Recent Readings: “Creating a World Without Poverty,” Muhammad Yunus

Creating a World Without Poverty: Social Business and the Future of Capitalism

This has to be one of my favorite books of all time. Not only an easy read, but educational, thought-provoking and, above all, inspiring. Regardless of profession or passion, I encourage you to read this book and expand your scope of thinking.

Noble Peace Prize laureate Professor Muhammad Yunus believes that there is an inherent problem with the capitalist system and profit-maximizing businesses (PMBs): “unfettered markets in their current form are not meant to solve social problems and instead may actually exacerbates poverty, disease, pollution, corruption, crime, and inequality” (5). Not to say that he does not agree with open markets, trade and globalization, but rather that these markets require “proper oversight and guidelines” (5).

Yunus explores several potential avenues for solutions:

1. Government (pages 6-9)

PROS – Governments can provide programs that private organizations cannot, including rule of law, central banks, and national health services. Governments can also enforce taxes and mobilize resources that can be redistributed among of its citizens.

CONS – Governments can only do so much and not all governments operate altruistically (especially fragile states). Also, governments can be large, bureaucratic, and sometime ineffective.

2. Nonprofit Organizations (NPOs) (pages 9-11)

PROS – Charities have an inherent need to achieve a social objective and their generous work saves tens of thousands of lives around the world.

CONS – NPOs typically require a steady influx of funds that are determined by the generosity of donations. Furthermore, poorer countries have a much more difficult time getting attention from rich donors in other countries (personal note: US donors have to abide by strict IRS giving regulations in order to receive a tax benefit). Handouts can encourage corruption, relief persons of responsibility, and creates a one-sided power relationship (115-116).

3. Multilateral Institutions (sponsored and funded by governments, including the World Bank) (pages 11-15)

PROS – Bring together several nations to achieve economic growth, which is incredibly important to reducing poverty.

CONS – Chronically underfunded, bureaucratic, and slow-moving, these institutions focus on gross domestic product (GDP) rather than local, tailored growth. Even with “pro-poor growth policies,” Yunus finds issue with the idea that those in poverty are marginalized and viewed as objects. Furthermore, “policymakers are focused on efforts to energize well-established institutions” and “donors work almost exclusively through the government machine”  (12).

4. Corporate Social Responsibility (CSR) (Yunus names two types: “weak CSR” (do no harm to people or the planet (unless that means sacrificing profit)) and “strong CSR” (do good for people and the plant (as long as you can do so without sacrificing profit)). 

PROS – CSR has informed millions of consumers and given legitimacy to thousands  of charities around the world.

CONS – According to Yunus, CSRs can misuse well-intended foundations and grants towards selfish endeavors. “The same company that devotes a penny to CSR  spends 99 cents on moneymaking projects that make social problems worse” (16). Profit-maximization is their “legal obligation to their shareholders unless the shareholders mandate otherwise” (17). At the end of the day, the objective of business is to maximize profit.

So, after all of the downfalls of these organizations, alliances, corporations — then what we can do to move towards the eradication of poverty? We must re-configure our idea of business. Mr. Yunus changed the playing field with his concept of a social business.

Without NPOs becoming irrelevant and insignificant, social businesses can play a very important role in eliminating poverty. Social businesses are structured just like any operational, for-profit business – innovative, efficient, and self-sustaining. Instead of pursuing profits, social businesses pursue a social objective (22). So, how is this different than a charity? Well, it takes investors, just like a business, and works to fully recover its costs (no endowments, no dissolution clauses). There are no fundraisers, donations, or grants. It operates as a fully-functional, sustainable organization. Investors will recoup their original investment. Their payments are in social objectives. There are two types of social business: companies that focus on maximizing social benefit and profit-maximizing businesses that are owned by the poor.

In the first type, the “nature of the products, services, or operating system of the business… creates the social benefit. This kind of social business might provide food, housing, health care, education… it might clean up the environment, reduce social inequalities…[essentially this type achieves] objectives like these while covering its costs through the sales of goods or services and that pays no financial dividend to its investors” (28-29).

In the second type, like Grameen Bank, “goods or services produced might or might not create a social benefit. The social benefit created by this kind of company comes from ownership. Because the ownership of shares of the business belongs to the poor or disadvantaged (as defined by specific criteria)… any financial benefit generated by the company’s operations will go to help those in need” (29).

“Social businesses will take their place along with profit-maximizing businesses as basic fixtures in the world of business. Social businesses will operate in the same market spaces as PMBs, competing with them and with one another for market share. Consumers will become accustomed to choosing between social businesses and PMBs when buying goods and services. In many cases, they will choose based on traditional criteria – price, quality, availability, brand appeal.” (174)

“Social businesses will either bring ownership to poor people, or keep the profit within poor countries, since taking dividends will not be [the] objective.” (246)

Example of profit-maximizing business that is owned by the poor:

“Social investors can raise the money with the explicit understanding that, once the investment money has been recovered from initial profits, the investors will sell the company at a negotiated price to a trust… The trust will be owned by poor people, at least 50 percent of them women.” (126)

“Shadow shares of this company will be sold by the trust to the poor people… Of the total sold, at least fifty percent will go to women. [This] share will not give any legal ownership of the company to the shareholder, but it will create an entitlement to a dividend of the company as determined by the board.”  (127)

Another example of a successful venture was Grameen Danone. This social business provides healthful yogurt to children in rural Bangladesh. From the construction of the production facilities to local suppliers to the distribution, every aspect of the model was built around employing local, poverty-stricken individuals. Even the factory is owned by the people. Despite large innovation costs, the program is successful because there is no need for expensive marketing or fancy packaging — the reality is that the products could be made cheaply by the local communities. After all, the “goal is not only financial efficiency, but also maximum social benefit” (139).

So, who will invest in social businesses? Well, to those that give your money away to charities every day, week or year, this is an ideal project because you get your money back!

Favorite quotes:

“If the poor are to get a chance to lift themselves out of poverty, it’s up to us to remove the institutional barriers we’ve created around them.” (49)

“Effective anti-poverty programs must start with a clear operational definition of poverty. In order to recognize those whom the program is designed to help, they must be defined by clear decision rules that will exclude the non-poor and keep them from siphoning off resources that the poor desperately need.” (110)

“There will not be sustainable economic value creation if there is no personal development and human value creation at the same time.” (Antoine Riboud, 170)

“A new breed of business people, empowered for the first time to express humanistic values through the companies they found, will demand new institutional structures to support the new kinds of ventures that will emerge.” (174)

Yunus’ has issues with the idea of ‘social responsibility:’ “the lack of any recognized system for evaluating, testing, or enforcing claims of socially responsible products…how can a consumer know for sure that the chicken she buys has been produced using methods that are humane and enviormentally sound?” (175)

“Poverty exists because we’ve built our philosophical framework on assumptions that underestimate human capacities. We’ve designed concepts that are too narrow – our concept of business, our concept of credit-worthiness, our concept of entrepreneurship, and our concept of employment. And we’ve developed institutions that are half-complete at best – like our banking and economic systems, which ignore half the world. Poverty exists because of these intellectual failures rather than because of any lack of capability on the part of people.” (232)

Yunus, Muhammad, and Karl Weber. Creating a World without Poverty: Social Business and the Future of Capitalism. New York: PublicAffairs, 2007. Print.

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