Turning Business into "Agent of Change" In The Lives of Poor

Why are you so rich when I am poor?
Why are you so rich when I am poor? | Source

Poverty is Not a Human Way of Life

Poverty is a global problem, although it is more glaring in the world outside the Western hemisphere. It is weird that even the richest country US that can wage decade long multitrillion dollar wars in different countries has poverty. However, poverty must vanish not because not because poor people are drags on national economies or live in sub-human conditions that make the rich feel awkward or guilty, but because poverty is not the normal way of life for humans.

Given the abundance of natural as well as manmade wealth poverty should not exist. But around 1 billion people survive within $1.25-a-day; they have been labelled “extremely poor” by the world. On the threshold of $2-a-day, over 2 billion humanity faces the curse of poverty.

For all practical purposes, the waves of development don’t reach there easily. There are barriers that keep them away from the processes of development. Ironically, they are the one who need development the most. But, if it is not happening it is clearly a case of misplaced focus.

Over 1 Billion People Live below $1.25-a-day poverty line.
Over 1 Billion People Live below $1.25-a-day poverty line.

Rising Income Inequality is a Global Concern

There is an undercurrent of disquiet particularly in the youth across the world. The “Occupy Movement” and uprisings in Arab countries are notable recent examples motivated in part by an unequal economic global world order which betrays common people.

  • The richest 0.5 percent people of the world hold over 35 percent of the global wealth
  • In nations like the US, Canada, UK and South Africa the inequality has soared in the past 25 years. For instance, in the US the pre-tax income of the richest 1 percent of the population increased from 8 percent to 18 percent of the total income.

Stability and Growth for Poverty Reduction

Unjust Rules of the Business World

If poverty has not disappeared from the rich West despite their awe inspiring accumulation of wealth during the colonial period and massive industrialization, only one conclusion can be drawn – unjust rules of their capital markets.

Clearly, capitalism as practiced today evades the poor because its rules are set in favour of the rich – people with capital. The popular shareholder capitalism works to create wealth only for those who put money in the business – to the exclusion of everyone else, even the employees who must be paid the least to generate maximum profit. This possessive capitalism has created its own rules that make a few rich richer and the rest stay where they are.

The only role poor people have in today’s economic setup is as labor force – cheap labor force, to be more precise – because it makes the products of companies cheap and increase their profitability. In this sense having poverty helps the business owners; without cheap labor their products and services will not be competitive.

As businesses grow bigger they begin to influence governments to create policies in their favour. As a result common and poor people suffer. Even the traditional business wisdom of creating sustainable wealth for the future has little relevance. Today, the focus is on short term profits, this immediate maximization of profits overshadows long term wealth creation. As a result, we see an ugly race for immediate profit in the business world as if there is no tomorrow. And, ironically, they are right – climate change and global warming are staring at the face!

As a result, although capitalism is responsible for brilliant innovations and prosperity in the lives of people in societies where it flourished (North America and Western Europe), it has failed to touch the lives of the vast majority of humanity that survives below just 2-3 dollars a day. Some time ago Bill Gates suggested refining current capitalism to give it a more human face.

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Will Capitalists and Corporate World Ever Address the Problem of Global Poverty?

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Business Rules can be Changed to Favor the Poor

All the skills of the business world can be easily applied to achieve social goals rather than maximizing monetary profits for a few rich elites. This is the idea behind using business as tool to eliminate poverty. The current “profit maximizing” business enterprise see the poor as mere cheap labor resource. It pays them the least and evades government rules that require additional benefits in order to maximize its profits.

This stereotype can be changed and it is quite possible for a business enterprise to have goal other than “profit maximization.” It can adopt the goal of “maximizing social impact.” Such a “social business” entity will still be earning profit to cover its costs, and if possible, generate a small surplus to grow the business. Its owners would limit themselves to recovering only their initial investment but continue to run the business so that it has the maximum impact on its targeted social cause. A social business is not a charity; it is a non-loss and non-dividend company with a social objective.

Such a social enterprise, however, would operate like any other business entity except that its goal is to serve some social cause. This, for example, could be related to health, education, sanitation, environmental, etc. Some common areas where social businesses can intervene are medical services for the poor, constructing houses for the low income groups, education centers for the poor, low cost nutritional food supplements for the poor, and so on.

Clearly, only a special group of people passionate about social issues and helping people can run a social business successfully. Investors of a social business come with a philanthropic heart, not with profit motives.

Given the will and enthusiastic entrepreneurs, there are numerous ways in which social businesses can serve the social causes. They can coexist with the usual business enterprises that strive to maximize their profits. There is no conflict, the two types of business entities can work towards their separate goals independently.

“Social Businesses” are Better Than Charities

Philanthropy, charity and welfare is fine for short term problems or emergencies but they are rarely designed for permanent eradication of poverty. A charitable dollar can be used only once, but a dollar invested in a self-sustaining social business is recycled endlessly. Since they operate on self generated profits they don’t have to consider the wishes and idiosyncrasies of the donors, and work with focus.

