Friday, January 20, 2006

Social Capitalists

Every January, this is one subject I return to. As you would guess, because there is this Social Capitalist award Fast Company gives out. But, in the core, it is an intriguing concept - worth exploring for anyone seeking to pursue a business career in our time.

So, what is it? Fast Company defines this as business with social impact, though that is a little vague, as any business has some social impact - positive or negative. Another definition attempts to define these as businesses which address a vaccum in the society, but i would think any innovative business attempts to do just that.

I shall rather try a definition by example. Grameen Bank in Bangladesh [and in the world thereafter] is a Social Capitalist kind of a business. It works at the BoP [I hope C K Prahlad had finally managed to take over this acronym and changed it from good old 'Balance of Payments' to 'Bottom of Pyramid'] - providing credits to poor people who are not credit-worthy for most banks. It stands on an innovative business model [the very accurate understanding that the god-fearing poor people, specially women, are better in repayments than resourceful industrialists, and also they can be charged more in interest as the supply of credits are limited, and the need is greater], usually operates at a lower per unit margin, but targets larger target audiences. And yes, it works on a vaccum - not of any other kind but the kind of vaccum left by the failure/ demise of the welfare state.

Many successful businesses of the future will definitely be built on this model. This is an essential aspect of global capitalism in its maturity - it has to now grow beyond the niche and expand into mass, if the essential entrepreneurial spirit of capitalism is to be sustained. It will also bring the growth and demand, as Prof. Prahlad rightly suggests, and keep opening new spaces in the maturing global economy.

Without scaring anyone, let me also mention why this has to happen. With time and technology improvements, the share of return on capital - either in profits or in terms of payment for 'intellectual capital' - is growing, mostly at the expense of the share of wages in the total payout. But this payout for capital is mostly invested in creating capacity, while the wages are usually spent on cosumption. So, the rich economies are somewhat tilted towards creating capacity excess of consumption - save for occassional corrections like an war. Hence, growth in consumption must come from bringing more people into buying from the system [from the informal production, service and exchange arrangements that still persist], by integrating emerging economies, by extending credits to the poor, or by enhancing and integrating their productive capacity - mainly through education and cultural interventions. So, it is natural to expect that growth - and business successes will increasingly come from such ventures, which are led by a new generation of capitalist pioneers, venturing into the new 'Wild West' of global capitalism.

Am I trying to slip in some communism in this? Not at all - the global markets are huge, and there is enormous potential, as Prof. Prahlad pointed out. Marx was foolishly optimistic that this capitalist surplus system will create an intolerable imbalance and reach its limits within a generation or two [and he was writing in 1860s]. He had not even seen cars, the middle classes, software and emerging economies, let alone Social capitalists.

I shall rather follow what another, more farsighted visionary said, this time it is Louis the XIVth, "It will last my time. After me, the deluge."

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