Thursday, November 13, 2008

Capitalism's Missing Link

Gurteen Knowledge Letter

I love the concept of the Social Business as defined by Muhammad Yunus. Here is an excerpt of what Karl Weber has to say about it in a recent article Why Social Business Is Capitalism's Missing Link on the Harvard Business Blogs website.

I think over the coming years we are going to see more and more social businesses as capitalism evolves and they will go a long way towards alleviating many of the sustainability issues we face in the world!

For most of us, business means one type of organization--the for-profit company that is the backbone of the free enterprise system. Ranging in size from a one-person corner store to a giant corporation like Wal-Mart, such companies recognize one fundamental purpose: to maximize profits. To be sure, they create other benefits along the way: they employ workers, provide useful goods, and pay taxes. But the bottom line is, precisely, the bottom line--the profits generated for owners and shareholders.

But we all know this is an incomplete picture of human nature. People are driven by the profit motive, of course. But they are driven by many other forces as well. Among these are the desire to do good for others, to help the needy, to make the world a better place--in fact, to solve all the unsolved problems that challenge humanity around the world. Yet today's capitalism is powerless to act on these motives, because it makes no place for them.

Unlike an NGO or a charity, a social business produces goods and services, sells them for a fair price, competes in the market for customers, and strives to cover its costs through revenues generated. But unlike a traditional profit-maximizing business, it exists to serve a social goal: to feed the hungry, house the homeless, provide health care for the sick, or clean the environment. What's more, it does not generate profits. Instead, any surplus generated goes right back into the business, enabling it to serve more customers and expand the benefits it provides. Hence this simple definition of a social business: a non-loss, non-dividend business with a social objective.

Credit: Karl Weber

You can see Muhammad Yunus talking about the Social Business Model below.

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