Social Development Through Benevolent Business

Kalyan Sankar Mandal

• Publisher: Business Expert Press
• Year: 2018
• ISBN:
  9781631576737
• Topic: Business
• Subtopic: Business generale
• Index: Business

This book points out that apart from usual "profit- maximizing business, ", there are some other types of business models which that serve social causes with profit. The author discusses some such business models, namely, social business, compassionate business, microfinance-based business, cooperative business, bottom- of- the- pyramid business, and social welfare business. The common point of all these business models is that they alleviate poverty and promote social development in a self-sustaining manner. The text identifies the main principles followed by these business models and suggests principles of benevolent business. Thus gives an idea about how to design a successful benevolent business. The author argues that along with the government and the NGOs, which are presently expected to meet the social developmental needs of the people, benevolent businesses should be promoted for fulfilling the social developmental needs. Such steps will endow social development and promote efficiency in meeting social developmental goals.

CHAPTER 1

Introduction

Business and Social Development

How is “business” related to poverty alleviation and social development? According to one school of thought, the expansion of business activities leads to the generation of employment and income thus, contributs to the removal of poverty and promots social development. A business may pursue the goal of earning profits. However, this very process may indirectly contribute to poverty alleviation and social development. On the contrary, critics of this school of thought point out that the expansion of a business may generate income and wealth to only those who own the business or form the capitalist class, and does not help in removing poverty. According to these critics, in a capitalist society, business involves the exploitation of the working class by the owners of the business or the capitalist class. Thus, the rich become richer and the poor become poorer, resulting in inequality, poverty, and other social problems. Set in this backdrop of conflicting thoughts, this book will discuss a different type of business, a business aiming at poverty alleviation, solving social problems, and promoting social development, while also seeking profits.

It is commonly assumed that promoting social development is one of the primary responsibilities of the government. Apart from the government, nongovernmental organizations or NGOs also contribute in promoting the development of the society. However, the NGOs are seen to play only a limited role in promoting social development in comparison with the government. We put forth the fact that apart from the government and the NGOs, some forms of businesses can also play a key role in alleviating poverty and promoting social development.

In capitalist societies, the primary goal of a business is to earn and maximize its profits. Hence, it is difficult to imagine how such a business with the goal of maximizing its profits could contribute to removing poverty and promoting social development. In this context, it is often argued that the profit-maximizing goal of the business exploits workers, causing poverty unfortunately.

On the other hand, we argue that not all businesses aim at only maximizing their profits. Furthermore, profit-maximizing businesses need not be the only type of business that exists today. A comforting fact is that there are some types of businesses that also aim at promoting social development. We are not referring to merely economic development, but are also referring to development in a much more broader sense that we will term as “social development.” Thus, in proceeding with this viewpoint, an introduction to the forms of businesses that aim at social development and an elaboration of the concept of social development are required.

1.1 Business Models for Social Development

Businesses provide goods and services to their customers for an amount of money. Meanwhile, they earn a profit out of such transactions and also focus on maximizing their profits. In capitalist societies, most commonly, a business is privately owned. At times, in capitalist societies, the state may own a business to provide goods and services to its people. Though, in general, profit maximization is the main goal of any business, the state may, at times, run a business primarily to serve a social cause.

However, despite serving a social cause, any business needs to be profitable to exist without hassles. To set up a business, one needs capital. Businesses, most commonly, raise their capital by selling shares in the market. In the light of selling shares, a business needs to make a profit so that it would be in a position to give dividends to its shareholders. Thus, businesses strive to maximize their profits, so that they can provide higher dividends to their shareholders. This is the most widespread concept behind conducting a business in a capitalist society. Thus, in a capitalist society, a business needs to be and is run with the goal of profit maximization.

Now, let us look at another perspective. Usually, the government and the NGOs are the entities engaged in promoting social development. As the government and the NGO sectors do not compete in the market, they are usually run less efficiently than the businesses that face stiff competition.

It has been unfortunately observed that businesses run efficiently, so as to be able to thrive amidst high competition in the market, are not engaged in any form of social development. If only the efficiently run businesses focus on promoting social development as well, then social development outcomes are likely to be better. We also find that businesses primarily being exposed to the high competition in the market and, hence, run efficiently for survival are likely to be more capable of promoting social development as compared with the government and the NGO sectors.

Capitalism assumes that human actions are guided by narrow self-interest. However, we agree with Yunus (2008, 39–40) in pointing out that this assumption whereby human beings are only governed by self-interest is not entirely correct. Although self-interest impacts human beings majorly, they also are capable of acting in ways to serve others. This concept is highlighted by the way NGOs aim to cater to the people.

