Friday, January 25, 2008

Capitalism is a Half-Developed Structure

I am in the process of reading Muhammad Yunus's book Creating a World without Poverty which is an extremely thought-provoking book. Muhammad is the Nobel-prize winning founder of Grameen Bank. Like many new ideas, the book is at the same time terrifying and exciting.

He challenges that capitalism in it's current structure neglects a significant portion of the world's population and is threatening the global environment. While he asserts that there is much that is good about a free-market economy and global economic expansion, he challenges that capitalism in it's current manifestation fails in that it takes a one-dimensional view of man:

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. ... To quote Oscar Wilde, they know the price of everything and the value of nothing.

He claims that we are so conditioned to accept the free-market as it is that we can not even conceive of it having short-comings:

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.

Given this inability of profit-driven capitalism to solve many of the world's problems, he proposes a slight modification to the business model - the creation of 'social businesses.' These businesses operate in every way exactly like normal businesses except that they provide no dividend. All profits remain with the business to grow the business to do more social good.

Investors can get their original investment out of the business at any time but no more than their initial investment. He proposes a social stock market where shares in these social businesses can be bought and sold. Social stock markets provide returns for investors as stock valuation increases based on the social good provided by the social business.

While perhaps a little Utopian in its view, it is thought-proving and the book provides good examples of real social businesses in action including a joint-venture that Grameen Bank has with Dannon Yogurt's parent company Danone.

This is part of a very encouraging mega-trend in which business principals are being seen as the answer to addressing poverty instead of leaving this problem to government and non-profit organizations.

One example of this is from a conversation I had today with my friend Gareth Evans, the Deputy Director of Microfinance for World Relief. He has some very innovative ideas on how we might create online marketplaces to enable free-trade for some of the poorest entrepreneurs in the Third World.

These business people are currently excluded from the benefits of buying and selling at market prices. In local villages, farmers may have only one outlet for their crops and they have to take the offering price because there are no other competing bidders. Likewise, an entrepreneur in that same village could create a nice business selling solar powered generators but only with a market of potential suppliers of those generators to find the best wholesale price from.

An online marketplace, accessed by a local PC in the center of the village or by mobile phone, could change the income potential for them dramatically. Like the Grameen Phone project (see You Can Hear Me Now: How Microloans and Cell Phones are Connecting the World's Poor to the Global Economy by Nicholas P. Sullivan) this online marketplace could both be a successful business venture for a corporation and serve the poor at the same time.

This marketplace could perhaps link the people in established economies with these Third World businesses in the same way that Kiva is bringing personal Microfinance lenders and Third World businesses together.

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