You, me, we, ethics and people-centered economics
Just 15 years ago the idea that business should place a social objective ahead of its responsibility to investors was considered economic heresy. In just the last year that perception has been changed radically with the introduction of 'Creating Shared Value' to corporations like Novartis and the showcasing of a business model which benefits society, by Unilever's CEO Paul Polman. This is the story of an evolution, how it was first reasoned and a man who gave his life to making it happen. How it began
This story begins in 1995 with an invitation from the US President offering a POW /MIA activist the opportunity to serve on a committee, the one which drives the campaign for his re-election.
It was however, the disappearance of his father-in-law Charles Rowley from a C-130 gunship over Laos which had set the wheels in motion.
He's given no brief for the role, that of honorary member, so decides to write a white paper a "what if" describing a new economic paradigm which he called people-centered economic development, a model made feasible by the connected world of the then dawning information age. .
Painting the now familiar background of more than a billion people suffering extreme poverty and hunger, It then posed the question as to who should be considered disposable: Built on ideas derived from Maslow, Drucker, Tofler, Fromm, Fritjof Capra and Carl R Rogers who believed people could be empowered to achieve their full potential, it reasons the fundamental predicate that humans are not disposable.
"This is a tricky question. Except in the case of self-defense, if for any reason we answer "Yes", regardless of what that reason is, we are in effect agreeing with the proposition of disposing of human beings. Whether disposal be from deprivation or execution, the result is the same for the victim. If we agree that sometimes, for some reasons, it is acceptable and permissible to dispose of human beings, actively or passively, the next question is "Which people?" Of course I will never argue that one of them should be me, though perhaps it should be you. You respond in kind, it cannot be you, but maybe it should be me. Not only can it not be you, it also cannot be your spouse, your children, your mother or father, your friends, your neighbors, but, maybe someone else. Naturally I feel the same way. Maybe we come to an agreement that it shouldn't be either you or me, or our families and friends, that can be disposed of, but perhaps someone else. While we are debating this -- passionately and sincerely, no doubt -- a third party comes along and without warning disposes of the both of us, or our families, or our friends. And there is the trap we have fallen into, because whether or not we approve of our or our families' and friends' demise is irrelevant. It is fair because we accepted the principle of human disposability. We just didn't intend that it be us who are tossed, but if we or our families and friends die, it is in accordance with principles that we ourselves have accepted and so must live -- and die -- by. "
The paper concluded
"Clearly, profits can be used very effectively in ways other than traditional investment and profit outcomes. Moreover, this is not charity, it is business--good business. One P-CED firm could be expected to spin off dozens of new firms and businesses, all of which create new jobs and all of which operate under traditional free-enterprise practices. That is, if a spin-off business were to profit a million dollars a year, the owners can bank the money for themselves and their stockholders as is the normal practice. There is nothing wrong with individuals becoming wealthy. It is only when wealth begins to concentrate in the hands of a relative few at the expense of billions of others who are denied even a small share of finite wealth that trouble starts and physical, human suffering begins. It does not have to be this way. Massive greed and consequent massive human misery and suffering do not have to be accepted as a givens, unavoidable, intractable, irresolvable. Just changing the way business is done, if only by a few companies, can change the flow of wealth, ease and eliminate poverty, and leave us all with something better to worry about. Basic human needs such as food and shelter are fundamental human rights; there are more than enough resources available to go around--if we can just figure out how to share. It cannot be "Me first, mine first"; rather, "Me, too" is more the order of the day."
Russia and the Tomsk Regional Initiative
What follows is a proof of concept project in Russia and having set up the model as a business in London, the concept is again described in an interview:
"The problem is that profit and money still tend to accumulate in the hands of comparatively few people. Money, symbolically representing wealth and ownership of material assets, is not an infinite resource. When it accumulates in enormous quantities in the hands of a few people, that means other people are going to be denied. If everyone in the world has enough to live a decent life and not in poverty, then there is no great problem with some people having far more than they need. But, that's not the case, and there are no rules in the previous capitalist system to fix that. Profit and numbers have no conscience, and anything done in their name has been accepted as an unavoidable aspect of capitalism."
"I disagree. In 1996, I simply set up a hypothetical 'what if' proposition. What if some businesses decided to change their practices, or institute themselves as new enterprises completely, for the sole purpose of generating massive profits as usual and then using those profits to help people who have little or nothing? That's the way to correct and improve classic capitalism for the broadest benefit worldwide. It's now called social capitalism, or, social enterprise. I still call it the same as I did in 1996: people-centered economic development, and that remains the name of my organization and my web site."
Introduction to the UK
This came at the time of publishing a business proposal for rural broadband where profit would be re-invested in CDFIs. The aim being to stimulate the local ecomomy by means of providing seed funding for social enterprise.