Nonetheless, we are of the opinion that organizations can be run with the goal of serving a social purpose too. Also, in the process of serving society, they have the prospects of remaining competitive, being profitable, and generating surplus and thus, being run in a self-sustaining manner. These organizations are examples of businesses of a different form. They vary markedly from the businesses that are concerned only with maximizing profits. For these organizations, the primary goal is serving a social cause while also being able to generate profits, which helps them to remain successful. It must be kept in mind that profit-making is not the primary goal of these organizations, but generating a surplus is equally important for their sustenance.

We have discussed some examples of these types of businesses. By calling them a business, we highlight the fact that being self-sustaining is as much a main goal to them as is serving society. These businesses serve society through their operations, while also generate a surplus for self-sustinance or more. Among such businesses, there are various types. There is the example of a “social business,” which primarily aims at serving a social cause in a self-sustaining manner. Any profit earned does not go to any individual, but is made use of to serve the social cause better (Yunus 2008, xvi). Furthermore, there is an example of a “business focusing on compassion” which tends to serve a social cause. For this, they resort to novel innovations and framing appropriate policies enabled them to serve the social cause more efficiently in a self-sustaining manner, while also generating a profit. Then, there is the example of a micro-enterprise sought by the poor to make use of the microcredits to alleviate their poverty. Here, the business aims at alleviating poverty by enablining the poverty-struck owners of the business generate an income. There are also examples of “cooperative business,” which often aim at alleviating poverty by forming cooperatives. Moreover, there exist businesses that aim at maximizing profits like any other enterprise, but also orient their business strategy to provide goods and services to those who are at the “bottom of the income pyramid” (BOP) or are poor. This enables them to earn a profit and alleviate poverty as well. Also, there are examples of “social welfare business” providing welfare services to the society, while conducting business in the regular manner for profit.

Thus, we argue that there exist certain types of businesses that are different from businesses maximizing their profits alone. Such businesses that care for the underprivileged too not only serve a social cause, but are also able to generate a profit to help keep themselves self-sustaining. We will be discussing examples of this particular type of businesses and show how these businesses are capable of promoting social development through self-sustinance or profit.

1.2 What Is Social Development?

Although in the literature of the social sciences, the day-to-day vocabulary of the layman, and in the promises made by politicians, the term “development” is often used, the real meaning of the term is not always very comprehensible. The term “development” has been defined and redefined time and again. Below I mention some of the instances of defining development.

Most commonly, economic growth, expressed as the increase of per capita income, is taken as the most important indicator of development by the economist (Ingham 1993, 1803). One important advantage of taking economic growth as an indicator of development is that it can be easily measured. Thus, it is possible to compare the growth of the economy of one particular year with that of the previous years. Similarly, the rates of growth of different countries can be compared and some judgment can be passed on whether a country is developing or not. That is why economic growth remains an important criterion in understanding development.

However, it was sooner or later realized that economic growth by itself is not the best indicator of development. Development necessitates that economic growth is accompanied by some other types of growth changes such as technological transformation of agriculture, industrialization, urbanization (Hunt 1989, 61), growth of bureaucratic organizations, shift from authoritarian to more democratic structures, and a changing focus from religion to a more scientific and secular worldview (Ingham 1993, 1806). Often these criteria have been taken into account to depict modernization of a society (Singh 1973, 191). Thus, development implies both economic growth as well as “modernization” of the society giving due importance to the above-mentioned criteria.

In the late 1970s, the perception of development was broadened further. Indicators of development were not just growth and modernization. Apart from growth and modernization, emphasis shifted to include redistributive growth or growth-with-equity as well. A redistributive growth of income and wealth was considered as desirable for development (Arndt 1983, 1). In other words, meeting the basic needs of the people became one important concern of development (Hunt 1989, 262).

However, subsequently, redistributive growth was not the sole focus. Terms such as “capabilities” and “entitlements” of people were also emphasized on (Sen 1983, 745). Thus, it has been argued that development should not only incorporate a redistributive growth of income, but also allow all citizens to obtain access to basic amenities of life such as education, health care, income, and employment (UNDP 1992, 2). Soon, emphasis shifted from economic development to overall human development.

Ever since the publication of the World Commission on Environment and Development (Brundtland Commission) Report, the concept of sustainability has become another important aspect that is being incorporated in defining development. Sustainable development has been defined by the Brundtland Commission (1987, 43) as “development that meets the needs of present generation without compromising the ability of future generation to meet their own needs.” Since 1992, Sustainable Human Development also became the official development paradigm of the UNDP. Sustainable development in mainstream thinking means little more than a mere environmentally conscious development.

