Reimagining capitalism: The new bottom line

How business can better serve humanity

From the paper ‘Microeconomic Development and Social Enterprise – a ‘Marshall Plan’ for Ukraine 2006

‘ In order to understand the overwhelming critical need for social enterprise and a formal national center to facilitate social enterprise, an operational definition for social enterprise is essential.

‘Enterprise is any organizational activity aimed at a specific output or outcome. Once the output or outcome – the primary objective – is clear, an organization operating to fulfill the objective is by definition an enterprise. Business is the most prominent example of enterprise. A business plan, or organizational map, provides a reference regarding how an organizational scheme will operate to produce a specific outcome: provision of products or services in a way to create profit. Profit in turn is measured numerically in terms of monetary gains, the “bottom line.”

This is the function of classic capitalism, which has proven to be the most powerful economic engine ever devised.

An inherent assumption about capitalism is that profit is defined only in terms of monetary gain. This assumption is virtually unquestioned in most of the world. However, it is not a valid assumption. Business enterprise, capitalism, must be measured in terms of monetary profit. That rule is not arguable. A business enterprise must make monetary profit, or it will merely cease to exist. That is an absolute requirement. But it does not follow that this must necessarily be the final bottom line and the sole aim of the enterprise. How this profit is used is another question. It is commonly assumed that profit will enrich enterprise owners and investors, which in turn gives them incentive to participate financially in the enterprise to start with.

That, however, is not the only possible outcome for use of profits. Profits can be directly applied to help resolve a broad range of social problems: poverty relief, improving childcare, seeding scientific research for nationwide economic advancement, improving communications infrastructure and accessibility, for examples – the target objectives of this particular project plan. The same financial discipline required of any conventional for-profit business can be applied to projects with the primary aim of improving socioeconomic conditions. Profitability provides money needed to be self-sustaining for the purpose of achieving social and economic objectives such as benefit of a nation’s poorest, neediest people. In which case, the enterprise is a social enterprise.’

In the conclusion, the paper says:

‘This is a long-term permanently sustainable program, the basis for “people-centered” economic development. Core focus is always on people and their needs, with neediest people having first priority – as contrasted with the eternal chase for financial profit and numbers where people, social benefit, and human well-being are often and routinely overlooked or ignored altogether. This is in keeping with the fundamental objectives of Marshall Plan: policy aimed at hunger, poverty, desperation and chaos. This is a bottom-up approach, starting with Ukraine’s poorest and most desperate citizens, rather than a “top-down” approach that might not ever benefit them. They cannot wait, particularly children. Impedance by anyone or any group of people constitutes precisely what the original Marshall Plan was dedicated to opposing. Those who suffer most, and those in greatest need, must be helped first — not secondarily, along the way or by the way. ‘

It was the major and final work of founder Terry Hallman whose efforts began with a seminal paper for the President of the United States and led to the creation of a business for social purpose which leveraged a community micro finance bank in Russia. P-CED established in the UK in 2004.as a business serving both private and public sector supply chains with it’s software products and services.        ,

In You, Me, We, Ethics and People-Centered Economics, I relate how the concept evolved from an argument for the primacy of human beings over profit and numbers.

In 2004, it had been introduced to British Government and the social enterprise community, saying:

Dealing with poverty is nothing new. The question became ‘how does poverty still exist in a world with sufficient resources for a decent quality of life for everyone?’ The answer was that we have yet to develop any economic system capable redistributing finite resources in a way that everyone has at minimum enough for a decent life: food, decent housing, transportation, clothing, health care, and education. The problem has not been lack of resources, but adequate distribution of resources. Capitalism is the most powerful economic engine ever devised, yet it came up short with its classical, inherent profit-motive as being presumed to be the driving force. Under that presumption, all is good in the name of profit became the prevailing winds of international economies — thereby giving carte blanche to the notion that greed is good because it is what has driven capitalism. The 1996 paper merely took exception with the assumption that personal profit, greed, and the desire to amass as much money and property on a personal level as possible are inherent and therefore necessary aspects of any capitalist endeavour. While it is in fact very normal for that to be the case, it simply does not follow that it must be the case.

