are not currently being addressed with the
efficiency and urgency they deserve. Because of the movement
built around this concept today, we can see an enormous range of
people around the world doing exciting things to help others.
Grameen Bank and the Grameen sister organizations are often
cited as being significant symbols of this movement.
But social business and social entrepreneurship are not the
same thing. Social entrepreneurship is a very broad idea. As it
is generally defined, any innovative initiative to help people
may be described as social entrepreneurship. The initiative may
be economic or non-economic, for-profit or not-for-profit.
Distributing free medicine to the sick can be an example of
social entrepreneurship. So can setting up a for-profit
health-care center in a village where no health facility exists.
And so can launching a social business.
In other words, social business is a subset of social
entrepreneurship. All those who design and run social
businesses are social entrepreneurs. But not all social
entrepreneurs are engaged in social businesses.
Until very recently, the movement around social
entrepreneurship has not showcased the issue of social business
because that concept did not exist. Now that the concept has
been introduced and is being translated into reality, I am sure
that many in the social-entrepreneurship movement will be
attracted to it.
The social-entrepreneurship movement can start giving special
attention to the creation and promotion of social businesses by
devising and sharpening appropriate tools and institutional
facilities needed to support this new type of enterprise. Some
social entrepreneurs may be encouraged to move in the direction
of social business because they can achieve much more in terms
of social benefits than is possible through traditional
What about a
Some of those who learn about social business wonder whether
a hybrid version—combining characteristics of a PMB with those
of a social business—is possible.
PMBs are driven by the profit motive—that is, the desire for
personal gain. Social business is driven by the desire to do
good for people and the planet—that is, selfless concern for
others. Can there be a business that mixes both, including some
elements of self-interest and some elements of selflessness?
Of course, this can happen—it can happen in limitless ways.
One can imagine a business driven by, say, 60 percent
social-benefit objectives and 40 percent personal-benefit
objectives, or the other way around. There can be innumerable
But in the real world, it will be very difficult to operate
businesses with the two conflicting goals of profit maximization
and social benefits. The executives of these hybrid businesses
will gradually inch toward the profit-maximization goal, no
matter how the company's mission is designed. For example,
suppose we instruct the CEO of a food company to "maximize
profit and make sure that poor children benefit
nutritionally by providing them with high-quality meals at the
lowest possible price." The CEO will be confused as to which
part of the instruction is the real instruction. How will his
success be judged—on the basis of the money he earns for the
investors or on the basis of the social goals he achieves?
Making matters worse, the existing business environment is
exclusively focused on profit maximization. All current tools
of business are related to judging whether or not a business is
maximizing profit. Accounting practices and standards are
clearly established for that purpose; profit can be measured in
precise financial terms. But measuring the achievement of
social objectives has conceptual complications. If the goal is
to improve the nutrition of poor children, who exactly is
"poor"? What biological standards will be used to measure their
nutritional status before and after? How reliable will the
information be? These are difficult questions to answer
precisely. Furthermore, since social problems are inherently
complex, information related to social goals would generally
suffer from a greater time kg than profitability data.
For all these reasons, our CEO will find it much easier to
run the company basically as a PMB and be judged in the company
of other PMBs. And so, it is more realistic to think in terms of
two pure models: the profit-maximizing model and the
One big advantage of pure models is that it is difficult to
add gimmicks to them to create a false impression in people’s
minds. If you are a social business, you are a social business,
and investors will not expect any return from your revenues.
But if you are a profit-maximizing company, you are in the
business of making money, and no one will be deceived into
thinking that you are in business for social reasons.
Attempts to Combine Social Goals with Traditional Business
Social business is not just a theoretical concept. There are
social businesses around the world, including the Grameen Bank
and such Grameen-affiliated companies as Grameen Danone. Other
fledgling social businesses are beginning to pop up, embodying
the potential for social good and economic development latent in
this new form of business.
Social businesses can become powerful players in the national
and international economy, but we have a long way to go to
achieve that goal. Today the assets of all the social businesses
of the world wouldn't add up to even an ultra-thin slice of the
global economy. It is not because they lack growth potential,
but because conceptually people neither recognize their
existence nor make any room for them in the market. They are
considered freaks and are kept outside the mainstream economy.
People do not pay attention to them—in fact, they literally
cannot see them—because their eyes are blinded by the
theories taught in our schools. Once we recognize social
business as a valid economic structure, supportive institutions,
policies, regulations, norms, and rules will come into being to
help it become mainstream.
Over the past three centuries, since modern capitalism began
its ascent to world dominance, many people around the world have
recognized the shortcomings of the current, incomplete form of
capitalism. They have experimented with various ways of
remedying the problem. However, the full structure of social
business as I envision it has not emerged, even as a concept,
until our time. As a result, none of the existing modes by which
people have tried to adapt businesses to serve social goals has
been very effective. Only social business offers the full
solution for which thousands of people have been searching.
One attempt to bring humane, enlightened thinking into
business organizations is the cooperative movement, in which
workers and consumers join forces in owning businesses and
managing those businesses for the benefit of all.
