29 Mar 2010

Can Capitalism Have A Conscience?

By Mark Swivel
Is it possible to make a difference as well as a profit — or is social business an oxymoron? Mark Swivel reports on a growing trend in soft capitalism
Mohammed Yunus, the Bangladeshi microfinance guru visited Australia this month and left behind a trail of inspired acolytes. The Professor drew adulation even from the likes of Peter Hartcher, who reported with approval on his "wondrous vision of capitalism with a conscience".

Yunus came to Australia to talk more than microfinance, however. The founder of the Grameen Bank used his round of lunches and talks to spread his big idea: social business. And he has put his Nobel Prize money where his mouth is, creating a thinktank, the Yunus Centre, to promote social business around the world.

So what is a social business — if not a contradiction in terms?

A social business is an enterprise that makes a difference as well as a profit — a "not-for-loss" enterprise directed at solving a social problem. Profits largely stay in the business to fund its expansion and investors get their money back with only a modest return. You could call it soft capitalism.

When Yunus tells the story of social business, he usually leads with Grameen Danone — a joint venture with the French food giant — that produces Shakti Doi, a delicious, healthy and affordable yoghurt for under-nourished Bangladeshi children. It's a great idea — although it is still early days for this and other projects like the clean water joint venture with Veolia and the Grameen Shakti renewable energy business.

In Australia, social business was brought into the spotlight in 2009 by the GoodStart takeover of 678 ABC Learning childcare centres. The consortium that picked up the pieces of the wreckage was not the usual array of corporates and venture capitalists but four non-profits — Mission Australia, the Benevolent Society, the Brotherhood of St Laurence and Social Ventures Australia (SVA). This gave new meaning to the phrase "under new management": the margin lending mania of Eddie Groves was replaced by the mission of our leading philanthropists. ABC Learning will be run on a commercial basis but as a social business, with profitability directed towards social goals rather than lining the pockets of shareholders with as much dough as possible.

The GoodStart buyout did not come out of a vacuum, of course. Many social businesses already trade in Australia and have been doing so for years.

We all know The Big Issue, the magazine that applies a commercial approach to the problem of homelessness. The street vendors of the magazine share the proceeds of each sale with the publisher — you pay $5 and the seller gets $2.50. A newer Australia-based example is Cool nrg whose "primary purpose is action on climate change". Cool nrg claims to have reached over 7 million consumers worldwide and saved over 3 million tonnes of CO2 with its energy efficiency programs.

Many social businesses were spawned by the privatisation of traditional government services. Work that used to be done by the old CES is now performed by a range of organisations — including non-profits — who manage employment services contracts on a commercial basis, generating profits and fulfilling a social purpose at the same time. Think of Mission Australia, the Salvation Army, Campbell Page and Central West Community College. Elsewhere, the rebranding of the op shops of the St Vincent de Paul Society as Vinnies, who now charge a market price for their resold goods, is another example of simultaneously doing business and doing good.

More traditionally, the mutual and co-operative sector has been doing social business for years. Credit unions and co-operatives are still thriving across Australia. Mutual financial institutions — like credit unions, building societies and friendly societies — now have combined assets of $75 billion.

Abacus, the industry association for social businesses, reports that mutuals have around 8 per cent market share in new mortgages and 11 per cent of deposits. Bartlett's own Capricorn Society has over 12,000 members who operate in the automotive repairs and services industries. Across the road from my office in Charing Cross in Sydney's Eastern Suburbs, is a Plumbers Suppliers Co-operative — one of 3000 around the country. Food co-ops also continue to grow as people turn away from the supermarket chains.

In the enthusiasm to spread the shiny new gospel of social business, history can be forgotten.

The idea of people and investors coming together co-operatively to solve social problems has deep roots in the mutual and co-operative movements of the 19th century which spawned an array of businesses, primarily in health, insurance and finance. Robert Owen's South Lanarkshire experiments are often cited as the start of this movement. As we all know, most of these businesses were demutualised after our elites convinced themselves that we should "release the value" of the lazy assets sitting in the likes of AMP, NRMA and the St George Building Society. The emergence of social business may well encourage a new era of re-mutualisation.

Social business could make its biggest impact in Australia on Yunus' home ground: financial services, or what is now called "community development finance".