Profits can be set aside in part to address social needs, and often have been by way of small percentages of annual profits set aside for charitable and philanthropic causes by corporations. This need not necessarily be a small percentage. In fact, there is no reason why an enterprise cannot exist for the primary purpose of generating profit for social needs — i.e., a P-CED, or social, enterprise. This was seen to be the potential solution toward correcting the traditional model of capitalism, even if only in small-scale enterprises on an experimental basis.

Enterprise for the primary objective of poverty relief, localized community economic development, and social support became the business model which guided P-CED’s efforts and development at a time in the US when terms such as ‘social enterprise’ and ‘social capitalism’ had not yet been coined.

Traditional capitalism is an insufficient economic model allowing monetary outcomes as the bottom line with little regard to social needs. Bottom line must be taken one step further by at least some companies, past profit, to people. How profits are used is equally as important as creation of profits. Where profits can be brought to bear by willing individuals and companies to social benefit, so much the better. Moreover, this activity must be recognized and supported at government policy level as a badly needed, essential, and entirely legitimate enterprise activity.”

Though some aspects of this recomendation were addressed by the introduction of the Community Interest Company in 2005 and the Social Value Act in 2013, two major components, localisation and human rights, were overlooked.

The cencept of a business operating for the benefit of the community was first described in the 1996 white paperm which said:

“The P-CED concept is to create new businesses that do things differently from their inception, and perhaps modify existing businesses that want to do it. This business model entails doing exactly the same things by which any business is set up and conducted in the free-market system of economics. The only difference is this: that at least fifty percent of profits go to stimulate a given local economy, instead of going to private hands.”

“If a corporation wants to donate to its local community, it can do so, be it one percent, five percent, fifty or even seventy percent. There is no one to protest or dictate otherwise, except a board of directors and stockholders. This is not a small consideration, since most boards and stockholders would object.  But, if an a priori arrangement has been made with said stockholders and directors such that this direction of profits is entirely the point, then no objection can emerge. Indeed, the corporate charter can require that these monies be directed into community development funds, such as a permanent, irrevocable trust fund. The trust fund, in turn, would be under the oversight of a board of directors made up of corporate employees and community leaders. “

“It is only when wealth begins to concentrate in the hands of a relative few at the expense of billions of others who are denied even a small share of finite wealth that trouble starts and physical, human suffering begins. It does not have to be this way. Massive greed and consequent massive human misery and suffering do not have to be accepted as a givens, unavoidable, intractable, irresolvable. Just changing the way business is done, if only by a few companies, can change the flow of wealth, ease and eliminate poverty, and leave us all with something better to worry about. Basic human needs such as food and shelter are fundamental human rights; there are more than enough resources available to go around–if we can just figure out how to share. It cannot be “Me first, mine first”; rather, “Me, too” is more the order of the day.”

The first action was to share this concept with the committee to re-elect the US President in 1996 and then publish online free to use. In 2009, at the international Economics for Ecology conference in Sumy, this point was made:

“Thus the issue of ecology economics is not only ‘the third bottom line’, it might be more aptly renamed the economics of survival of the human species.  That includes everyone, regardless of one or another economic hypothesis or theory they might prefer.  We can endlessly debate and discuss von Mises/von Hayek free market economics/capitalism which proved successful except for the times it failed, and then study why it failed – repeatedly, the most recent failure in September 2008.  We can endlessly debate and discuss opposing Keynesian government interventionist economics/capitalism,  which proved successful except for the times it failed.  That has been an alternating pattern for the past eighty years in Western capitalism.  We can discuss the successes and failures of various flavors of communism and fascism.  At this point, the simple fact is that regarding economic theory, no one knows what to do next.  Possibly this has escaped immediate attention in Ukraine, but, economists in the US as of the end of 2008 openly confessed that they do not know what to do.  So, we invented three trillion dollars, lent it to ourselves, and are trying to salvage a broken system so far by reestablishing the broken system with imaginary money.

