Book Summary – Creating a World Without Poverty (Social Business and the Future of Capitalism)

The challenges confronting the governments of developing countries are enormous. If the entire world population were transported to the United States, its population density would still be less than that of Bangladesh, for example. Bangladesh has made some progress in reducing infant mortality and poverty, but much remains to be done. In general, governments are vulnerable to bureaucracy, corruption, inefficiency and control by powerful interest groups. Governments alone cannot solve the problem of poverty.

  • Nonprofits

Nonprofit organizations channel the generosity of the world’s wealthy individuals. They have done much good. However, charity is not enough to solve the problems of disease, famine, environmental degradation and homelessness. Charity has a limit, and often the flow of funds stops in difficult times, precisely when the poor are in the greatest need.

“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.”

  • Multilaterals

Multilateral institutions and agencies such as regional development banks, the World Bank and the International Finance Corporation have mandates to eliminate poverty and assist with economic development. However, they combine the disadvantages of governments and nonprofits. They are as bureaucratic and self-interested as governments, and as underfunded and inconsistent as nonprofits.

“We must remove the absurd rules and laws we have made that treat the poor as nonentities.”

  • Corporate social responsibility

Corporate social responsibility takes two forms. The first says, in effect, “Do no harm to people or the planet (unless that means sacrificing profit).” The second says, “Do good for people and the planet (as long as you can do so without sacrificing profit).” Both are well-intentioned, but ultimately corporations must answer to the demands of investors. Capitalism strictly disciplines any corporation that puts investors in second or third place. So the double or triple bottom line of corporate social responsibility is misleading. One bottom line – return to investors – always wins.

Social Business

Social business is neither a government nor a charity nor a multilateral institution. In fact, organizationally, social businesses look very much like profit-making businesses. They have employees, and they produce and sell products and services. However, the underlying business motive is not to make money but rather to provide a social benefit.

“Everyone understands that the money is important. The unique problem of the poor is that there is no institution to bring money to them.”

Social businesses do not sell their products or services below cost. This is a major difference between social businesses and nonprofits. Social businesses make money. However, their profits do not go to the investors. They reinvest them in expansion, so they can benefit more people.

“The key to alleviating poverty is often not the creation of ‘jobs’ – that is, salaried work for large corporate employers – but rather the encouragement of self-employment for all individuals.”

Like any business, social businesses have investors. However, their investors do not expect great returns. Social businesses promise investors only that they will get their capital back. Social businesses are of two types:

  • Companies whose focus is social benefit rather than profit– Their investors want to help society rather than to earn the highest possible return on capital invested.
  • Companies that seek to maximize profit, but whose owners are poor– The social benefit these businesses provide consists in returning profits to the poor so that they can climb out of poverty.

Investors in social businesses might include foundations, multilateral institutions, governments and even profit-making businesses that have a mandate to improve society. In fact, France’s Groupe Danone participated in the establishment of a social business in Bangladesh. Social businesses have historical precedents. At a time when many mill owners kept laborers in debt to company stores, Robert Owen (1771-1858) founded cooperative stores that made products available slightly above cost. These stores were the first cooperative retail enterprises. Many such cooperatives exist today.

“When freedom of speech or religion is violated…global protests are often mobilized…Yet when poverty violates the human rights of half the world’s population, most of us turn our heads away and get on with our lives.”

Grameen Bank

Muhammad Yunus was an economics professor in the mid-1970s when he discovered why, no matter how hard they worked, poor people in his country remained poor: They were in the grip of moneylenders. In a conversation with a village woman who made bamboo stools, he learned that the interest rates on the small amounts of money she borrowed to buy materials could be as high as 10% daily, compounded. Moreover, the moneylender insisted as a condition of lending that she sell only to him, and he set the prices.

“Moving up the economic ladder as quickly as possible is the best protection against every form of foreign domination.”

Yunus surveyed other village women and found that the total amount they had borrowed was less than 856 taka (the currency of Bangladesh), or $27. Yunus paid the women’s debts and began working on a mechanism to enable them to escape the grip of the moneylenders. Conventional banks didn’t believe that poor women were a good credit risk. Yunus decided to set up a new kind of bank that would serve the poor. First he needed to reform Bangladesh’s banking laws. His persistent lobbying resulted in the necessary legislation and in 1983 he founded Grameen Bank.