With neat synchronicity, Jenny Macklin recently announced $7.5 million funding to foster community development financial institutions (CDFIs). These are designed to build community assets and overcome social exclusion by providing access to affordable financial services for the underserved including community organisations, small businesses and low-income people.

Overseas, there are many examples of well developed CDFIs. In the US, a mature sector has produced over 1000 CDFIs, including the flagship Shore Bank based in Obama's Chicago, whose balance sheet sits at US$2 billion. And in the UK, £113 million was lent by around 100 CDFIs last year.

Our sector is in its infancy. In Queensland, Foresters ANA leads the way, with a range of innovative community-oriented financial services including the Foresters Community Investment fund which promises both a good rate and a social return to its target market of ethical investors.

Elsewhere, CDFIs can be found at the Traditional Credit Union in Indigenous communities in Arnhem Land; Fitzroy and Carlton Community Credit Co-operative, which works mainly with welfare recipients in Melbourne; and Maleny Credit Union, with a strong focus on local community businesses. All are social businesses providing financial services in Australia today.

The $7.5 million made available by Jenny Macklin for CDFIs is a great start even if the money will not go far. The plan is for corporates, including banks, foundations and government to band together and create sustainable institutions using a business rather than a charity model. The success of payday and other fringe lenders shows how high the demand for credit is among low income or socially excluded Australians. A number of existing schemes sponsored by banks — such as NAB Step Up Loans with the Good Shepherd and ANZ Progress Loans with the Brotherhood of St Laurence — also indicate market potential.

CDFIs can fill the gap between the fringe and the mainstream. For Mohammed Yunus, this story will be very familiar. When Grameen began in Jobra in the 1970s, credit was available in the villages of Bangladesh but it was expensive and in short supply. The Grameen Bank first developed less through the "invention" of microfinance but through a desire to undercut village usurers. Social business may thrive in Australia using the same principle to develop CDFIs.

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Bob Karmin
Posted Monday, March 29, 2010 - 12:28

The driver of capitalism is not to make 'a profit', rather it is to maximize any profit. No sensible commentator - critic or advocate - has ever argued, to my knowledge, that profits per se, are bad or good. To hold such a view, is, quite frankly, ridiculous.

The problems associated with profit maximization are not solved by more privatization. In fact, talk of privatization only exacerbates them, because the discussion is railroaded into a false dilemma of rationalizing profits over people. The real and decrepit problem of systemic exploitation can only be solved by transparent and democratic regulation.

Sure make a profit if you like, but not at the expense of providing adequate wages and a safe and beneficial product.

Posted Tuesday, March 30, 2010 - 16:58

I agree with Bob. Capitalism is about maximisation of profits, and so-called "Soft capitalism" seems to just be picking up the problems created by more traditional capitalist enterprises.

Capitalism's problems are not just the profit motive. Private businesses, especially corporations, are authoritarian. Senior managers and/or owners decide company direction and dictate instructions to those "lower down". This culture needs to be changed- if workplaces had to vote on making someone redundent, or on the future of a product that is possibly harmful, most people would act decently. The nature of decision making would change.

Employee owned co-ops, and the eventual phasing out of corporations, is a much better option than "soft capitalism".

Warwick Rowell
Posted Wednesday, March 31, 2010 - 10:37

Warwick Rowell

The ethiocal investment movement is now alive and well in Asutralia, after major eforts by people in the late eighties - Australian Ethical is a founder.

The reality of many organisations is that the key decisions are made by a dominant coalition, and if they are engineers, or marketeers, or people with social consciences, their values will dominate. The issue for too many organisations today is that the accountants now control them - those who "know the cost of everything and the value of nothing". A subset is that lawyers set up performance packages that are focussed on short term measureable stuff - like share price, quarterly returns etc, and so these drive out the "good.."

Reference Thompson - 1979!

The intersting issue emerging is that insurance companies and real estate developers are starting to lead the way, as their long term perspectives on the one hand, and customer driven purchases on the other, shape the overall markets..

Another factor here is that small businesses have the flexibility for innovation, and the lower risk (to the whole community) of failure, so they provide a huge opportunity for initiating, testing, and bringing change. So small green businesses are, in my view, the most likely form of organisation to lead massive social change.