Now there are, honestly, no answers.  It is all just guesswork, and not more than that.  What is not guesswork is that the broken – again – capitalist system, be it traditional economics theories in the West or hybrid communism/capitalism in China, is sitting in a world where the existence of human beings is at grave risk, and it’s no longer alarmist to say so.

The question at hand is what to do next, and how to do it.  We all get to invent whatever new economics system that comes next, because we must.”

P-CED began as a challenge to traditional capitalism and would lead on to challenge organised crime over human rights. It would finally challenge the governments and politicians who put personal benefit above that of “those in greatest need”.

The primary focus of P-CED became the removal of children from neglect in state institutions, for Muhammad Yunus and Grameen Danone it is the number of children removed from malnutrition.

Social business is “All about others, nothing about me

In his speech Yunus also refers to the 47 million Americans without health insurance. P-CED founder Terry Hallman was one of them

Though we may have re-imagined capitalism, as Martin Luther King Jr once said ‘our lives begin to end when we become silent about things that matter’  and when we are silenced by others, many lives are ended.

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Re-imagining capitalism for people and planet

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What Ethical Trading Initiative?

That was my immediate thought on reading a Guardian article assessing the impact of business on child rights following a live discussion session.

Developed by Unicef, the UN Global Compact and Save the Children, the children’s rights and business principles (the Principles) were designed to help companies incorporate child rights into their practices. With an increasing focus on the social and environmental impacts of business, we gathered a group of experts to discuss how businesses can make the shift from reactive to pro-active when supporting child rights.

As a social business with childcare reform as a primary objective, I might have commented were it possible.

Regrettably I’m blocked from commenting on the Guardian after commenting on an earlier article about ‘Creating Shared Value’ where ironically, I’d given the issue of childcare reform as an illustration of profit for a social purpose rather than what the article advocated, profit from a social purpose. Was it the author or the Guardian who didn’t want to engage?

When I first wrote, Changing Capitalism For People and Planet in 2011,  our founder Terry Hallman was still alive. I offered it first to the Guardian editors for social enterprise and sustainable business.  It ended up as an article for a McKinsey initiative the following year.

After his death, in Every Child Deserves a Loving Family, I’d described how his efforts had influenced goverment policy and led to a 40% increase in domestic adoptions. It had begun buy speaking out about neglect, in ‘Death Camps , For Children’

Just days ago, I was in conversation with a DTI representative on a social networking forum. I referred her to my report on ‘Social Enterprise in Ukraine‘ which revealed our interaction with both US and UK government agencies on our work.  It would reveal how Unicef had turned a wilful blind eye, USAID had no budget for “retarted children” and the British Council, working with USAID and corporate partners had been approached with our proposals and determined to set up a social enterprise project of their own.

I’ve also described how both Ukraine’s constitution and the International Covenanant on Economic Social and Cultural Rights compel us to act where there is harm being done to children and how business membership organisations like the British Ukrainian Society and Business in the Community, locked us out and aligned themselves with Ukraine’s moguls, in the vested interest of trade.

At the top of the festering pile the UK business and EU trade minister of the time, would be found.

So where in all of this does an Ethical Trading Initiative come in?  It is a club who’d have us as members?

Apparently yes, if I pay 900 quid.  And then what, read articles on how to suck eggs, or actually do something?

You’ll forgive me for seeing this as the puffery of a rostrum clinging elite, after a colleague and many children lost their lives,  when they couldn’t be found.

Replicate or Scale?

It might well be a strategy for planetary iinvasion.  Do I replicate the agreeable human form or just show up as my scaly self and hope to be loved for what’s inside.

But no, we’re talking about social enterprise.

I guess when we told them our mission was to “replicate localised people-centered economics on a global basis”  it must have sounded a bit on the scaly side, but we really meant no acquisition. Quite the converse in fact.

It was in fact about a business which invests its profit in stimulating a local economy and in our earlier work we’d referred to it as a Community Funding Enterprise.  The directors and shareholders just needed to amend the business articles to agree the core objective as a social purpose.

