Eliminating Poverty Through Market-Based Social Entrepreneurship by Muhammad Yunus

“In 1974, I found it difficult to teach elegant theories of economics in the university classroom in the context of a terrible famine then occurring in Bangladesh. Suddenly I felt the emptiness of those theories in the face of crushing hunger and poverty. I wanted to do something immediate to help people around me.”

“I was shocked to discover a woman borrowing US $0.25 under the condition that the lender would have the exclusive right to buy all she produced at the price the lender decided! What a way to recruit slave labor.”

Poor people are like bonsai trees

They could have grown as giant trees if they were supported by the right environment for growth. It is the size of the pots in which they were made to grow that turned them into sad replicas of the real trees. In a similar way, poor people are sad replicas of the real persons hidden inside of them. They cannot grow to their potential size because society does not offer them the social and economic base to grow. Poor people are condemned to survive as Lilliputians in the land of super-giants.

[The poor] can get themselves out of poverty if we give them the same or similar opportunities we give to others. The poor themselves can create a poverty-free world — all we have to do is to free them from the chains that we have put around them.

All the ingredients for ending a person’s poverty always comes neatly packaged within that person. A human being is born into this world fully equipped not only to take care of himself or herself (which all other life forms can do, too), but also to contribute in enlarging the well-being of the world as a whole (that’s where the special role of a human being lies).

Poverty has been created by the economic and social system that we have designed for the world. It is the institutions that we have built, and feel so proud of, which created poverty. It is our policies borne out of our reasoning and theoretical framework, with which we explain interactions among institutions and people, that caused this problem for many human beings.

It will be an uphill task to end poverty in the world unless we create new economic thinking and get rid of the biases in our concepts, institutions, policies, and above all, our mindsets created by the existing orthodoxy. Unless we change our mindsets, we cannot change our world.

Wage-Employment and Self-Employment

Economic theory in its simplest form visualizes people as providers of labor. They are born to take orders from a small group of a very special kind of people known as ‘entrepreneurs’. These special people are the only people who can think, organize, and act. All other people simply fill in the work slots created by the thinking and driving people. The level of well-being of the working people depends on the level of their wages. After creating a world overwhelmingly populated by uninteresting working people, economic theory gets busy with the interesting people — the entrepreneurs — because they are the movers and shakers of the economy. Taking their cue from economic theory, powerful institutions are built, rebuilt, and improved; support systems are created, detailed legal systems developed, policies formulated, guidelines created, and research undertaken, all to ensure that the movers and shakers of the economy find it convenient to go in the direction they wish to go, and are able to utilize every last bit of their talents without any hindrance.

The most important step to ending poverty is to create employment and income opportunities for the poor. But orthodox economics recognizes only wage-employment. It has no room for self-employment. Yet self-employment is the quickest and easiest way to create employment for the poor. Credit can create self-employment instantaneously. Why wait for others to create a job for you? A person can create his or her own job. Our forefathers did not wait for someone else to create jobs for them, they just went ahead to create their own jobs and incomes. They were lucky. They did not have to learn economic theories and end up with a mindset that the only way they can make a living is to find a job in the job market. And if you don’t get a job, then march in the streets! [Unfortunately] in developing countries, even if you march in the streets, there is still no job for you. As a result the poor go out and create their own jobs. Since economics textbooks do not recognize them, there are no supportive institutions or policies to help them.

Market-Based Social Entrepreneurship

Economic theory took the second, and most damaging, wrong turn when it came to explaining the driving force behind the competition among entrepreneurs. It recognizes the profit motive as the only motive behind this. Maximization of profit is the battle cry. This explanation occupies such a central position in economic theory, and everything else has been built in such intricate detail around it, that nobody dares to question it . . . By restricting the driving force of the market to narrow self-interest, economic theory also missed the greatest opportunity to become a truly social science and escape from being a cut-and-dried dollars-and-cents science . . . Because of the way the orthodoxy of economics has given shape to the existing world, all the investment money now is locked up in only one category of investment: investment for making personal profit. This has happened because people have not been offered any choice. There is only one type of competition: competition to amass more personal wealth.