As Goulet (1992, 496) has rightly pointed out, development is still operationally considered as the equivalent of “maximum economic growth and a drive towards industrialization and mass consumption.” However, development, in these forms is not entirely sufficient. For instance, it has been observed that despite achieving striking economic and technological progress, in the United States, “uncertainties and anxieties are high, social and economic inequalities have widened considerably, social trust is on the decline, and confidence in the government is at all-time low.” Economic prosperity in the United States failed to increase the self-reported happiness of its citizens (Sachs 2012, 3). It is observed (Thinley 1999,16) that “. . .beyond a level, an increase in material consumption is not accompanied by a concomitant rise in happiness”. This becomes particularly prominent when development is measured in terms of increased human wellbeing instead of increased per capita income.

Thus, Bhutan has proposed and incorporated a concept of Gross National Happiness as the guiding philosophy of its development in place of indicators like the Gross Domestic Product (Hewavitharana 2004, 496–497). It proposes that the goal of development is to increase social happiness. Thus, the Bhutanese developmental approach consists of a set of policies that include: (1) economic self-reliance, (2) environmental preservation, (3) cultural promotion, and (4) good governance, aiming at enhancing the Gross National Happiness (Thinley 1999, 16).

Time and again, development has found various definitions. The concept of development has now come to incorporate factors such as changes in the society promoting economic growth, structural changes in terms of modernization, distributive growth, human development, sustainable development, and, most importantly, the collective happiness of the society. Thus, development is not merely an economic concept. The concept of development incorporates aspects that are economic as well as noneconomic in nature. To indicate the above-mentioned economic and noneconomic aspects of “development,” we will use a term “social development.”

1.3 Why Social Development Is Important?

Social development is one of the basic entitlements of all human beings. Thus, promoting social development has its own intrinsic value. Promotion of social development is also important for attaining economic development. For instance, if the members of a society are healthy and possess basic education, then that society is likely to be better placed for economic development due to the human resources enjoying better standards of living. At the same time, enhancing the surplus-generating capability of economic development with the help of healthy and better educated human resources will enable economic development to provide better funding for social development. Thus, social and economic development act complementary to each other (Sen 2003, 6–7).

1.4 Limited Affordability of the Government for Social Development

It is the responsibility of the government to fulfill the social and economic needs of all its citizens. Developed nations can fulfill the social and economic needs of their citizens to various degrees. However, the developing nations often fail to meet even the basic economic and social needs of the people. One important reason for this is that governments in developing countries often may not be able to meet the expenses of providing basic economic and social amenities to all its citizens. Non availability of funds in the government exchequer is often cited as a primary reason for the same. One solution for this problem is to find out ways to meet the social developmental needs of the people in a self-sustaining manner.

1.5 Business and Social Development

Beneficial Role of Profit-maximization Business

By business we commonly refer to what Muhammad Yunus has termed as “profit maximizing business” or which we may also refer to as “commercial business.” Proponents of capitalist philosophy argue that the best solution for poverty is to allow business to flourish which by itself will solve the problem of poverty. The founding father of capitalism, Adam Smith (1937, 508; org.1776), for instance, argued that the individual pursuit of self-interest helps the entire society to prosper. From narrow self-interest comes, to use Smith’s famous phrase, “greatest good of the greatest number of people.” Thus, it may be argued that under an ideal capitalist economy, the problem of poverty will eventually be resolved through a commercial business model. Hence, the question of government playing a role in alleviating poverty does not arise.

We mention below some other arguments highlighting the poverty-alleviating role of the commercial business model. For instance, Brainard and LaFleur (2006, 1–28) in their article “The Private Sector in the Fight against Global Poverty” argued as follows on how the private sector can play a role in solving the problem of global poverty.

Firstly, they argue that by playing a very vital role in the development of the economy, the private sector provides income and employment to people. It makes goods and services available to people. “By generating jobs, serving the underserved, promoting innovation and spurring productivity, indigenous private sector development can raise living standards and promote opportunity.”

Secondly, they argued that a free play of market forces and increased competition make goods and services cheaper, benefiting poor as well as the rich.

Thirdly, they point out that the private sector being the major source of tax revenue supports social services like healthcare and education.

Fourthly, it is argued that microenterprise improves the lives of the poorest members of the society and “can provide bottom-up growth and innovation, while large nationals and multinationals can link markets to broader, global opportunities.”

Brainard and LaFleur (2006) further argue that to address the problem of global poverty what is required is empowering businesses to do business in the developing world. Here, the fundamental questions they ask are: “How can the climate be improved for private enterprise in developing countries?” “How can more private capital investment be channelled to poor countries?”

In fact, with the initiation of the economic reforms, developing countries are addressing these questions. There have been attempts by governments in developing countries to facilitate investment by the private sector a...