 

 

 

 

Profit for social purpose

The matter of using profit for a social purpose arose recently in the context of the Social Value Act. A conversation on the Social Enterprise Mark group. started by Anne Mountjoy who I correspended with directly about our own work in this area 5 years ago. I referred to “our services as a profit for social purpose business” aka people-centered economic development,  saying

“One of the reasons we migrated our social purpose to Ukraine is that at the time when we brought the P-CED profit for purpose model to the UK, there was absolutely no response from those advocacies that existed at the time. Even to the point of failing to get a reply from Baroness Thornton of the SEC in a letter delivered to her at the House of Lords.”

The Linked discussion on social investment is one of the many conversations I can’t participate in because this forun is one of those that will not approve my comment on the current conversation about social investment.  It was interesting to read what Pope Benedict wrote on this subject in his 2009 encyclical, ‘Caritas in Veritate’

‘This is not merely a matter of a “third sector”, but of a broad new composite reality embracing the private and public spheres, one which does not exclude profit, but instead considers it a means for achieving human and social ends. Whether such companies distribute dividends or not, whether their juridical structure corresponds to one or other of the established forms, becomes secondary in relation to their willingness to view profit as a means of achieving the goal of a more humane market and society’

‘Striving to meet the deepest moral needs of the person also has important and beneficial repercussions at the level of economics. The economy needs ethics in order to function correctly — not any ethics whatsoever, but an ethics which is people-centred.’ .

As an agnostic, I’m reliably informed that it’s about “the authentic development of every person and of all humanity

I aligned very well with the business plan for people-centered economic development which was distrbuted to the social enterprise community in 2004 and said:

“Traditional capitalism is an insufficient economic model allowing monetary outcomes as the bottom line with little regard to social needs. Bottom line must be taken one step further by at least some companies, past profit, to people. How profits are used is equally as important as creation of profits. Where profits can be brought to bear by willing individuals and companies to social benefit, so much the better. Moreover, this activity must be recognized and supported at government policy level as a badly needed, essential, and entirely legitimate enterprise activity.”

The ‘profit for purpose’ business model as we concieved it, was distributed from 1996 onward free for others to use.

Now, this is what Lucy Findlay says in her blog on the matter of certification.

“So why not self-certify after all it’s quicker, cheaper and potentially more accessible?

Easy accessibility is its key downfall. It does not protect integrity, it is inconsistent and is open to self-interpretation and in the worst cases, abuse.

Having run the Social Enterprise Mark since the beginning, we have developed the criteria in partnership with the sector and have protected and owned these criteria fiercely. It is our experience that interpretation of the criteria is a technical job and not easily carried out by anyone. We are constantly learning about new forms of social enterprise and the way that they operate. Our Assessment Manual has taken years of work to develop and our certification panel has taken its job very seriously in developing those precedents which have been set.:”

Is it possible for one to “protect and own” what someone else has shared with you freely?

All that was available to us in terms of certification was ‘See What You Are Buying In To’ which has more recently been rebranded as ‘Profit through Ethics’. A costly exercise for a small business which brought no business at all, not even an enquiry. I also approached B Corps with a view to collaborate. They were unable to extend to our shores.

What we were attempting to “protect and own” was not a model but the sum of our investment and labours over many years. Protection not for our own benefit but for benefit of those in greatest need, as I’ve descrribed earlier.

By 2009, when Social Edge hosted the discussion about building the social economy, my colleague was battling for his own life and that of thousands of the most needy. He wrote about the need to protect IP for social benefit:

https://economics4humanity.wordpress.com/2012/10/02/do-we-need-ethics-in-social-investment/

It was he, who from the beginning, had warned about the risk from the unscrupulous and here we are today, with a suggestion that we are among the unscrupolous in not signing up with one of many organisations who declined our offer to collaborate.

This is not safeguarding or propagating the social economy it is brand building. Whether by means of excluding others from conversation or referring to anonymous defamation, to allude to some kind of malpractice, it is building of reputation and income at the expense of others and perhaps even at the expense of their lives.

Every Little Helps

Tesco’s corporate slogan provides immediate identification and yesterday, I discovered staff at my local store were supporting a charitable cause – by dressing up as superheroes in support of Cancer Research UK.

