Finally A New Post

So my sister asked me the other day why I never post on my blog. Well for one reason, I don't seem to have the time. The second reason is that I don't believe the anyone will read it. If you read it, leave me a message with your thoughts so I will know who is reading it....

Tonight's post will hopefully be one of many. I have really been studying the issues of the poor and the socioeconomic issues that go with it. I just finished a book, "Banker to the Poor" by Noble Peace Prize winner Muhammad Yunus. He is the founder of micro-financing and social business. Here is an over view of what the new concept of social business is and how it works. It isn't a pleasant read, but God encourage me as I wrote it.

A “Social Business” is a non-loss, non-dividend enterprise, created with the intentions to do good to people, to bring positive change to the world, without any short-term expectation of making money. Basically, social businesses make products and provide services that benefit society. Traditional free-market fundamentalism says businesses should maximize the profit for shareholders to receive the maximum return on their investment. Social business organizational structure is basically the same as profit maximizing businesses (PMB). The objective is to employ workers, create goods and services, and provide these to customers for a price consistent with the objective of the social business. The firm must make a profit (thus social businesses are non-loss). Like many non-profit and government aided businesses, they do not make enough to cover their initial investment and accrue losses for many years. A social business makes a profit but does not return it to investors as dividends (non-dividend). The profits are then reinvested into the business to provide better products, services, lower costs, and increase efficiently of the social business. An indirect effect of making a profit is that time spent raising funds can be spent elsewhere. As firms profitability is stable, they can move into new areas and impact other low socioeconomic areas.

So what is the role of investors after they are repaid for their investment? They keep the money and remain as owners. The money they receive can be used for personal use or reinvested into another social business. People who give to philanthropic groups have the same incentive to invest in social business: it makes them feel good. The difference in investing in social business is that the money is returned, like a zero-coupon bond except with no interest. Investors currently have to “re-donate” to the American Red Cross or UNICEF but once a social business becomes self-sustaining, they will never need to provide startup capital or sustainable capital for the same social buisness again. But how will we know we are not giving to a bad social business? Theoretically, there is no bad social business. First, investors will get their initial investment back so they will not loss money. Secondly, when social businesses compete, they will compete just like two profit maximizing businesses do except for a different objective.

PMB’s compete to have the best rating system from rating firms like Moody’s or Standard and Poor’s to attract investors. Investment firms also hire analysts to project the future profitability of PMB so that investors can choose the firm with the best-expected future profitable outcome. Social business will do the exact same except the firm that produces the greatest possible good with their resources will attract investors. Competing social businesses will push each other to innovate and be more efficient like firms in the free-market system. Where PMB’s compete for daily stock returns, social businesses will compete for who can provide the most impact.

Yet another theoretical idea of social business is the idea of a PMB that is owned by the poor to help the poor. The social benefit does not come from the service or product give to society but rather, the owners will give profits will go to help those in need. When the poor run a business, the need for government assisted aid will become irrelevant (assuming every person in need can own a business or have a social business in their community to work for). When government food stamps and social security are not being distributed, foreign aid, road improvements, healthcare, and funds for education will now be available requiring schools to stop selling candy bars for school supplies! The cool thing to remember is that social businesses can also help with these problems when governments cannot find the funds. Social businesses can build roads and schools, make cheaper school supplies, or create a healthcare system for the lower 20% or 50% who do not have healthcare.

The idea of social businesses is based on the facts that there are people who are willing to help. Is their anybody out there willing to help? Yes and they are everywhere. All kinds of organizations are trying but they just can’t get there with handouts because handouts do not fix the long-term. Soup kitchens save millions of lives each year but they need to be restocked, remanaged and refinanced each day. Handouts and government grants are only short-term fixes to the problem. Social business creates a system that actively engages the poor with sustainable income and irradiates the problems of poverty. When 1/5 of the people on Earth that live on less than a dollar a day, 1.1 billion people, start contributing to the economic growth in their own countries, the gross “earth” product will increase. Because globalization is connecting markets and people more each day, the contribution of the bottom 1/5 of the people on Earth will shift short-term and long-term growth rates out faster than before. The reason that economies do not grow as fast as they potentially could are for very complex reasons but much is based on those that job less, homeless, and take up government funds to offset the food, clothing, and healthcare they cannot afford. When did we get the notion that people like handouts? The poor does not and they are more willing to help themselves than we are to help them. When the back of the train is pushing as well, the train will go faster! By bringing the lower portion of the economy, the part that seems to slow economic growth down, the economy is free to move faster: everyone wins!

Isn't this cool?