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Business and the New Social Compact

Business leaders who have engaged themselves actively with the Bottom of the Pyramid have started to reexamine the role of business in society. Many CEOs have come to look at business with a new lens—the Bottom of the Pyramid lens. Mr. Patrick Cescau, the retired CEO of Unilever, is one of them. His views reflect the growing appreciation of the role of the private sector in protecting the planet and at the same time serving the poor.

“For one, there is a growing recognition that the social and environmental challenges facing us in the twenty-first century are so complex and so multi-dimensional that they cannot be solved by governments alone. Industry has to be part of the solution. But perhaps the biggest catalyst for change has been the increasing awareness within business itself that many of the big social and environmental challenges of our age, once seen as obstacles to progress, have become opportunities for innovation and business development. We have come to a point now where the agenda of sustainability and corporate responsibility is not only central to business strategy but has become a critical driver of business growth.”

Recently, Bill Gates surprised his colleagues by suggesting that we need to reexamine the role of capitalism. His solution was to move to “creative capitalism.”13 He defined it as

There are two great forces of human nature: self-interest, and caring for others. Capitalism harnesses self-interest in a helpful and sustainable way, but only on behalf of those who can pay. Government aid and philanthropy channel our caring for those who can’t pay. But to provide rapid improvement for the poor we need a system that draws in innovators and businesses in a far better way than we do today.

Such a system would have a twin mission: making profits and also improving lives of those who don’t fully benefit from today’s market forces. For sustainability we need to use profit incentives wherever we can. At the same time, profits are not always possible when business tries to serve the very poor. In such cases there needs to be another incentive, and that incentive is recognition. Recognition enhances a company’s reputation and appeals to customers; above all, it attracts good people to an organization. As such, recognition triggers a market-based reward for good behavior. In markets where profits are not possible, recognition is a proxy; where profits are possible, recognition is an added incentive.

The challenge here is to design a system where market incentives, including profits and recognition, drive those principles to do more for the poor.

I like to call this idea creative capitalism, an approach where governments, businesses, and nonprofits work together to stretch the reach of market forces so that more people can make a profit, or gain recognition, doing work that eases the world’s inequities.

Then there are those who promote the idea of Social Capital. This movement is led by Prof. Mohummed Yunnus of Grameen Bank fame. There is a lot of ferment and discussion in understanding the role of markets and the role of capitalism. There are skeptics. Many wonder whether market-based solutions are the answer. The real issue we must focus on is not whether markets can solve all problems. They might not. The real issue is this: “How do we bring to bear the entrepreneurial and innovative energy of private enterprise to solve the critical problems facing humanity?” In many cases, as we have already seen, private enterprise must work collaboratively with civil society, governments, and aid agencies and philanthropy to create innovative solutions. For these solutions to be sustainable, creating a surplus (profit) is critical.

These debates are healthy. I do not believe that we should look for an easy or quick solution to these complex questions. We must cultivate the ability to experiment and refine our thinking. Although the final outcome of this debate is not clear, it is obvious that private sector involvement in Bottom of the Pyramid markets has spawned a new debate. It has challenged our assumptions about the role of business in society. Businesses recognize that they must regain their social legitimacy. This will be determined by how businesses approach poverty and sustainability. Our focus on the role of capitalism and the Bottom of the Pyramid might be hiding a bigger and intellectually more demanding question and a bigger opportunity.

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