Mr Crapulent
Posted Wednesday, March 31, 2010 - 21:48

I have tried to get a social enterprise up and running through my work at a welfare NGO and have therefore followed the area of Social Enterprise with some interest. I find that their (the sector broadly, not all) ignorance of history and politics is an important factor and the tendancy towards following other capitalist modes of operation, such as competition (profit at the expense of other) and self promotion (bovine excrement) are a real and enduring problem with the potential to infect the mentality of the welfare/not-for-profit agency attempting to bust into the (social) market.

The US social enterprises, for example, seem to be eternally discussing how to break unions so their poor unfortunates can dominate the market with below-minimum-wage 'training' salaries doing rudimentary labour. We have few choices in a capitalist system about how we work (and with whom we work) but it is silly to pretend that these 'social' capitalists are some kind of solution to the major problems thrown up by the capitalist system.

Posted Thursday, April 1, 2010 - 15:30

Sweatshops are sweatshops.

Mr Crapulent, what social enterprise have you got up and running? I'm working on one in Shanghai- extremely small, and producing no profit at all.

Nick Pendergrast
Posted Sunday, April 4, 2010 - 15:50

Ofcourse capitalism can be "nicer" - but this doesn't mean that it is automatically an acceptable system to live under, or the best. While projects like The Big Issue have real benefits for some people, the existence of such projects should not be used to stifle debate on what caused the inequalities that led to the need for The Big Issue in the first place.

And while some businesses can be better than others, this does not change the fact that corporations have a legal duty only to their shareholders. They have a legal duty to maximise profit to their shareholders, regardless of the cost to humans, non-human animals or the environment. So corporate greed is not the case of "a few bad apples" but rather greed is the very nature of corporations.

As has been pointed out in other comments, even these "nicer" businesses are still very undemocratic, with most people having little power in these organisations while only a very small amount of people have most of the power. Rather than supporting more "humane" corporations, we should be striving for more democratic workplaces.

Warwick Rowell
Posted Sunday, April 4, 2010 - 18:19

Warwick Rowell

I would take issue with the categorical statements you make Nick.

Corporations came into being to limit the liability of the shareholders to the capital they subscribe. The duty of a board is to protect the long term asset, and so income steam, of the shareholders, not to maximize profit (implying the blind pursuit of short term profit). If the board makes decisions that are not in the interests of the shareholders, they can vote them out. That the majority of the shareholding rules is an artifact of legislation, set up by governments,and they can be altered. For an example, look at the decision making rules of Strata Companies. In WA there are six different levels, all legally defined, based on the nature of the decision being made. Greed is therefore NOT the very nature of corporations..

Anyone who has tried to work in any organisation that has a totally participative decision-making system can tell you of the delays and issues that arise. A family member has frequently chosen to work on sub-committees of one!

Amatai Etzioni defined the new Golden Rule: protect and perserve the institutions in your society that protect and defend your individual liberties.. He went on to define the major task as assessing whether at any one time the organisation, at whatever level, had too much sway over affairs, and move the pendulum back to the individuals' rights. And vice versa!

This is why I have a bias to small groups and organsiations - I believe they have more chance of achieving this balance - and rectifying it if it gets out of whack - than any other form, particularly monolithic ones, of any flavour..

Nick Pendergrast
Posted Sunday, April 4, 2010 - 22:19

Yes, corporations have a duty 'to protect the long term asset, and so income steam, of the shareholders'. So whether short or long term, corporations are legally required to maximise the profits of a small amount of people (shareholders), even if this is at the expense of other people, non-human animals, the environment etc.

Totally democratic large-scale organisations are hard to achieve, which is why I also prefer small groups and organisations. However, even with larger-scale organisations, it is certainly possible to create organisations that are much more democratic than corporations. For example, in Argentina workplaces have recently been run democratically by workers. Although such workplaces are unlikely to be perfect democracies, at least workers get to vote on vital issues that impact on their life such as whether or not they take on more workers etc. In corporate situations this would be decided by people high up in the organisation, shareholders etc rather than the workers.


Posted Monday, April 19, 2010 - 01:28

Jenny Macklin should look at the 2010 UK budget provisions for the third sector esp
"Up to £75m of Dormant Accounts in a Social Investment Wholesale Bank"

Accessing available unemployed capital is a smart move "tired Labor" should copy.