Muhammad Yunus and the two visions of Adam Smith

In his new book, Nobel Peace Prize winner Yunus argues that social businesses can help solve poverty, unemployment and pollution. However, we need to work hard to make it happen

N S Ramnath

[By University of Salford Press Office (CC BY 2.0), via Wikimedia Commons]

Imagine it’s 2117. And imagine someone from that generation casting a cold eye on 2017. What will they be shocked at? Definitely not Twitter increasing the character limit of a tweet to 280. It might not even be Donald Trump as the American President.

To get a sense of what they might be shocked at, let’s consider what we consider abhorrent from about 100 years ago. We might not even be aware of the names of world leaders of that time. But we are likely to be aware of social ills, such as slavery. It was justified and accepted by people at large. Even those who were against extreme cruelty in individual instances, accepted it in principle.

Now, what do we accept as normal today that will be looked down upon by our greatgrandchildren? Recently, I asked this question to a few friends. They mentioned a number of pressing issues, including global warming, religious intolerance, xenophobia and violence. But, the most common answer I got was inequality. That so many of us live in luxury, while a large number of our fellow human beings go to bed hungry, and have no access to education, healthcare or finance will be morally abhorrent to them. It’s justified. It’s accepted. It doesn’t send a shock through our spine the way stories of slavery do.

The good news is that we are not a 100 years away from recognising that it’s a problem or from taking steps to address it. Billionaires such as Bill Gates, Warren Buffett and Azim Premji who made their wealth thanks mainly to the existing system (Buffett once said “If I’d been born thousands of years ago I’d be some animal’s lunch because I can’t run very fast or climb trees.”) have committed to give most of it away for social causes. Their philanthropic activities are already having an impact in the real world.  

But is philanthropy enough?

The business of changing the world

Muhammad Yunus argues that philanthropy is not enough in his new book, A World of Three Zeros: The New Economics of Zero Poverty, Zero Unemployment, and Zero Net Carbon Emissions. He says that there is fundamentally something wrong with capitalism as it exists today, and that leads to inequality. Interestingly, an engineering professor at Duke University recently argued that capitalism inevitably leads to an unfair world. It’s a natural law. Just as how water from small streams flows into bigger rivers, wealth from the poor go to the rich.

But, Yunus, who has won a Nobel Peace Prize for inventing microfinance, is an optimist. He believes it can be and should be fixed. The Bangladeshi banker/professor first narrated his experience founding and running Grameen Bank in his book Banker to the Poor: Micro-Lending and the Battle Against World Poverty. Over the years, the range of Grameen’s activities has increased. It now has a portfolio of social businesses, whose primary aim is to create social impact rather than make huge profits. He uses these examples to make a case that capitalism can indeed be fixed.

“Social business represents a crucial element in the transition from our current greed-based civilization to a civilization based on the deeper human values of sharing and caring. It’s a transition we must complete successfully if we want to pass along a truly sustainable way of life to the generations that will follow us,” he writes.

Yunus says that there are three megaforces that can propel the world to reach that desired state of three zeros—no poverty, no unemployment and no net carbon emissions.

Three megaforces

One, energise and empower the young people of the world: “They will make sure that the system does not remain an elegantly designed machine for producing a handful of wealthy, world-dominating elephants, leaving billions more to spend their lives as working ants.”

Two, unleash the power of technology to liberate all people: “In today’s world, it is designed mostly for selfish purposes, for commercial success—and sometimes even for terrible destruction, as the history of warfare shows clearly. The real challenge now is to allow social designers and social drivers to take the reins of technology and guide it in the direction we need it to go.”

Three, focus on good governance and human rights: “We need to meet a number of specific requirements if we hope to unleash the crucial megapower of good governance and human rights in pursuit of our goal of a transformed world. They include fair, credible elections; corruption-free administration of the government; an honest, civil society sector; and respect for the rule of law.”

Besides, Yunus calls for expansion, broadening of legal and financial frameworks to accommodate social businesses. Today’s laws and institutions were to a large extent created and shaped by businesses (and businessmen) who looked at the world through a certain prism. It’s not necessarily suited for the kind of social businesses that Yunus describes in his book.

