Social businesses just might save us from ourselves.
Capitalism is a popular economic system based on private ownership and free markets. While its basic principles are the same, its implementation varies around the world. Instead of “Capitalist or No,” it’s more useful to think of a sliding scale. There are many influencing factors for anything as large as an economic system. What works in some countries might not work in others. And of course, your results may vary.
The Nordic Model (Sweden, Norway, Finland, and Denmark) is a soft capitalism with high living standards and low income disparity. This system combines free market capitalism with significant social benefits. Their collectivist mentality leads to high equality and strong public services.
It isn't all roses though. High tax rates and strong government oversight can stifle growth and limit opportunity. The Nordic Model is well suited to wealthy countries with relatively small populations. As such, this balancing act isn't spreading to new markets.
American capitalism is different. The US has one of the freest marketplaces in the world, with relatively little regulation. Some American companies have grown so powerful, that they are effectively untouchable. This zero-sum game framework incentivizes economic growth and personal gain.
Cutthroat capitalism is great, and has led to significant economic advancement. But, it has a few issues. Each of these issues is insufficient to justify any real change. Taken together, they make a strong case for a new economic system.
“The rich get richer and the poor get poorer”
Inequality is the most often cited concern with the capitalist regime. The top 1% (and really the top 0.1%) of wealthy individuals control a staggering amount of capital. For the rest of us, it seems like every day the costs of living go up, and wages remain stagnant. The gap between the richest and poorest people has grown into a chasm.
This disproportionate allocation of resources leads to economic instability. 20 years ago there were very few people who could single-handedly move the market. Now, a tweet from one of the wealthiest people can make or break an industry. Elon Musk’s tweets about Bitcoin have moved the cryptocurrency’s value in both directions. Social media has become a tool for market manipulation.
Money is the key component of power. Corporations use their money, like any good corporation would, to make more money. In an unregulated economy, the goal is to gain monopoly power over an industry. When corporations grow large and powerful, they use that power to squelch competitors and detractors. This perpetuates the cycle of more money and more power. Historically, this was the realm of industrialists like Rockefeller and Carnegie. These days, it’s the tech companies.
In simple terms, businesses exist to make money, charitable organizations don’t. There are exceptions, some businesses aren’t run by brutal capitalists. Some nonprofits make a lot more money than you’d think. By and large, one side is there to take your money, the other side is there to make the world a better place once you give them your money.
However, a middle path is emerging. A social business is a company with a social mission at its core. These enterprises are designed to solve a specific problem to benefit the poor or disadvantaged members of society. Three main differences set social businesses apart from traditional capitalism and charities:
Social businesses blur the line between capitalist corporations and nonprofit organizations. They generate profit by serving the market that needs it the most, not the largest possible demographic. This keeps the social business small, focused, and effective. 100% of this profit funds growth to better serve the target market. This strengthens local communities and increases the enterprises’ impact. By combining aspects from traditional capitalism and the nonprofit sector, social businesses affect sustainable change.
“A charity dollar has one life - a social business dollar can be invested over and over again.” - Professor Muhammad Yunus
Social businesses define success as comprehensively and sustainably changing their communities. The end goal is their social mission. Any profits along the way are redirected to greater impact. Capitalism equates success with personal profit. Any business growth is a means to that end. Any social impact is of little concern, and is only featured in promotional pamphlets.
This difference makes social businesses fundamentally different from capitalist corporations. They might look similar at first glance (they are selling products and services after all), but their end goals are miles apart. Don’t think of social business as “Capitalism, but nicer.” If anything, it’s the next evolution of the economic system.
Social businesses are often more effective than nonprofit organizations, especially in small villages. Grassroots entities are better suited to solving unique problems than one-size-fits-all foreign conglomerates. But they seem a little too optimistic compared to the capitalism we know and love. After all, who wants to build a business and not make billions of dollars?
The social business plan isn’t for everyone. Founders need a specific mission to help their own communities. They also need sufficient business acumen to create a self-sustaining organization. Successful social businesses grow and flourish to solve big problems for small markets.
Social business growth would be difficult in the United States. It would be an uphill battle to disrupt the entrenched love of capitalism. But in the rest of the world? This might work.
Billions of people in Africa and Asia have seen the destructive effects of corporate greed firsthand. Their neighbors have died in textile factory fires. Their rivers have been polluted by chemical runoff. Their children move to the big city for the thinnest shot at a future.
Now, capitalistic imperialism has brought some prosperity and opportunity to much of the developing world. But if these country’s economies are developing anyway, there must be a better way than what they’ve seen thus far. Just because that's the way it is, doesn’t mean that’s the way it should be.
The social business framework can make money. Not billions, but entrepreneurial workers will make a living. In fact, that’s one of the main components of a social business. After achieving sustainability, profits fund growth for greater social impact. This allows social businesses to do more good for more people rather than A LOT of good for a few top executives.
However, traditional capitalism has a strong grip on the US. Starting a business is considered risky, but starting a social business? To not make billions of dollars? Inconceivable. All the incentives push toward traditional capitalism. Because of this, most social enterprise initiatives come from the rest of the world. Countries such as:
Social business initiatives have expanded in recent years. Organizations are empowering women through legal training, providing solar energy solutions, and producing e-rickshaws for sustainable livelihoods and reduced carbon emissions. Many examples prove making money and doing good aren’t mutually exclusive.
Social businesses occupy overlooked markets. Capitalists don’t pursue small markets composed entirely of poor people. There isn’t enough money in it to keep their shareholders happy. And nonprofits can’t fix everything. Even if they could, NGOs are limited by fundraising shortfalls and their own unwieldy structures. There are plenty of unsolved problems in the world. That’s where social businesses step in.
Helping smallholder farmers in Northern Uganda access financial systems via bicycle is interesting, but it’s not going to change the world. Or will it? For so long, traditional capitalism has been the only way to do business. Social enterprises provide not just an alternative, but a much needed improvement to the world’s economic system.
Discontent with “business as usual” combined with the social business framework could put humanity on a sustainable and inclusive path. This might not be the answer to life, the universe, and everything. But it would be a big step in the right direction.