This blog, together with our web site and the events that we will organise, are dedicated to discussing, debating and promoting social capitalism. In order to do that we need to know what we mean by social capitalism. This, in itself, may generate debate but at least we will have set out our stall by providing what we believe it means and how it can be enacted.
Our working definition of social capitalism is “Businesses operate on capitalist principles but part of their profits are used to help society, in the expectation that this will generate more disposal income that feeds back into the system, thus providing even more profit that can be further invested to aid society.”
The Social Capitalism Cycle
To put the definition in a little more context, we have defined the Social Capitalism Cycle (see Figure 1). This shows that social capitalist companies would operate in a cycle that enables them to generate revenue which, in a well run businesses, would create profits. A portion of these profits are utilised to help those most in need in the hope that it would impact their lives. If we are able to help those that most need it they, in turn, can contribute even more to society and, in turn, use their disposable income to support social capitalist companies which reinforces the cycle.
We expand a little more on each part of the cycle below.
Figure 1: The Social Capitalism Cycle
Every company has to generate revenue, either by selling goods and/or services. Without a revenue stream, a company will fail and, obviously, be unable to help society. Indeed, the employees of failed companies may be those that require help.
Revenue is just one part of the story. To be successful a company requires that its expenses are less than its revenue. This results in profit. We realise that we are ignoring a lot of the complexities, such as taxation, depreciation, adhering to regulatory requirements, investment for the future etc. However, the key point is that for any successful company there will be a surplus, which the company can decide how best to utilise.
The two obvious choices are to pay the shareholders a dividend and/or to invest in future activities that the company wishes to undertake.
In a social capitalism model, investment in society (see next point) is just another form of investment. The return on that investment may not be so easy to calculate as other forms of investment (but is ROI ever easy to calculate, at least with any real accuracy or certainty?) but it is just another way of investing for the future success of the company.
Invest in Society
A social capitalism enterprise will utilise part of its profit to invest in society, where society is meant in the broadest of terms.
Society might mean the employees of the company (and could include paying a bonus), enabling professional development, implementing initiatives to help recruit/retain the best staff, providing mentoring/coaching, helping employee’s immediate families and providing educational opportunities to employees and their families.
Looking a little further afield, society could be considered as local and/or national communities. The opportunities this presents are limitless. It could be helping the homeless, providing medical care to those that cannot afford it, helping those that do not have jobs back into employment and providing food aid to those in need.
Figue 2: The United Nations’ 17 Sustainable Development Goals
Helping society could mean tackling some of the global challenges that mankind faces. The United Nations’ Sustainable Development Goals (SDG’s) highlights 17 of the most challenging problems that the world faces, including eliminating poverty (Goal 1), providing high quality education (Goal 4) and protecting the seas (Goal 14). Social capitalism companies could invest in helping the world achieve the SDG’s, which the global community has committed to addressing by 2030.
Another initiative by the United Nations is Global Compact. This aims to ensure corporate sustainability and incorporates the SDGs. Global compact has 10 principles which underpin its mission statement. These encompass human rights, labour, the environment and anti-corruption.
Whatever social enterprises companies invest in, they are expected to have an impact on the lives of individuals and/or communities. The return on investment should not be measured financially, but in other ways, such as how it has helped those less well-off than themselves and how it has empowered those who are now able to make decisions that benefits their own lives, as well as their families and communities.
That is, the return on investment must be measured by the impact that it has made on people’s lives. Individuals and communities must feel the benefit by the social investment of the company.
Generate Disposable Income
To complete the social capitalism cycle, the investment that has been made by the companies should enhance the lives of individuals and communities in the hope/expectation that their disposal income rises enabling them to contribute to the economy and, in doing so, further increase revenue, enabling the cycle to repeat.
It’s not without its challenges
We acknowledge that implementation of the Social Capitalism Cycle is not without its challenges. Some of them we mention here, but undoubtedly there are many others.
- It would be easy for just a few companies to adopt the Social Capitalism Cycle, with others taking a free ride. If you are familiar with game theory and the Prisoner’s Dilemma, which can model many aspects of our lives, including nuclear deterrent, we are trying to get companies to make a choice that is not immediately obvious, but the intuitive choice is wrong. We explore this further in our article on Social Capitalism and the Prisoner’s Dilemma.
- Having companies taking a free ride should be socially unacceptable. This should be not done in an aggressive way but as the world moves toward a social capitalism economy, the companies that baulk at this way of doing business should feel the pressure to change the way they operate. This might be through not receiving investment, employees preferring to work for other companies, shareholder pressure or the general public preferring to take their business elsewhere.
- In a traditional capitalist economy, companies generate profits for the shareholders, which is paid in the form of dividends. The reason that individuals, companies and financial institutions invest in companies is often for the expected dividends. If companies begin to invest in social enterprises, this might be seen as taking money out of the shareholder’s pockets.
- We would, over time, expect dividends actually rise, as the company becomes more profitable due to its social capitalism principles. The share price would also rise, which gives an additional return when the shares are sold. However, companies need to believe that this will happen and also believe that giving back to society is part of the company’s values.
The onus to overcome challenges by moving toward a social capitalism society is on everybody, but particularly on those who run the corporations that are in a position to help those in need. This enables those in need to overcome the challenges they face and to feel that they are valued, able to contribute to society and to feed into the cycle in a positive way.
In an article such as this, we can only scratch the surface of this hugely complex and, some might argue, controversial, subject. We hope that we have provided enough information so that you know what we mean by the term Social capitalism.
There is more information about Social Capitalism in the first issue of the Sekhar Institute journal.
We know that there will be different opinions and we look forward to that discussion/debate.