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Similarities and differences between Altruistic Capital and Mohammed Yunus Social Business 23 octobre 2008

Par Thierry Klein dans : Altruistic Capital - in english, Posts in english.
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I’ve been getting quite a few messages telling me about such or such social initiative that took the shape of a company. Social Business, as it’s often called, is progressing and will grow each day more. It’s a serious global trend.

If you don’t look too closely Social Business and Altruistic Capital almost sound like the same thing. Therefore my friends tell me I’m being plagiarized in an intolerable way (by a Nobel Prize Laureate!), less friendly readers simply assume that Altruistic Capital is nothing new (this is their mistake) and that my way to introduce the concept is borderline megalomaniac (this is sometimes true).

But beyond the fact that both social business and altruistic capital are two humanitarian inspired attempts to better the world, which is plenty some would say, there is nothing much in common between the two concepts. They have entirely different takes on ho to act on the world and often in their analysis of the current reality.

What is a Social Business?

A social business has a commonwealth mission at its roots. It’s all about providing financial means to a poor population (micro-finance), bringing electric power to remote areas, reducing malnutrition (I’m using as examples the three social businesses created by the most extraordinary social entrepreneur of our times, Mohammed Yunnus).
In a social business, the economic aspect of the company itself nearly comes second and fades away compared to its altruistic mission. For instance, micro financing is at its origin a humanitarian action and it took years for people to understand it could also be an economically profitable enterprise (which it turned out to be, and this is what makes this a really brilliant idea, however it was nearly an unexpected side-effect).

As stated by Mohammed Yunnus (le Monde 05/25/2008), “Social Businesses are similar to traditional capitalist companies”, but they are no such thing deep down since “They are supposed to generate a social profit for a specific social class” and “working for a company with a social vocation will not provide you with any returns”.

I’ve written several articles on the advantages and downfalls of such a concept. Number one advantage is that all of the company’s partners agree to its humanitarian mission. Such a company (the most common status being cooperatives) is able to bring together a great number of goodwill and energy. It also has a direct impact on society through its actions.

However more often than not making economic concerns second in its priorities makes it hard for a social enterprise to become a serious economic actor. Worse than that it its growth is not linked to the value and progression of its capital and this is one of the main reasons behind the social classes gap we witness today with globalization.

On one hand the world of solidarity, 30% of human activity but 0% of worldwide capital. On the other the economic world that always ends up having the upper hand – Bob Reich, Bill Clinton’s former Labor Secretary thinks this will eventually destroy democracy (he’s an optimistic American), I think this may eventually lead to the destruction of humankind itself and almost everything that matters on earth (I’m a pessimist).

What makes Altruistic Capital different?

With Altruistic Capital, the company’s mission is solely economic.

What makes a company altruistic is simply the fact that part of its capital has been donated to a humanitarian cause. It’s through the structure of its capital that it has a commonwealth impact.

Nothing prevents an altruistic company to additionally set social mission for itself – in fact many do and will do so since social businesses are meant to adopt an altruistic structure (to better develop, find financial means, etc… See the case of Goodaction). However the main point here is the lever and inderection side-effect provided by the participation to the capital. No moral conduct is demanded from the company itself. This is all about using the financial returns of capitalism to fight its worst downfalls, since as explains Yunnus so well, “The system is blind to any other consideration than profit” (Bob Reich’s take: it’s pointless to expect companies to do the ‘right thing’). It’s through the progression of capital that the NGO shareholder will be able to make a difference in the world.

An economic lever to change the world.

I’ve already explained how the impact of Altruistic Capital can outweigh those of social business.

The bottom line of the current problem is economic and the lever provided by capital could be limitless. Any company, a startup, a bank, Total, L’Oreal can someday adopt this structure (under consumers’ pressure or by idealism, or with a very low share of their capital it doesn’t matter).

Altruistic Capital can be applied to the entire economic community and provides non-profit organizations with financial means (to apply towards lobbying, to take action, etc…) adapted and commensurate with the means available to the financial world. It is however very hard to find economically sustainable social business concepts, even if Mohammed Yunnus states that “looking all around us you will find ideas to create a social business”. His creative spirit distorts reality.
In our free-market and globalized world, the chances of survival for a social business are quite slim. Even if a sustainable concept was created a social business often becomes less performant from an economic point of view than a regular company (it sets ethical principals for itself, it donates part of its income…). Its financial structure stops it more often than not from lever much capital.

Our ability to economic interference

On the contrary an altruistic company is by definition efficient on an economic level. Its performance translates into dividends, capital gains that are paid to the NGO shareholders. On the short-term altruistic shareholders may really change the world’s balance, modify the way the market’s Invisible Hand acts. Altruistic Capital perfuses a dose of altruism to the very heart of the free-market.

Many forms of social business are nothing but a sham (nowadays you won’t find a single company that doesn’t dabble in it) . So-called social actions by some companies serve nothing but their sole economic interests (and their budgets are taken from or part of their marketing budgets: see the case of Volvic for instance, even though there are others). Altruistic Capital on another hand provides an unquestionable and measurable level of commitment in the form of the percentage of capital donated by the company.

Altruistic Capital is not a metaphysical enterprise either…

Ultimately all forms of social entrepreneurship share common roots, the first social Christian communities or the Israelian kibbutz of the 50s. Some examples of purely charismatic social enterprises were also brought to my attention (see the economy of communion) however as far as I’m concerned I see such idealistic forms of solidarity as unfortunately doomed over the long term and only valid for small communities.

For this reason, such companies are often the brainchildren of either saints or scammers. Altruistic Capital is cut out for real people, to make a difference in the real world.

Its realm doesn’t belong to some other world.

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