There is without doubt, a shift in business attitude toward support of the community.  In the past such a campaign might have been permitted to collect outside the door. Now it’s a dimension of doing business.

Because of my own involvement, I know also that Tesco has formed a partnership with Grameen Bank to create a social business. It will provide microfinance lending to some of the most impoverished regions of Scotland.

I run a social business which began with a microfinance initiative for impoverished people overseas. I also have cancer, leukaemia to be specific.

Thinking further about Tesco,  I was reminded that a few months ago I’d been without transport and taken a bus to the local town for a dental appointment. When it came to returning however, there was the prospect of more than two hours wait. I though – I’ll walk up to Tesco, there’s bound to be someone from the village I can hitch a left from. There was.

I began to ask – Is Tesco really helping ?

The primary focus of my own social business are children institutionalised because they’re considered imperfect and I was reminded recenty of an interview my colleague gave to a Canadian magazine before he died. He spoke of social business partnership saying:

“The funds will be directed to concluding a project in the Ukraine which involves funding the training of residents to develop social businesses. Included in this work is supporting children who have disabilities, many of whom have been left to die in secretive locations. P-CED is helping to move these children to safety and give them access to modern healthcare.”

Ironically as an American without health insurance, he died as a consequence of poverty.while I faced my own challenge and the despair of not being able to help him or the children he spoke of.

It isn’t easy to talk about cancer. Wanting on one hand not to reveal one’s vulnerability, while at the same time being in great need of social engagement – someone to talk to.

If I want to speak to someone in my village, I can go into town and find them in Tesco.

The greatest fear becomes  exposing oneself and seeing the trapped look  of someone saying that they ‘don’t have time’.

I did get to speak to Wonder Woman yesterday, advising her on the spinning technique (on TV we never saw how she spun back to being normal)  and then the part-time checkout girl. I asked why she and others weren’t in costume and learned that the staff had to buy their own. She couldn’t afford it from what she earned.

In spite of all this ‘social’ activity it seems, we are so many at a distance from each other.

What’s your definition of social business?

This was the question I asked a business network 3 years ago.   As I’d observed,  the concept of social business advocated by Muhammad Yunus, of business with a primary social goal had been circulating since publication of his book on Creating a World Without Poverty  in 2007 and earlier in a presentation paper, which claimed ‘Social Business Entreprenuers are the Solution’

Let me first offer 3 broad definitions:  A social entrepreneur is someone who applies business solutions to a social problem and is supported by foundation grants and stipends. Social enterprise is a business which invests the majority of  its surplus in a social objective but may also be supported by grants.  Social business is a self-sustaining, non dividend distributing business with a primary social purpose.

In 2008, I started the Linkedin group on Social Business and For Benefit Corporations,  which was aligned with the Linkedin definition, though many of those self-ascribing this as a skill seemingly had no connection.

Another interpretation was developing however, that of social media business rather than social purpose business and IBM seemed to be in the driving seat.

Our founder who died in 2011 had an anecdote about IBM .  Apparently after he’d started to distribute his paper on business for social benefit in 1996, two guys from IBM showed up at the restaurant he frequented. They’d sought him out with the aim of deconstructing his work and discovered he was no pushover. Apparently he’d turned it around on them so severely, that one of them left in tears.

THINK IBM was not only a corporate slogan.  It also became an item of desk furniture in the 70s and 80s,  in case anyone thought outside their particular box, their mantra that ‘nobody got fired for buying IBM’

In his 1996 paper, Terry Hallman described how the dawning Information Age, presented an opportunity to share information and develop business and economics for the benefit of humanity, concluding:

Just changing the way business is done, if only by a few companies, can change the flow of wealth, ease and eliminate poverty, and leave us all with something better to worry about. Basic human needs such as food and shelter are fundamental human rights; there are more than enough resources available to go around–if we can just figure out how to share. It cannot be “Me first, mine first”; rather, “Me, too” is more the order of the day.

in 2008, asking “what is social enterprise?” he’d said:

