Muhammad Yunus: Capitalism is Half-Baked

In "Creating a World Without Poverty," Muhammad Yunus has written a dangerous book. Not so much for his goal â€" that's merely outlandish, since most people expect the poor will always be. Besides, Yunus knows how to make audacious ideas real â€" he created Grameen Bank to bring financial services to the poor, and proved that microfinance can be profitable and powerful. Doing so earned Yunus and Grameen the 2006 Nobel Peace Prize (arguably it should have been the Economics Prize).

What's dangerous are his questions. Like, if capitalism is so effective, why must 60 percent of the world's population squeak by on six percent of its income? Why is it that China's remarkable economic growth is ruining its environment? Why is poverty on the rise in the United States, even as its overall wealth skyrockets?

These questions skewer conventional economic wisdom that our current model of capitalism is the be-all and end-all for global economics. Yunus dares to say that market capitalism is both underdeveloped and, in its current form, bad for most of us. He echoes J.A. Hobson, the early 20th century critic of capitalism whose 1902 book Imperialism skewered British capitalists, accusing them of being economic parasites. (He also echoes Adam Smith himself, who wrote in the Wealth of Nations about inequities in the system that reduced competition and the flow of labor). Yunus is not so vituperative as Hobson, but he does call out business leaders, saying bluntly that "capitalism is a half-developed structure" and that modern economics is guilty of

...assuming that people are one-dimensional beings concerned only with the pursuit of maximum profit.... We've created a one-dimensional human being to play the role of business leader, the so-called entrepreneur. We've insulated him from the rest of life, the religious, emotional, political and social. He is dedicated to one mission only â€" maximize profit. He is supported by other one-dimensional human beings who give him their investment money to achieve that mission. To quote Oscar Wilde, they know the price of everything and the value of nothing.
Yunus believes that governments, nonprofit organizations, international organizations like the World Bank and attempts at corporate social responsibility all have failed to address the problems of modern free-market capitalism.
What he posits is a new form of business, which he calls the social business. He describes this business as similar in every way to a normal profit-oriented business, except that it does not disburse its profits to investors. It also exists to address a social issue (he suggests examples such as a business that might make nutritious food at low prices for poor children, that would not require expensive packaging and would only have to make profits enough to stay in business).

There will obviously be limits to the investment pool available to social businesses. But examples of them already exist â€" Grameen Bank and its affiliates, to name the obvious, but there are already perhaps scores of others (I wrote recently about two in "Capital Ideas and Social Goals").

Yunus expects to see social businesses find wide sources of funding and management:

  • from existing businesses motivated to open new markets or to engage in socially responsible investing (his book opens with the meeting he had with the leadership of France's Group Danone that led to the creation of such a business);
  • From foundations looking to see donations turn into self-sustaining streams of funds;
  • from successful entrepreneurs (think Jeff Skoll and Pierre Omidyar of EBay);
  • from current development sources like the World Bank;
  • from governments themselves;
  • from the wealthy, looking for alternative forms of philanthropy;
  • From recent college graduates looking to change the world.
Funding and drawing managment talent will not be the only obstacles facing social businesses. In the second part of his book, Yunus discusses The Grameen Experiment. What he had to overcome in forming his own social business will form my next post on this book.

UPDATE: Here is my post Summing up Muhammad Yunus, Creating a World Without Poverty.