Can Capitalism Have A Conscience?


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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