The fall of Wall Street and its domino effect showed us the volatility of our global financial system.
It has also demonstrated that the most marginalized populations in the world are inextricably linked with this fragile system and are vulnerable and hardest hit when things go wrong.
It is in these very margins of society that we must concentrate our efforts in the future – not only to ensure their security, but also because they present the greatest capacity for sustained economic growth today.
What I propose in this paper is not revolutionary – I take my lead from the likes of Pr Muhamed Yunus, Karl Weber and Bill Gates. Over the last couple of decades, we have seen many proven examples of successful social businesses: a creative capitalism that seeks to build a better world.
Diverging from the model of traditional NGOs or charities, a social business creates value – goods and services, competes in the marketplace, and survives through revenue that it generates. However, its purpose is fundamentally different from the Smithsian self-interest: it attempts to transform society by attending to the needs of the less fortunate and working towards a sustainable future. In addition, social businesses are not profit-seeking, nor do they pay dividends to investors. Instead, any surplus value that they generate is invested into the business itself to better serve the particular social objective. This way, money creates real goods and services instead of more money.
The troubling question of course, is how does one provide incentives for investing in social businesses if they do not pay dividends? In their Harvard Business School Working Group Paper on The Future of Social Business, Rangan et all argue that in an “optimistic future,” there will be competition for resources among social enterprises and they will have to develop “innovative funding strategies.”1
To deal with this issue, I support the creation of a non-dividend Social Business Capital Market which provides incentives to invest in social businesses and creates competition among social business, ensuring quality among organizations with social objectives. These investment will tend to be more secure than traditional holdings because of the strong tendency and potential for growth in the emerging markets where social businesses would operate. Three different sources of investments together with their incentives are listed here –
1. Allow individual or corporate investors to trade in social value: investors get recognition for supporting successful and emerging social businesses. This works as a triple bottom line marketing strategy. Create international guidelines for donations/investments fromfoundations and charitable organizations to be incorporated into this social business capital market.
2. Create a new International Financial Institution or create new guidelines for the IMF and World Bank encouraging them to provide non-dividend investments instead of the current loan programs as part of their aid policies. If executed through investment (IPOs, shareholding) rather than loans, this measure eliminates issues of repayment, structural adjustment etc.
For 13 years, I have been leading CDI, one of Latin America's most successful NGOs. I have had the chance to interact with organizations such as Ashoka, Avina, the Skoll and Shwabb Foundations, and individuals such as Pr Muhamed Yunus and other leading social entrepreneurs from all around the world, and learn about their initiatives. I believe that the social entrepreneurship sector has matured tremendously and is ripe to make this transition. Why don't we, the Young Global Leaders, work together to create a new future for social businesses?