Harvard Business Publishing

In 2007, I had the opportunity to work with Muhammad Yunus on his book Creating a World Without Poverty (Public Affairs). Yunus, of course, is the Bangladeshi economist who founded Grameen Bank, helped launch the microcredit revolution, and was a co-winner of the 2006 Nobel Peace Prize.

Now a growing force around the world, microcredit provides poor people with access to one of the most basic human needs: capital. By making small, unsecured loans of twenty, fifty, or a hundred dollars, Grameen Bank and similar institutions make it possible for a woman with nothing to start or expand a simple business--raising chickens, weaving baskets, husking rice. For tens of millions of families, this modest act has provided a permanent path out of poverty.

Microcredit is an important tool for economic development that deserves greater support from the world community. But microcredit alone will not solve the enormous unaddressed problems our human family faces. Other tools are needed, and among them is a new idea Yunus calls social business.

For most of us, business means one type of organization--the for-profit company that is the backbone of the free enterprise system. Ranging in size from a one-person corner store to a giant corporation like Wal-Mart, such companies recognize one fundamental purpose: to maximize profits. To be sure, they create other benefits along the way: they employ workers, provide useful goods, and pay taxes. But the bottom line is, precisely, the bottom line--the profits generated for owners and shareholders.

Classical economic theory recognizes no other type of business. In fact, it scarcely recognizes any other human motive. Traditional economics assumes, in effect, that people are money-making machines, devoted solely to personal profit.

But we all know this is an incomplete pictue of human nature. People are driven by the profit motive, of couse. But they are driven by many other forces as well. Among these are the desire to do good for others, to help the needy, to make the world a better place--in fact, to solve all the unsolved problems that challenge humanity around the world. Yet today's capitalism is powerless to act on these motives, because it makes no place for them.

The result is an enormous void in our social and economic systems--a void that social business aims to fill.

Unlike an NGO or a charity, a social business produces goods and services, sells them for a fair price, competes in the market for customers, and strives to cover its costs through revenues generated. But unlike a traditional profit-maximizing business, it exists to serve a social goal: to feed the hungry, house the homeless, provide health care for the sick, or clean the environment. What's more, it does not generate profits. Instead, any surplus generated goes right back into the business, enabling it to serve more customers and expand the benefits it provides. Hence this simple definition of a social business: a non-loss, non-dividend business with a social objective.

A social business differs from a charity in several ways. Most important, the charity dollar is spent once, and then it is gone. But the social business dollar can be endlessly recycled. Every time a social business provides a good or service to a customer, it generates income that can be used to serve another customer. Thus, like any well-run business, a well-run social business can expand indefinitely. Freed from dependence on charitable donations, a social business is unlimited in its reach -- and in the good it can do.

This is why, contrary to what you might assume, many people will be eager to invest in social businesses. After all, countless people today give to charities or start foundations. These same people will be motivated to fund social businesses. So will for-profit companies whose owners or employees want to express the "other side" of their human natures by doing something good for their fellow humans.

Social business is more than a theory. It is a practical reality. In my next post, I'll describe some of the early experiences with social business that Yunus and his colleagues at Grameen Bank have been pioneering.

Karl Weber is a freelance writer and editor who focuses on topics in business and social policy. His books include The Triple Bottom Line (co-authored with Andrew W. Savitz; Wiley, 2006) and The Upside: The Seven Strategies for Turning Big Threats Into Growth Breakthroughs (with Adrian J. Slywotzky; Crown, 2007).