Capacity building is the most sustainable anti-poverty strategy.
Capacity building is the most sustainable anti-poverty strategy.

Social Entrepreneurship

The Poor Can Themselves Eliminate Poverty, If They Are Allowed To!!

This is the bold assertion of Bangladeshi Nobel Peace Prize Winner Professor Muhammad Yunus and founder of the Grameen Bank which has become almost synonymous with the idea of microcredit throughout the world. He certainly has reasons for the confidence in his assertion. He has worked extensively throughout his life with poor people. He knows that they are not devoid of abilities and potential; what is missing is the environment and system to channelize their enterprise.

The Poor are “Credit Worthy”

It is ironic that the banking and financial sector excludes those who need money the most – the poor. Throughout the world banks serve only those who are already rich and shirk those who lack it.

It is precisely here that Dr Yunus wanted to make a difference – by extending credit to the poor so that they can setup small businesses and grow on their strength. This idea also appeals from a humanitarian angle: it is more dignified to have a personal business that produces moderate income than chasing wages at the terms dictated by others. An additional advantage of personal business is that it also absorbs family members that helps both in operation and expansion.

Professor Yunus popularized microcredit as an effective anti- poverty tool across the world. Through these small, collateral-free loans with a nearly 100 percent return rate millions of borrowers – mostly women – have been able to harness entrepreneurial abilities inherent in them.

Examples of Social Businesses

The Grameen Bank founded by Prof. Yunus is an ideal example of a social business that seeks to maximize the benefits of the borrowers and is owned by them.

The Grameen Danone Foods is another well known example of social business. It manufactures nutrient-rich, fortified yogurt in small local plants that minimize the need for expensive refrigeration and transportation so that it can be sold at a low price to improve the diets of rural children in Bangladesh.

By investing in this venture, Groupe Danone helps eliminate malnutrition in Bangladesh - a more sustainable alternative than merely donating money or yogurt. It is a beautiful role model for other large companies to follow instead of taking the charity route.

Social Entrepreneurship

Doing Well By Doing Good!

When we move beyond traditional orthodoxy, the poor become “credit worthy” and business can also exist for purposes other than maximizing profits of the investors!

The urge to do good exists in all human-beings, alongside the self-interest. It can be harnessed and combined with the ingenuity of the capitalism and human enterprise to help the world's poor become self-supported. There are plenty of capable people in the world who are highly motivated to solve social problems; we need to provide them the environment so that they can make the world a better place for the poor humanity.

Capitalism is a time tested tool to help entrepreneurs. Even the poor can be motivated to turn into entrepreneurs and take care of their own lives. They are “bankable” as prof Yunus has already proved. What is required is to sustain and grow the initiative of social businesses and social enterprises alongside helping the poor start microenterprises through microcredit.

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Share Your Views 11 comments

stanfrommarietta profile image

stanfrommarietta 2 years ago

Steve Keen and Yves Smith make the case that a lot of this in the economics realm is due to the neo-classical economics, which is the received view in the universities. It's sort of like the universities in Galileo's time, where the Ptolemaic system was the received view, and you could get yourself fired for critiicizing it: Leave things alone. It will correct itself and return us to equilibrium. They taught astrology back in the universities of Galileo's time, no? That's a better analogy.


Goodpal profile image

Goodpal 2 years ago Author

Thanks Junko and Stan for the stimulating debate here.

Some basic factors we fail to discuss are falling standards of ethics, morality and justice in the modern society. It distorts capitalism into a "possessive capitalism" and turns governance into a tug-of-war between vested interests of those already rich or powerful.


junko profile image

junko 2 years ago

Stan, we actually agree more than you may have notice in my comment to you. I also agree with your stance against Austerity. http://www.rooseveltinstitute.org/new-roosevelt/re...


stanfrommarietta profile image

stanfrommarietta 2 years ago

We actually don't disagree. However, the government does supply services. Ever go to a National Park? Ever use Medicare (maybe you aren't old enough, but if you get the ACA insurance, you will be getting a service (the regulation of private health insurance companies for the general welfare (as it says in the preamble of the Constitution). Ever drive on the interstate? or national highways? Ever see the Hoover Dam or the Grand Coulee dam in Washington? That was to provide a "good" (electricity) to a region that was at the time a wilderness with a few cities scattered throughout. Without the Grand Coulee Dam we would not have been able to win the second world war, because it provide the electric power for the aviation industry to build the bombers and fighters, for the shipbuilding industry to build ships of war, and most important of all to develop the atom bomb that eventually stopped the war with Japan. After the war those industries were converted to private manufacture, but they had the electricity to run their factories. And it also supported the new towns that grew up in the West around the expansion of these industries.

