The “social business” model seeks to combine the direct impact of a non-profit with the functionality of a business. This approach aims to turn enough of a profit to gain independence from grants and donations, but not much more. The overarching goal of the “social business” is not to be profitable, but to have a certain impact.
At first glance, this seems like a best-of-both-worlds approach to meeting the needs of the poor. But is it most effective to have a dual business-charity, or do each have their own comparative advantage? Writing at The Federalist, Discovery Institute Senior Fellow Jonathan Witt tells the story of a cardboard bicycle “social” start-up that is struggling to succeed, discussing the complexities that arise when trying to produce and disperse a good product while rejecting other aspects of a successful business.
In addition to looking at the technical difficulties of the “social business,” Witt emphasizes that it’s also important to recognize that conventional business isn’t at all un-social compared to the “social” business. The normal, everyday business is accountable to an outside group–its investors and shareholders–that give their money in good faith that it will not be squandered, but increased.
Which is more social: funding a business enterprise by attracting investors who will share in the profits, or attracting donations from people who won’t see any of the profits? There’s nothing wrong with the second approach. Many fine humanitarian organizations are run this way. But it’s misguided to imply that only that approach, and not the other, is properly social.
Also, why is it unsocial to sell a bicycle to a poor man in Africa at a rock-bottom but profitable price, since he gets a bicycle at a great price along with the dignity of acquiring it through a mutually beneficial exchange? Or is it only social for Africa to remain a permanent recipient of our charity?
“Conventional” business is the greatest anti-poverty program our world has seen, as Witt points out. Is this not “social”? It’s good to identify positive impacts that the “social business” can have, but we should also acknowledge and appreciate the far-reaching positive impact that profit-seeking business have. This is why Witt argues that “It’s time to retire the term ‘social business.’ Better to speak of running an ethical business, where agreements are honored, and the freedom and dignity of employees and customers are respected.”
Read more of Jonathan’s ideas on ethical business and effective charity at The Federalist.
Image: Marcus Qwertyus, Wikipedia Commons