Yunus' Ideas Raise Questions

Project Syndicate has an interesting article from Mohammed Yunus--"The Social Business Revolution". Yunus is a Nobel Laureate who was responsible for popularizing micro-finance in Bangladesh through Grameen Bank. 

Yunus' argument goes as follows:

1. "The persistence of many of the world’s social problems reflects our collective misinterpretation of the idea of capitalism"
2. "As a result, businesses are run for the sole purpose of maximizing profit, and humans are conceived as one-dimensional money-making machines"
3. "There is a missing component in our conception of the economic marketplace: social business"
4. "A social business is a non-dividend-paying company whose entire purpose is to solve a particular social or environmental problem. Shareholders can recoup their initial investment over time, but nothing beyond that. All profits are plowed back into the company to increase its reach or to improve the product or service that it provides"

My comments on Yunus' argument are as follows:

1. One financial crisis is perhaps not sufficient evidence that capitalism has gone awry. Secondly, capitalism has a long history of recovering from financial crisises and then producing considerable social benefits
2. The concept of a social business as defined by Yunus has two shortcomings:

• The scale of "social businesses" to solve problems would be greatly increased by access to traditional financial markets (which is not possible in the "no return" model proposed)
• The size of the pool of funds for investment with "no return" is very limited which suggests that it would not have much impact in terms of scale to solve the big problems

I think the better question for Yunus to consider would be why profit making companies devote so few resources to solving social problems. Most shareholder owned companies could devote much more money to social issues without any dramatic decline in share value. Despite the clarity of the writing of  Milton Friedman and others, maximizing shareholder return is still subject to interpretation.

@John_Menezes sent me the article.