The third way
While the world continues to suffer from the collapse of the financial systems and the effect this has had on businesses the world over, there is still a lack of clarity on how to solve the problems and more importantly, how to prevent them happening again. It is clear however, that neither regulation, nor legal and political frameworks will necessarily ensure that business leaders act in the public interest in the future.
What we need therefore is a new type of business leader and they are among us already the social entrepreneurs. Social business is able to combine the tools of commerce and markets, alongside a core business strategy aimed at social benefit.
Social business encompasses a huge range of business models from non-profit, through hybrid non-profit (non-profit but commercially sustainable), to profit making. They encompass a range of revenue streams, from charity and donor funded, to commercially viable and profitable businesses.
Bangladesh offers real opportunities for social business. With a huge rural population waiting for work, under-developed infrastructure, opportunities in education and healthcare provision and a whole array of export possibilities. Since Bangladesh has the abundant natural resource of manpower it would make sense to explore the possibilities of unlocking this potential.
Realistically, to encourage a whole new breed of entrepreneurs in this country, we need to demonstrate that social business is worthwhile; that it can both meet social need and generate profits.
In Bangladesh we have tended to have a very broad definition of entrepreneur so that it covers everything from one self-employed individual through a spectrum of varying size of workforce.
I would like to suggest that in order to encourage truly effective entrepreneurs into social business, those who can employ people in significant numbers and unlock the potential of our huge manpower resource, and then we need to focus on 'for-profit' social business. It is optimistic, at best, to imagine that the best and most promising entrepreneurs in this country will seek to work for social benefit alone.
It's not that social business must make profit but that by doing so entrepreneurs looking for opportunity may chose social business over traditional business and we bring on board the best entrepreneurs to solve the social problems of the day. Traditional business is profit maximising and it ensures least waste and the best use of resources. Social business combines the efficiency of traditional business with the aim to achieve social goals.
There is an argument that where social principles and profit maximisation are competing for limited resources then profit maximisation will always win and as such, social business should always be 'not for profit'. Where a social business is set up to tackle a particular social issue and the issue is grounded within the core business, then this conflict is never likely to occur.
Social business can solve problems. It can create sustainable employment whilst making profits and it can solve our greatest social problem of poverty. Traditionally, donors have avoided interference in business but this new type of business raises a conundrum. If social business can measurably and accountably create good quality sustainable rural employment thereby alleviating poverty and offering a better standard of living to a target group, but at the same time make profit, should we celebrate the success of employment creation and poverty alleviation or should we question whether donor funds should be used to ultimately make profits?
NGOs have been the vehicle of choice for many years for donors wishing to effect change. Whilst many programmes have been successful, many more have been ineffective and inefficient. Whilst programme and sector-wide metrics have been encouraging, aggregate national metrics have not mirrored this success.
Bangladesh still has 40 percent of people living on less than a dollar a day and the progress being made away from this is hopelessly slow. NGOs have been particularly successful at delivering services and running donor funded programmes and in particular researching need. They are very effective and capable administrators. An entrepreneur needs an entirely different skill set.
These are changing times for donors and changing times for Bangladesh. Social business offers real opportunities in Bangladesh for everyone: for social entrepreneurs setting up new businesses, for the poor who can be brought through new employment opportunities out of poverty and for the donors who will need to decide if they can accept profit making as part of a package that ultimately achieves the goal.
So if social business is so great, then why do we need donors at all? The long term aim of any developing country must surely be, at some point, to make the donors redundant. For the donors, ultimate success would surely mean that their host country no longer needed them.
Funding employment creation through social business is a finite commitment. Once the business is up and running and the target population employed, the workforce will have ongoing financial income and be able to buy education and healthcare services, as needed. Once they are buying these services and no longer dependent on charitable services, they will demand better quality and better value for money creating an upward spiral of improvements. Of course, it's some way off, but it's important to believe that it's possible and right now it's about priorities and choices.
Social businesses will grow in Bangladesh regardless of donor priorities, but donors and government could act as an important catalyst enabling seed funding, capital availability, patient capital, preferential interest rates to help this new and exciting sector grow more quickly. As the sector develops and private investment is attracted, the need for such involvement will decrease. Surely this is an ideal scenario for donors: to support a fledgling industry in a developing country, recognising that in the long term, the private sector will step in.
In the post-collapse era we need to stop thinking of only two scenarios; of traditional profit making business and non-profit NGOs and we need to embrace a third option. The third option, which can combine making profits with generating social benefit, offers a winning solution all around and offers a chance to avoid the mistakes of the recent past.
It is encouraging that social business is growing the world over and double bottom line reporting is a concept gathering pace; to recognise achievements, not only of profit, but also of social impact. Judging businesses on both parameters with equal measure provides a basis for an entirely new investment sphere.
Social stock exchanges are already running in Singapore, USA, UK and South Africa, with an estimated $3 trillion invested worldwide in socially responsible investments. Investors concerned about the greedy single-mindedness of the past are moving more comfortably to a new way of investing, where not only is business more ethical but is creating measurable impact and is being judged on these metrics.