[Thus], economic theory missed the most thrilling opportunity to change the fate of the world by completely ignoring the number and power of people who are more interested in social gains than personal financial gains, and those passionately interested in making the world a better place to live in, rather than remaining narrowly focused on their own personal benefit.

Anybody who is offering his or her time and energy to address any social or economic problem of a group or community is a social entrepreneur . . . In terms of cost recovery a social entrepreneur can work within a scale ranging from zero cost recovery to 100% cost recovery, and even far beyond cost recovery. If a social entrepreneur distributes food to the hungry, he or she is operating at zero level of cost recovery. If he provides health services and charges a fee which covers part of the cost, he is operating at a positive point on the cost recovery scale. Once she reaches 100% cost recovery, she becomes a market-compatible or sustainable social entrepreneur.

If a social entrepreneur can stay on the correct side of this point he or she can become a legitimate player in the marketplace. He can grow as much as he wishes and has the capacity to manage. She can draw on the resources of the market. The more that social entrepreneurs are in the category of market social entrepreneurs, the more powerful they become as a business community. They can start gaining access to the trillions of dollars of market capitalization money, part of which will find market social entrepreneurs just the right kind of investment.

The higher the social impact per dollar invested, the higher will be the market rating of the social entrepreneur. Here ‘market’ will consist of the potential investors who are looking for opportunities to invest their money in social objective-driven enterprises. Social investment dollars will move from low social impact enterprises to higher social impact enterprises, from general impact enterprises to specific and visible impact enterprises, from traditional social enterprises to highly innovative and efficient social enterprises.

I don’t think I need to work hard to convince anybody that there are millions of investors right now who would gladly put their money into a social enterprise if they can be assured that their investment will at least retain its original value, while making a significant impact on the lives of poor people, deprived people, or any group of disadvantaged people . . . If socially motivated people can dedicate their lives in politics to bringing changes in their communities, nations, and to the world, I see no reason why some socially-motivated people will not dedicate their lives to building and operating social objective-driven enterprises. So far they have not done so because neither the opportunity nor the supportive framework exists. We must change this situation. A completely new world can be created by making space for social entrepreneurs and social investors in the business world.

Globalization must promote harmony and partnership between the big and the small economies, rather than become a vehicle for unhindered dominance by the rich economies. Social entrepreneurs must be supported and encouraged to get involved in the process of globalization to make it friendly to the poor. Special privileges should be offered social entrepreneurs enabling them to scale up and multiply. Social entrepreneurs, information technology, and microcredit can play key roles in taking globalization in the right direction.

Enabling people to explore their full potential is an agenda we must take up seriously, to make sure our efforts to reach the 2015 goal of halving poverty become a thumping success.

~ From “Eliminating Poverty Through Market-Based Social Entrepreneurship” by Muhammad Yunus at Global Urban Development Magazine

To me poor people are like bonsai trees. When you plant the best seed of the tallest tree in a flower-pot, you get a replica of the tallest tree, only inches tall. There is nothing wrong with the seed you planted, only the soil-base that is too inadequate. Poor people are bonsai people. There is nothing wrong in their seeds. Simply, society never gave them the base to grow on. All it needs to get the poor people out of poverty for us to create an enabling environment for them.

Poverty is created because we built our theoretical framework on assumptions which under-estimates human capacity, by designing concepts, which are too narrow (such as concept of business, credit- worthiness, entrepreneurship, employment) or developing institutions, which remain half-done (such as financial institutions, where poor are left out). Poverty is caused by the failure at the conceptual level, rather than any lack of capability on the part of people.

A human being is born into this world fully equipped not only to take care of him or herself, but also to contribute to enlarging the well being of the world as a whole. Some get the chance to explore their potential to some degree, but many others never get any opportunity, during their lifetime, to unwrap the wonderful gift they were born with. They die unexplored and the world remains deprived of their creativity, and their contribution.

