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More on Social Entrepreneurs

Nat read my post which was inspired by his earlier comment to me on Social Entrepreneurship. If you haven't read it yet, have a look now because the current post may not make sense. I have rethought some aspects of that which I had previously written.

Nat wrote:

Wow, Menachem I never realised you were such a good writer. Your $2 and $10 story has a real message. I see it is that an "ethical" entrepreuner makes a healthy profit - enough to feed himself and family, save for a future rainy day, give charity - and if there is still profit he should then reduce his prices!!

Interesting approach. Is it correct? Let's analyse a bit further.

Perhaps not surprisingly, the sponsored links on the previous page discussing Social Entrepreneurship are all to do with (how to) making money. I guess they picked up on the word "Entrepreneurship" and ignored the word "Social". All are part of the greedy capitalist concept (especially promulgated by the internet) of making a "quick buck". That will undoubtedly happen on this page. Feel free to take their advice -- some of them may even work -- but I'd like to take a different tack. Social democratic principles in Europe do differentiate somewhat from the pure capitalism of America, but I'm not sure to what extent when the crunch (oil prices?) comes.

I'd like to divide the commercial world a little differently. First, there are true charities where no-one outside of the stated recipients of the charity makes a penny from the money that comes in. My friend Arnold Roth started such an organization, Keren Malki, the Malki Foundation, to provide home care for children with serious special-needs. The organisation was "established as a unique living memorial to a girl [Arnold's daughter, Malki, who was murdered in Jerusalem when an Arab idiot blew up the Sbarro restaurant] who dedicated herself to caring for people with disabilities, among them her own severely disabled sister". Arnold works very hard (an understatement) and has never received any money personally and he works for a living -- he is not independently wealthy. Even the organisation's expenses are donated and do not come from monies given for the special-needs children. This is true altruism. I don't know how many charitable organizations fit into this category.

Then there is what I would call the "regular" charities. Here a lot of people are making a (nice) living while at the same time providing something to the "charitable", non profit, cause. In nearly all cases that a collector knocks on your door, he is being paid, often a percentage of the take.

This is/may be OK, as if Harry did not come to your door, you probably wouldn't have donated anything; if Patricia had not invited you to hear someone important and boring at a parlour meeting (and to eat some of her yummy scones and cream) you probably wouldn't give (as much) even if you were previously aware of or even were ideologically aligned with the institution in question. Many schools and educational bodies are (partly, largely) funded in this way, many on a regular basis. A lot of them maintain an in-house "sales/marketing" organisation or extensively use outside bureaus specializing in this in order to maximize their fundraising. Many would not be able to exist and carry out their very good and important work without this funding.

If I give the school $1,000, how much is lost in the operational costs of rasing the money; and how much on the administrative costs of the school? Should that bother me -- probably not as that's how it is done in the real world -- like it or not!

One well known contemporary social entrepreneur is Muhammad Yunus from Bangladesh. The popularization of the term may be because of his work. He founded and manages the Grameen Bank and its growing family of social venture businesses. He received worldwide recognition for his social efforts when he was awarded the Nobel Peace Prize in 2006. The Grameen Bank is a "microfinance" organization and community development bank. It gives small loans, known as microcredit (or "grameencredit") to the impoverished without the requirement for collateral. Their philosophy is based on the concept that the poor have underutilized skills that just need a "bit" of capital to develop into a "business". Their group-based credit approach utilizes peer pressure within the group to ensure the borrowers follow credit discipline. Additionally the bank accepts deposits and provides other money management services. (Interestingly, a significant majority of its borrowers are women. Now that is interesting, but totally irrelevant to my story.)

But of course no-one works for the Bank ("2,100 branches in over 40 countries") for free (am I missing something here?). In fact I read on Wikipedia that the "Grameen Bank has sometimes been accused of charging relatively high interest rates [my, my, not exactly the biblical approach to the poor, usury or charity] and putting people into a debt-trap. Some have also doubted whether the business model of the bank is a sustainable one without the explicit and implicit donor support that it receives." I'm not sure the latter matters. There's nothing wrong with that -- unless, and this was my original thesis, the Social Entrepreneur is allowed to make money.