But when the national government builds infrastructure and supports key jobs like those in public safety and teaching, it creates consumers who will demand the goods private businesses can provide. Right now, there is not enough money circulating to maintain full employment and full production. We cannot save our way to economic growth. Money first has to be supplied for people to save and spend. And it gets supplied in deficit spending on infrastructure and these public services mentioned above. That's how you jump start a stalled economy when not enough money is circulating to support full production and employment. Your federal government has to create the new money and spend it into the economy via programs on infrastructure and public services. The states cannot create their own money. When they are stalled, the Federal government has to come in and help the system start moving again by providing funds for various public benefits and projects. Those funds create jobs in the private sector that would not be there save for the government spending. Europe lacks a strong central government with sovereignty over the money supply (of Euros). The countries in the European Union are like the states without a central government concerned for their general welfare. In the end the prosperous states end up dominating the economy while the other states decline into abject poverty. But we have a Central government with powers to serve the general welfare, and we will not become like Greece if we allow our government to use those powers.


junko 2 years ago

@ Stan: The Government Don't supply Goods. The Private sector supplys goods and service for profit. The Government supplys service and infrasturture so the private sector can profit. The government isn't operated like a business, it is supported by fees and taxes to build and maintain infrastructure and service to the American people.


Goodpal profile image

Goodpal 2 years ago Author

Thanks junko, for sharing your thoughts.

Social enterprises are like any other business entity. The only thing that sets them apart is the goal. Their owners are driven by serving some social cause, rather than maximizing profits for themselves. Certainly there are people who are motivated by things other than monetary profits. How about a scientist who has a technical patent and wants to set up some industry based on this knowledge. Once his business stabilize, it continues to generate profits but he decides to expand towards further research on other ideas he has. He is happy; he doesn't have to run for grants to carry on researching his ideas. At the same time, he is financially self sufficient and in a position to make efforts to discover more new things. Needless to say, his colleagues and employees are also learning along the way.

Cooperatives are other well-known examples; they do wonders for craftsmen and artisans as well as in the farming sector.

I have a slight problem with getting attached to "isms" whether it is "capitalism" or "socialism". I strongly believe that any ideology is only as good as people following it!

The idea of having "social enterprises" in the so-called capitalistic society is fairly OK! It has nothing to do "socialism". Businesses that "maximize profits" and those that "maximize impact on some social cause" can coexist without any problem. They are not mutually exclusive. Both run on human skills and efficiency in the same way.

Government's primary responsibility is to "govern" through policies that discriminate against none. I am convinced that problem starts when some strong groups with vested interests starts influencing the state policies; it invites corruptions of all manners. Accountability and transparency go down the drain. And who suffers the most? The poor and ordinary people.

Finally, I think the elements of justice, accountability and transparency both in the private enterprises and government activities are more important than debating the text book concepts of different "isms".

I am always delighted by thoughtful comments. Thank you very much.


stanfrommarietta profile image

stanfrommarietta 2 years ago

Governments like ours were not created to make profits. The government provides goods and services for the general good at cost. That's why you can't run the government like a business.


junko profile image

junko 2 years ago

The West is developed Financially with access to education transportation in the infrastructure to support capitalism. Their are millions of poor and unemployed and uneducated in the US and Europe. I agree if social capitalism was practice in the west it can reduce poverty and change the lives of the poor in the developed world. Charity begins a home and spread abroad, in the United States traditional capitalist are at war with any form of socialism. They consider the poor, and needy, 47%er's that want to redistribute their wealth. Income Inequality in the US is a clear and present danger to fighting poverty worldwide since the US is considered the leader of the developed world. Socialism is as much a part of Americanism as capitalism. Outstanding Hub.


Goodpal profile image

Goodpal 2 years ago Author

Thanks Mark and Mat, for reading and sharing.

I am certainly aware of various manners of stakeholder approaches; they in fact point to the right direction we should be heading to. But we get stuck with cliches like "maximizing profits for the shareholders", "trickle down economy" and so on. Another missing piece of wisdom in today's business is "long term wealth creation" - this itself has the potential to take us towards "sustainable" development.

I hope poverty and global climate mess do not remain problems for research only, forever. We need to get serious about problems that pose danger to human-beings or make their lives miserable. Whether capitalism or scientific research, both should solve real life problems of the humanity as whole. People's lives are more important than ossified theories which deny benefits to certain segment of the humanity.

Everything will fall in line if we devise a strategy to make capitalism responsible for everybody - employees, society and environment. Capital does not exist only in the bank accounts of a few. What stops us from calling employees skills and labor capital, society's contribution capital and natural resources capital and be responsible for their healths?

More than research we need to challenge the rigid traditional orthodoxy that has limited our sphere of ideas and thinking. However, the human development approach of the UNDP and Amartya Sen's capability approaches to development offer hope of positive change. They have the potential to revolutionize the whole world by making development revolve around people and maximizing their well-being, rather than maximizing cash in a few bank accounts.


Mathewson profile image

Mathewson 2 years ago from Germany

Great Hub!


Mark Lees profile image

Mark Lees 2 years ago

A very interesting hub. Voted up.

You might want to read Freman's ideas of a stakeholder approach to business management as a bridging step between traditional capitalism and social capitalism.

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