Social business will be a new kind of business introduced in the market place with the objective of making a difference in the world. Investors in the social business could get back their investment, but will not take any dividend from the company. Profit would be ploughed back into the company to expand its outreach and improve the quality of its product or service. A social business will be a non-loss, non-dividend company.

Once social business is recognized in law, many existing companies will come forward to create social businesses in addition to their foundation activities. Many activists from the non-profit sector will also find this an attractive option. Unlike the non-profit sector where one needs to collect donations to keep activities going, a social business will be self-sustaining and create surplus for expansion since it is a non-loss enterprise. Social business will go into a new type of capital market of its own, to raise capital.

Almost all social and economic problems of the world will be addressed through social businesses. The challenge is to innovate business models and apply them to produce desired social results cost-effectively and efficiently. Healthcare for the poor, financial services for the poor, information technology for the poor, education and training for the poor, marketing for the poor, renewable energy | these are all exciting areas for social businesses.

Even profit maximizing companies can be designed as social businesses by giving full or majority ownership to the poor. This constitutes a second type of social business. Grameen Bank falls under this category of social business.

The poor could get the shares of these companies as gifts by donors, or they could buy the shares with their own money. The borrowers with their own money buy Grameen Bank shares, which cannot be transferred to non-borrowers. A committed professional team does the day-to-day running of the bank.

Bilateral and multi-lateral donors could easily create this type of social business. When a donor gives a loan or a grant to build a bridge in the recipient country, it could create a “bridge company” owned by the local poor. A committed management company could be given the responsibility of running the company. Profit of the company will go to the local poor as dividend, and towards building more bridges. Many infrastructure projects, like roads, highways, airports, seaports, utility companies could all be built in this manner.

Powerful multi-national social businesses can be created to retain the benefit of globalization for the poor people and poor countries. Social businesses will either bring ownership to the poor people, or keep the profit within the poor countries, since taking dividends will not be their objective. Direct foreign investment by foreign social businesses will be exciting news for recipient countries. Building strong economies in the poor countries by protecting their national interest from plundering companies will be a major area of interest for the social businesses.

To connect investors with social businesses, we need to create social stock market where only the shares of social businesses will be traded. An investor will come to this stock-exchange with a clear intention of finding a social business, which has a mission of his liking. Anyone who wants to make money will go to the existing stock-market.

To enable a social stock-exchange to perform properly, we will need to create rating agencies, standardization of terminology, definitions, impact measurement tools, reporting formats, and new financial publications, such as, The Social Wall Street Journal. Business schools will offer courses and business management degrees on social businesses to train young managers how to manage social business enterprises in the most efficient manner, and, most of all, to inspire them to become social business entrepreneurs themselves.

Three years ago we started an exclusive programme focusing on the beggars. None of Grameen Bank’s rules apply to them. Loans are interest-free; they can pay whatever amount they wish, whenever they wish. We gave them the idea to carry small merchandise such as snacks, toys or household items, when they went from house to house for begging. The idea worked. There are now 85,000 beggars in the program. About 5,000 of them have already stopped begging completely. Typical loan to a beggar is $12.

I firmly believe that we can create a poverty-free world if we collectively believe in it. In a poverty-free world, the only place you would be able to see poverty is in the poverty museums. When school children take a tour of the poverty museums, they would be horrified to see the misery and indignity that some human beings had to go through. They would blame their forefathers for tolerating this inhuman condition, which existed for so long, for so many people.

~ From the Nobel Lecture of Muhammand Yunus

Go to the website of Muhammad Yunus

Keywords : ecosocial crisis, poverty, MDGs, social entrepreneurship, capitalism, profit, market, economics for life, institutional diversity, policentricity, resilience, globalization, microcredit, information technology, education, self-employment, self-reliance
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