A World of Three Zeroes can be seen coming in the tradition of books such as Saving Capitalism from the Capitalists. In that book, Raghuram Rajan and Luigi Zingales argued that free market capitalism is the single most important tool to eliminate poverty and spread opportunity. However, incumbent businessmen influence government to make the rules that are good for themselves and bad for competitors, and thus for the society as a whole. So, capitalism needs to be saved from capitalists. By promoting efficient ownership, by opening up the borders, by creating safety nets for those who lose out and by spreading awareness, this defect can be fixed, they said.

However, Yunus goes back to Adam Smith. Smith is best remembered for the terms ‘invisible hand’ and ‘self-interest’. Capitalists like to recite these lines from his book The Wealth of Nations to justify their disregard for social costs of businesses, a system that has made the world unstable, unequal and unclean: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages.”

The wealth of Adam Smith

Adam Smith has written another book too: The Theory of Moral Sentiments. In it, Smith explored the opposite of self-interest. “When our passive feelings are almost always so sordid and so selfish, how comes it that our active principles should often be so generous and so noble? When we are always so much more deeply affected by whatever concerns ourselves, than by whatever concerns other men; what is it which prompts the generous, upon all occasions, and the mean upon many, to sacrifice their own interests to the greater interests of others? It is not the soft power of humanity, it is not that feeble spark of benevolence which Nature has lighted up in the human heart, that is thus capable of counteracting the strongest impulses of self-love. It is a stronger power, a more forcible motive, which exerts itself upon such occasions. It is reason, principle, conscience, the inhabitant of the breast, the man within, the great judge and arbiter of our conduct,” he wrote.

Yunus says, Smith never actually reconciled the two different views on human nature he expressed in these two books into a theoretical framework. “If he had used his two books to propose theoretical foundations for two different types of businesses, perhaps the world could have avoided the serious crisis we are facing today,” Yunus writes. He offers the idea of social businesses as that bridge.

The ideas that Yunus presents in the book are likely to find resonance among many in India. For example, in his 2014 book Redesigning the Aeroplane While Flying: Reforming Institutions, former Planning Commission member Arun Maira presented four scenarios through powerful metaphors. While they were presented to capture broader socio/economic/political scenarios, it can also be used to understand the business landscape.

1. Buffaloes wallowing—which can also be seen as a metaphor for public sector companies.

2. Peacocks strutting—unicorns with their outsized valuations, and obsessive media attention.

3. Tigers growling—large businesses using their cash cows, and networks to kill competition and establish their supremacy.

4. Fireflies arising—which is very relevant here, as it corresponds closely to the vision of Yunus.

The fireflies, Maira wrote, “represent Indians from all walks of life who take the first steps towards achieving change in their own lives and in the world around them, thereby inspiring others to do the same. Fireflies have already begun to arise in India. They are the leaders and they include the millions of women running self-help groups (SHGs), the growing number of social entrepreneurs, the small businesses, the socially responsible corporations and even the government officials who are bringing about change through innovation.”

These days, much of our attention goes to the first three—buffaloes, tigers and peacocks—and to loud and big policy measures such as GST and demonetisation. There is little or no debate and discussions on the fourth scenario. This book could—or should—trigger that debate.

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About the author

N S Ramnath
N S Ramnath

Senior Editor

Founding Fuel

NS Ramnath is a member of the founding team & Lead - Newsroom Innovation at Founding Fuel, and co-author of the book, The Aadhaar Effect. His main interests lie in technology, business, society, and how they interact and influence each other. He writes a regular column on disruptive technologies, and takes regular stock of key news and perspectives from across the world. 

Ram, as everybody calls him, experiments with newer story-telling formats, tailored for the smartphone and social media as well, the outcomes of which he shares with everybody on the team. It then becomes part of a knowledge repository at Founding Fuel and is continuously used to implement and experiment with content formats across all platforms. 

He is also involved with data analysis and visualisation at a startup, How India Lives.

Prior to Founding Fuel, Ramnath was with Forbes India and Economic Times as a business journalist. He has also written for The Hindu, Quartz and Scroll. He has degrees in economics and financial management from Sri Sathya Sai Institute of Higher Learning.

He tweets at @rmnth and spends his spare time reading on philosophy.

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