Robert Owen (1771-1858), a Welshman who owned and operated
cotton mills in England and Scotland, is often considered the
pioneer of this movement. Owen was appalled by the exploitation
of workers in the earliest decades of the industrial revolution.
In particular, he deplored the widespread English practice of
paying mill workers not in common currency but in scrip that
could be used only in company-owned stores, which, in turn,
charged inflated prices for shoddy goods.
This vicious cycle of oppression was reminiscent of the
near-enslavement of poor Bangladeshis by moneylenders that I
discovered in Jobra when I first began the work that led to the
founding of Grameen Bank. It also recalls the exploitation of
sharecroppers in the American South by landowners who used the
indebtedness of their farm laborers to force them into doing
business with overpriced company stores, creating a closed
economic loop in which capital flowed only into the pockets of
the owners and never went to benefit the working people.
Owen took practical steps to deal with this problem. At his
own mills in New Lanark, Scotland, he opened stores where
high-quality goods were sold at prices just above cost, with the
savings from bulk purchases passed on to his employees. This was
the germ from which the cooperative movement sprang. This
movement is built around the concept of having businesses owned
by their customers and operated primarily for the benefit of
those customers rather than to generate profits for merchants.
Shops that are operated on Owen's plan are common to this day
throughout Britain and elsewhere in Europe.
The cooperative movement began as a response to the
exploitation of the poor by rapacious company owners. However,
the cooperative concept is not inherently oriented toward
helping the poor or producing any other specific social benefit.
Depending on the goals and interests of the people who band
together to create and share ownership of a cooperative
business, such a business can be structured to benefit the
middle class as well as those who are needy. If they fall into
selfish hands, cooperatives can even become a means for
controlling the economy for purposes of individual or group gain
rather than to help everyone in society. When a cooperative
business loses sight of its original social objectives, it
becomes, in practice, a profit-maximizing company almost the
same as any other.
Another way in which some people have tried to combine the
dynamism and self-sufficiency of business with the pursuit of
worthy social goals has been through the creation of nonprofit
organizations that sell socially beneficial products and
services. These companies are not true social businesses as I
define them. They generally achieve only partial cost recovery,
which means that they do not attain the "lift-off velocity" that
would enable them to escape the gravitational pull of dependence
on charity. Also, they do not have the investor-owner feature
that distinguishes social business, creating a source of funds
with an interest in ensuring both the efficiency and
effectiveness of the social benefits generated by the business.
There have also been attempts by managers of traditional PMBs
to manage companies in a socially responsible fashion. That
includes the occasional launch of a PMB that offers some social
benefits alongside the pursuit of profit. Corporations may take
this step for any number of reasons:
the personal goals or values of a powerful or respected
favorable publicity for the company, or to deflect criticism
over past ethical and business lapses
customers who may prefer to do business with a company they
perceive as "good guys"
To win the
friendship and support of government regulators or
legislators who are considering laws that might affect the
opposition from community organizations or public-interest
groups that might otherwise try to block company plans for
To gain a
foothold in a new market that holds promise for the future
but is currently unprofitable—while also earning points in
the court of public opinion
It can be difficult to tell, in a particular instance, what
combination of motives drives a particular company decision. In
some cases, even the company executives may not be able to
accurately describe the precise blend of motives that impel
them. However, because they are PMBs, these businesses will
ultimately be subject to the same financial pressures as all
other for-profit companies. And this means that any social goals
their managers may want to pursue will be set aside whenever
they conflict with the maximization of profit.
In the end, none of the organizational structures I've
described here—the cooperative, the nonprofit enterprise, or the
socially responsible PMB—offers the powerful advantages of the
true social business. This is why the world is crying out for
this new way of doing business.
When the social-business concept becomes well known and
begins to spread through all the free-market economies of the
world, the flood of creativity that this new business channel
will unleash has the potential to transform our world.
Social Businesses Come From?
Because the concept of social business is still new and
unfamiliar, it may seem difficult at first to imagine who will
create such businesses and why. Everyone is familiar with
traditional entrepreneurs, and whether or not we admire them, we
feel that we understand their values and motivations. The same
is not true for the founders of the social business.
I think, given the opportunity, every human being is a
potential participant in a social business. The motivating
forces behind social business are packed inside each human
being, and we see bits and pieces of these forces every day.
People care about their world, and they care about one another.