And so money is being made, good-hearted donors are giving (or do they have an interest in giving) and the founder get a prestigious Nobel Prize for his effort [Arnold I'll back your nomination!]

Can we get away from "money being made"? Do we want to get away from it? Is Nat right when he says that the Social Entrepreneur should drop his prices if . . . if what? he is making money? he is making too much money? When is it too much?

Well let's go back to my "knickers for the poor" business in my previous post or perhaps PizzaIDF, which sends pizza and soda to [our] Israeli soldiers. While the entrepreneur is making money, a social need is being met. A social need that would otherwise be ignored*.

Special-needs children are being looked after, kids get a better (than average) education, the poor feel better (either because they can now buy a bit of (genetically modified, non reproducing) grain for planting or because their underwear fits and is clean) and soldiers are happy in the knowledge that there are "real", Jewish and non-Jewish, zionists across the waves.

I haven't yet touched on the "for profit only" organisations. The well-known beverage companies sell sugared water that is (probably?) damaging to your health. There is nothing social here, no benefit to society, perhaps only damage it; there is just the desire to make more and more money. Tobacco is another example. Why are they not paying for the care of the people whose lungs they have helped to cook?

And then there are the hidden capitalists. [In Israel people are brainwashed to believe these are non-profit, service organisations.] Health funds [not in Israel] were approached to fund health clubs (their titles are even similar) and work-out rooms because people who exercise are overall healthier than those who do not. At least they should subsidize their members use of such facilities or give well-exercised members a discount on their insurance premiums. But they asked their actuaries to work out the risks. These geniuses (genii?) of the modern age put a brake on the idea. You see, they calculated that the cost of maintaining a fit, healthy individual is greater than a fat, unexercised slob. Why? Because the slob, when he gets sick won't last too long, but the athlete a) has medical problems relating to his exercise, and b) even when she becomes seriously ill, will take much longer to depart this world, and thus require more, and more expensive treatments. Now tell me that they have the good of society in mind?

Nat also talks of an ethical entrepreneur. I assume this is a soft-drink manufacturer that puts vitamins into is beverages. And when he outsells his rivals, he gave 15% to charity and after further increasing his profits, drops his markup. In a perfect world, will this be the true face of capitalism? If (social-minded) governments tried to impose this regimen, they would be criticized for price control policy -- both anti-capitalist and anti-democratic -- but if it came from industry itself it would be laudable.

But I think this and social entrepreneurship are two different concepts. When I started to write this piece I think I was of the opinion that social entrepreneurship was a warped form of capitalism. But now I'm not so sure. I think many social entrepreneurial projects may be using the social aspect as a fig leaf for the desire to make a profit, but the determining factor should not be whether or how much profit is being made, but the real benefit accrued to society that would not otherwise be there.

* Let me tell you a little story here about greed. (Greed isn't always bad -- maybe even social entrepreneurs are also motivated by it.) One day, after I implemented the Pizza for soldiers concept, I was filling up my car at a gas station and Pete (his real name) was there too. He told me he wants to be my partner in this "business". Now Pete had previously copied some of my business concepts in the past, so I said forget it. Pete says, "Think about it!" I didn't, but I didn't forget his approach either.

A year later I meet Pete again at another petrol station and the scenario repeats itself. Word for word. Later I hear he has started something, very similar. (My following writes to me about these things -- it is very gratifying.) Now Pete asks for donations -- he doesn't (transparently) tie what he receives to what he purchases. When pushed he will admit his is not a charity, but you have to push him to extract that information.

A year later, you guessed it, I meet Pete again, yes you guessed it, once again at a gas station again. (I have seen him only three times in the past three years, always at a gas station.) "Let me do your deliveries for you", says Pete. Why Pete? I've been doing this longer than you. . . you want to tell the world that you have increased your apparent turnover?!

Is my attitude to Pete correct?

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