Australia is often referred to as the lucky country, one of the wealthiest countries on earth. That's true for many of us. But we also have a large underclass of socially disadvantaged people, with nearly 2.5 million people living in poverty. As a nation, why can't we solve this problem? With federal government welfare expenditure now close to $150 billion (and that's before government expenditure on health and education) it cannot be for lack of money. And, for a clever country, it cannot be for lack of intellect.
The truth is that governments in Australia are ill-equipped to deal with entrenched social problems. Short election cycles, a cumbersome federal system, risk aversion and governance requirements combine to stifle innovation and prevent step change. Our not-for-profit organisations do an amazing job but are overwhelmed by the needs of the socially disadvantaged. Our private-sector companies have the problem-solving capabilities and resources to play a major part in solving entrenched social problems, but work within a legal and market environment that focuses on maximising shareholder value rather than maximising community values.
Professor Muhammad Yunus is based in Bangladesh and often referred to as the father of micro finance and the banker to the poor. For his leadership in alleviating poverty in the developing world, he was awarded the Nobel Peace Prize in 2006, named by Fortune magazine as one of the 12 greatest entrepreneurs of the modern era and is one of only seven people in history to have been awarded both the US Presidential Medal of Freedom and the Congressional Gold Medal.
He challenges us to think differently and "make poverty history" by promoting the benefits of social business. Social businesses are those specifically set up for a social purpose, not to maximise profits. They are designed to be financially viable in their own right, with investor returns limited to contributed equity and surplus profits being used to enhance social outcomes. Finally, according to Professor Yunus, social businesses must be environmentally conscious, pay market wages, provide good working conditions to their employees and be operated with joy.
This all sounds simplistic. But remember that in a different era some of our largest and most successful companies started as social businesses – companies such as AMP (life protection to members), building societies such as St George (housing loans to members) and IAG (insurance protection for members).
The simplicity of the social business concept is its strength. Use the dynamism and problem-solving capabilities of business to solve entrenched social problems. Do it in a way that is financially viable and enables the management team to focus on driving the business and social outcomes. By doing so, avoid the daily challenge of the not-for-profit sector of having to seek fresh sources of donor funds. Pay people who strive for social change fairly.
An enormous variety of social businesses can be driven by social entrepreneurs. This isonly limited by our imagination. In addition, for-profit companies can benefit by supporting these companies, as shown by the work of Professor Yunus in Bangladesh and Grameen Australia (an Australian not-for-profit organisation) in the Philippines.
In Bangladesh, global food company Danone and Grameen have created a social business to sell high-nutrient yoghurt to very poor families to prevent the nutrient deficiency that causes widespread stunting in Bangladeshi children. To do this, Danone has had to completely rethink the manufacturing and distribution process to make yoghurt affordable to the very poor in a country where refrigeration can be a problem, valuable knowledge that it has been able to take back into its mainstream food businesses.
In the Philippines, Grameen Australia has set up a social business to provide micro finance and educational support to very poor people living in the Manila slums. Grameen Australia is being supported by BPI Globe BanKO, a virtual bank set up by one of the largest banks in the Philippines, one of the largest telecommunications companies and one of the wealthiest family groups to develop the technology to make this possible. The upside for BPI Globe BanKO is that it can then take the technology back into its own business to make it more profitable.
The energy and innovation released by social business offers the real opportunity to tackle entrenched social problems in Australia by combining the dynamism, disciplines and financial viability of business with the insights, passion and know-how of the not-for-profit sector – a simple concept that could help us to move towards a much fairer Australia.
Peter Hunt is chairman and founder of Greenhill Australia, a leading corporate advisory firm, and chairman of Grameen Australia. He will give a public lecture at Sheraton on the Park in Sydney on Friday, October 10, and at Monash University on Saturday, October 11.