Humans have an instinctive, natural desire to make life better
for their fellow humans if they can; given the chance, people
would prefer to live in a world without poverty, disease,
ignorance, and needless suffering. These are the causes that
lead people to donate billions of dollars to charity, to create
foundations, to launch NGOs and nonprofit organizations, to
volunteer countless hours to community service, and (in some
cases) to devote their careers to relatively low-paid work in
the social sector. These same drives will lead many to create
social businesses, once this new path is widely recognized and
To begin with, here are some of the specific sources from
which the social businesses of the future might spring:
companies of all shapes and sizes will want to launch their
own social businesses. Some will choose to devote part of
their annual profit to social business as part of their
existing "social responsibility" mandates. Others will
create social businesses as a way of exploring new markets
while helping the less fortunate. They may create social
businesses on their own, with the help of other companies,
or in partnership with specialized social-business
may create social-business investment funds, operating
parallel to but separate from their traditional
philanthropic windows. The advantage of a social-business
fund is that its money will not be exhausted even as it
works to produce social benefits, continually replenishing
the foundation’s ability to support good works.
entrepreneurs who have experienced success in the realm of
PMBs may choose to test their creativity, talent, and
management skills by establishing and running social
businesses. They may be driven by the desire to give
something back to the communities that have enriched them,
or simply by the urge to try something new. Those who enjoy
success in their first experiments may become "serial
social-business entrepreneurs," creating one social business
International and bilateral development donors, ranging from
national aid programs to the World Bank and the regional
development banks, may choose to create dedicated funds to
support social-business initiatives in the recipient
countries, or at international, or regional, or
institutional levels. The World Bank and regional
development banks can create subsidiaries to support social
may create social-business development funds to support and
encourage social businesses.
persons with wealth to spare will find social businesses an
attractive investment opportunity to pursue. Similarly,
inheritors of wealth or recipients of windfall gains may be
inspired to think of launching or investing in social
people fresh out of college or business school may choose to
launch social businesses rather than traditional PMBs,
motivated by the idealism of youth and the excitement of
having the opportunity to change the world.
Young people all around the world, particularly in rich
countries, will find the concept of social business very
appealing. Many young people today feel frustrated because they
cannot recognize any worthy challenge that excites them within
the present capitalist system. When you have grown up with ready
access to the consumer goods of the world, earning a lot of
money isn't a particularly inspiring goal. Social business can
fill this void.
With so many potential sources, I predict that, within a few
years, social businesses will be a familiar fixture on the world
We might enrich the economists' narrow-minded view of society
by assuming a world in which there are two kinds of people—one
that wants to maximize profits and one that wants to create
social benefits and do good things for people and the planet.
But even with this new assumption, we still remain in a world of
one-dimensional people—only two kinds of one-dimensional
people, instead of the single kind imagined by classical
In the real world, there are not two types of one-dimensional
people. Instead, there is only one type of person: people with
two, three, four, or many interests and goals, which they
pursue with varying and ever-changing degrees of interest. For
the sake of simplicity, we can divide these interests into two
broad categories—profit and social benefit—which correspond to
the two types of businesses we've described in this chapter:
traditional PMBs and social businesses.
How will individuals, companies, and investors choose which
of these two paths to follow? The beautiful thing is that people
will not be faced with an absolute, either/or choice. In most
cases, they will have the opportunity to participate in both
PMBs and social businesses in varying proportions, depending on
the goals and objectives they most value at a particular moment
in time. For example:
individual with a nest egg to invest might choose to invest
part in PMBs (with the goal, for example, of creating a
retirement fund) and the rest in social businesses (in order
to help society, humanity, and the planet).
of directors of a PMB might decide to use part of one year's
surplus to buy out another company in order to expand their
business into a new market—and use the rest of the surplus
to launch a social business or to invest in an existing one,
as an alternative to traditional philanthropy or corporate
trustees of a foundation might choose to use part of its
endowment income to fund one or more social businesses
whose objectives coincide with the goals specified by the
it comes to making career or life choices, social businesses
will only increase the possibilities we enjoy rather than
foreclosing any of them. The same person might choose to
work for part of his or her life for a PMB; another part for
a traditional charity, foundation, or NGO; and still another
part for a social business. The choice will depend on how
the individual’s career interests, goals, and social
concerns vary and evolve over time.
There is no reason why we need to feel constrained, in either
our investment choices or our life decisions, to follow a
single, one-dimensional model of human behavior. We humans are
multidimensional creatures, and the business models we
recognize should be equally diverse. Recognizing and encouraging
social business as an option will help make this possible.
is the founder and Managing Director of the Grameen Bank in
Dhaka, Bangladesh, and a member of the Advisory Board of Global
Urban Development. He is the recipient of the 2006 Nobel Peace
Prize, together with the Grameen Bank. Dr. Yunus is the author
of a best-selling book,
Banker to the
Poor: Micro-Lending and the Battle Against World Poverty.
His article is an excerpt from his new book, Creating A
World Without Poverty: Social Business and the Future of
Excerpted by arrangement with PublicAffairs (www.publicaffairsbooks.com),
a member of the Perseus Books Group. Copyright © 2008.
are almost as many definitions of poverty as there are
individuals and groups studying the problem. A recent
World Bank study mentions thirty-three different poverty
lines developed and used by particular countries in
addressing the needs of their own poor people. Earlier
in this chapter, I mentioned the widely used poverty
benchmark of an income equivalent to one dollar a day or
less. In the remainder of this book, whenever I refer to
"poverty" with no more specific explanation, this
dollar-a-day definition may be assumed.