“There is so far no commonly agreed definition. Is an enterprise social if it produces some sort of social benefit? If so, in that sense, many or indeed most traditional businesses for profit can be considered social enterprises. Business enterprises typically produce something of value for clients and customers, otherwise they would cease to exist as business enterprises. Earning thousands or millions of customers can by definition be considered social benefit. Social refers to groups of people, as contrasted with one person. If a company produces a product or service, it has to benefit a group of people sufficiently for them to use that product or service. Owners and stockholders benefit from financial profits gained by the enterprise. Stockholders range from individuals owning relatively large percentages of a company to ordinary pensioners relying on income from micro-investments into the company. Profits from almost any large public corporation are shared among wealthy individual stakeholders to humble, modest households who have holdings in the company through an array of mutual funds managed by government-regulated financial managers.”

Today, as if IBM has suddenly come round to realise that it’s not just about social media, an article in Fast Company magazine bears the headline ‘Move over Social Media: Here Comes Social Business.

It’s still about traditional capitalism, however and the maximisation of profit.

Id comment on the Fast Company article but the site tells me that I’m blocked from making a new comment. They’ve already realised that I differ greatly on this issue and the way to force their view is to control rather than share infomation. It takes me back  to a paragraph from the 1996 paper:

As Alvin Toffler predicted in Power Shift, where once violence and then wealth were dominant forms of power, information is now becoming the dominant power. Those nations with the greatest freedom of information and means of transmitting it have now become the most powerful and influential, and the strongest economically. Toffler also predicted the collapse of the Soviet Union would come about due primarily to its authoritarian control and limiting of information. Unfortunately for Russian citizens, this old habit has continued for them beyond the collapse of the former Soviet Union and will at the least make an interesting case study on the survivability of a once strong nation which still remains committed to limiting and controlling information.

My concerns  3 years ago,  that business with tradirtional profit maximising objectives would undermine the concept of social business are now being echoed within the EU where recently it was observed that:

“They rebranded themselves as social innovators and entrepreneurs because these are the new tags to get the ears and funding of Brussels. The Commission ended up opening the floor to every stakeholder claiming a place at the table.”

This is more than a little ironic since within the EU itself a group of  ‘experts’   described as GECES seem to have branded themselves  as arbitrators.  Their definitions,  EU Commissioner Barnier claims, have been made through ‘high level’ consultations  None appear to be idenfiable as practitioners  of social business however.

In 2011, I included the description and history  of our P-CED business model in an application for the EU sponsored  social business competition in Naples.

Aside from definitions, there’s also the concept of forward investment in an  EU Social Entreprenuership Fund (EUSEF), a concept proposed in our 1996 white paper, our 2004 business plan and more relevantly, the  proposal for microeconomic development and social enterprise, I submitted to the EU Citizens Consultation in 2008.

Commissioner Barnier claims, in spite of our own transparency,  that he was not aware of our work, that these concept have evolved in the last decade from various sources.  He cannot seem to offer any example.   A year on from his suggestion of  “a fruitful collaboration on these matter in the future”  there is no indication that this can ever be expected.

Does George Monbiot want people-centered economics?

I wondered, seeing this video for the first time today:

It seemed to resonate with people-centered economics.

“Dealing with poverty is nothing new. The question became ‘how does poverty still exist in a world with sufficient resources for a decent quality of life for everyone?’ The answer was that we have yet to develop any economic system capable redistributing finite resources in a way that everyone has at minimum enough for a decent life: food, decent housing, transportation, clothing, health care, and education. The problem has not been lack of resources, but adequate distribution of resources. Capitalism is the most powerful economic engine ever devised, yet it came up short with its classical, inherent profit-motive as being presumed to be the driving force. Under that presumption, all is good in the name of profit became the prevailing winds of international economies — thereby giving carte blanche to the notion that greed is good because it is what has driven capitalism. The 1996 paper merely took exception with the assumption that personal profit, greed, and the desire to amass as much money and property on a personal level as possible are inherent and therefore necessary aspects of any capitalist endeavour. While it is in fact very normal for that to be the case, it simply does not follow that it must be the case.”

Predistrbution and living wages

Now imagine if the resources to create this kind of video were available to activists and practitioners.

Changing capitalism for people and planet