Grameen Bank makes loans to the poorest of the poor. Since its inception, it has lent $6 billion, with a 98.6% rate of repayment. Like other banks, Grameen Bank is profitable; in fact, it registered losses only in 1983, 1991 and 1992. Grameen has lifted nearly two-thirds of its borrowers out of poverty. Moreover, it has inspired a system of enterprises, including these:

  • Grameen Trust– Creates microcredit, or microfinance, institutions worldwide, using a Build-Operate-Transfer (BOT) model.
  • Grameen Check– Encourages the handloom industry in Bangladesh with design and sales support.
  • Grameen Fund– Provides venture capital for new businesses on the Grameen model.
  • Grameen Fisheries and Livestock– Supports aquaculture and livestock programs that provide sources of income to poor women.
  • Grameen Shikkha– Provides a stipend that allows poor families to keep their children in school. Without the stipend, the families would need to send the children to work or to beg for pennies.
  • Grameen Telecom– Provides telecommunication services to poor people in Bangladesh, by giving cell phones to “telephone ladies,” who then sell services to their fellow villagers.

“A social business can’t expect to win customers just because it is run by nice people with good intentions. It must attract consumers and retain their loyalty by being the best.”

Grameen has also been involved in renewable energy, healthcare and other socially beneficial projects.

Groupe Danone

The idea for Grameen Danone originated during a 2005 meeting between Yunus and Groupe Danone chair and CEO Franck Riboud. Riboud told Yunus that his family had a tradition of “being socially innovative and progressive,” and that he wanted to find a way to help feed the poor. Yunus proposed a joint venture to produce cheap, fortified yogurt for children that would help address the problem of malnutrition in Bangladesh. The model for the joint venture would be that of a social business, which sold products, reinvested profits in the enterprise and paid no dividends to investors. A few weeks after Yunus and Riboud met, Groupe Danone sent a team to Bangladesh to consider issues of product design, manufacture, supply chain, distribution and pricing. Yogurt was already a popular food in Bangladesh, sold in clay pots, but at a price too high for poor people.

“The best way to combat poverty is to give dignity and self-reliance to poor women.”

Groupe Danone faced some challenges to its usual approach. For example, the company normally built a single large plant to serve a regional market. However, Yunus urged it to rely on small plants that bought their milk from local farmers, many of whom had purchased their first cow with a Grameen loan. Thinking small was a novelty for the multinational’s industrial design department, but it discovered, much to its surprise, that a small plant could operate as cost effectively as a large one. Refrigeration was another challenge. Danone usually kept its yogurts refrigerated from production to the point of sale, but most of the villagers who would be buying and selling the yogurt didn’t have electricity. Therefore, quick distribution was essential. The yogurt would have to be consumed within 48 hours of production. Danone developed a distribution network with the help of “Grameen ladies,” village women who had borrowed from Grameen bank.

The joint venture conducted a marketing analysis to decide on the product’s flavor and logo. The logo combined Grameen’s red and green house icon with Danone’s blue letters and a picture of a lion. Riboud was a friend of the soccer star Zinédine Zidane, who is wildly popular in Bangladesh, and he agreed to come to Bangladesh and lent his support to the product debut. The companies are now looking for ways to improve their packaging by replacing the small plastic yogurt cups with environmentally friendly, perhaps even edible, containers.

“The world’s wealthiest may enjoy their lavish lifestyles today. But…how great a price in environmental destruction and military conflict are they willing to pay to sustain those lifestyles?”

Ending Poverty

The end of poverty is within reach. The poor are not poor because of deficiency of character or unwillingness to work hard. They are poor because institutions and regulations that work for the wealthy do not work for them. Because the poor people of Bangladesh could not obtain credit from banks, they became debt slaves to moneylenders. Capitalism gives businesses no incentive to serve the poor and great incentive to exploit them.

“If we are not achieving something, it is because we have not put our minds to it. We are accepting psychological limitations that prevent us from doing what we claim we want.”

Prejudices, such as the idea that poor borrowers would not repay their loans, often prevent businesspeople from challenging conventional methods. The experiences of Grameen Bank and of Grameen Danone suggest that the structures and approaches of profit-making businesses can be applied in the service of socially beneficial objectives. For example, information technology could become a great force for democratization and for the liberation of the poor. IT could enable farmers in remote villages to find out how much commodities are selling for in large markets, so they no longer have to accept any price the local broker offers. They would gain the power to challenge and talk back. At present, literacy and training are necessary to use IT. You need to be fluent in a major language such as English or Chinese. However, engineers may be able to design systems that do not require literacy or fluency in a major language.

Social business can take such ideas out of the realm of fantasy and turn them into reality. Eliminating poverty is in the interest of the entire world. Social business, with its emphasis on careful accounting for social benefits, can make development without environmental destruction possible. The day may come when people will have to go to museums to learn about poverty.