"Traditional capitalism is an insufficient economic model allowing monetary outcomes as the bottom line with little regard to social needs. Bottom line must be taken one step further by at least some companies, past profit, to people. How profits are used is equally as important as creation of profits. Where profits can be brought to bear by willing individuals and companies to social benefit, so much the better. Moreover, this activity must be recognized and supported at government policy level as a badly needed, essential, and entirely legitimate enterprise activity."
"The fundamental policy guide for P-CED is the International Bill of Human Rights . IBHR is comprised of Universal Declaration of Human Rights; International Covenant of Civil and Political Rights; and International Covenant of Economic, Social and Cultural Rights. P-CED's main focus falls within the sphere of economic, social and cultural rights, ICESCR"
Later that year, there's a presidential election in the US and Terry writes to his senator, John Edwards who stands for Vice-President
A Marshall Plan for Ukraine
By 2006 in a strategy paper entitled 'Microeconomic Development and Social Enterprise - A'Marshall Plan' for Ukraine' these concepts were presented as a national scale strategy.
"Enterprise is any organizational activity aimed at a specific output or outcome. Once the output or outcome – the primary objective – is clear, an organization operating to fulfill the objective is by definition an enterprise. Business is the most prominent example of enterprise. A business plan, or organizational map, provides a reference regarding how an organizational scheme will operate to produce a specific outcome: provision of products or services in a way to create profit. Profit in turn is measured numerically in terms of monetary gains, the “bottom line.”
This is the function of classic capitalism, which has proven to be the most powerful economic engine ever devised.
An inherent assumption about capitalism is that profit is defined only in terms of monetary gain. This assumption is virtually unquestioned in most of the world. However, it is not a valid assumption. Business enterprise, capitalism, must be measured in terms of monetary profit. That rule is not arguable. A business enterprise must make monetary profit, or it will merely cease to exist. That is an absolute requirement. But it does not follow that this must necessarily be the final bottom line and the sole aim of the enterprise. How this profit is used is another question. It is commonly assumed that profit will enrich enterprise owners and investors, which in turn gives them incentive to participate financially in the enterprise to start with.
That, however, is not the only possible outcome for use of profits. Profits can be directly applied to help resolve a broad range of social problems: poverty relief, improving childcare, seeding scientific research for nationwide economic advancement, improving communications infrastructure and accessibility, for examples – the target objectives of this particular project plan. The same financial discipline required of any conventional for-profit business can be applied to projects with the primary aim of improving socioeconomic conditions. Profitability provides money needed to be self-sustaining for the purpose of achieving social and economic objectives such as benefit of a nation’s poorest, neediest people. In which case, the enterprise is a social enterprise."
"This is a long-term permanently sustainable program, the basis for "people-centered" economic development. Core focus is always on people and their needs, with neediest people having first priority – as contrasted with the eternal chase for financial profit and numbers where people, social benefit, and human well-being are often and routinely overlooked or ignored altogether. This is in keeping with the fundamental objectives of Marshall Plan: policy aimed at hunger, poverty, desperation and chaos. This is a bottom-up approach, starting with Ukraine's poorest and most desperate citizens, rather than a "top-down" approach that might not ever benefit them. They cannot wait, particularly children. Impedance by anyone or any group of people constitutes precisely what the original Marshall Plan was dedicated to opposing. Those who suffer most, and those in greatest need, must be helped first -- not secondarily, along the way or by the way. "
UN General Assembly
Then in 2009 Miguel D'Escoto Brockmann, the President of the United Nations General Assembly offered this in a speech:
"The anti-values of greed, individualism and exclusion should be replaced by solidarity, common good and inclusion. The objective of our economic and social activity should not be the limitless, endless, mindless accumulation of wealth in a profit-centred economy but rather a people-centred economy that guarantees human needs, human rights, and human security, as well as conserves life on earth. These should be universal values that underpin our ethical and moral responsibility."
The Vatican: Caritas in Veritate
It was soon followed by these words from the encyclical, Caritas in Veritate::
'This is not merely a matter of a "third sector", but of a broad new composite reality embracing the private and public spheres, one which does not exclude profit, but instead considers it a means for achieving human and social ends. Whether such companies distribute dividends or not, whether their juridical structure corresponds to one or other of the established forms, becomes secondary in relation to their willingness to view profit as a means of achieving the goal of a more humane market and society'
"Striving to meet the deepest moral needs of the person also has important and beneficial repercussions at the level of economics. The economy needs ethics in order to function correctly — not any ethics whatsoever, but an ethics which is people-centred. ."
There is more practical influence. The 1996 paper makes, the case for a business approach, justified in describing how money donated in charity is spent and gone whereas the P-CED business model it continues to circulate in the community .It also describes a model based on a trading business which re--invests at least 50 percent of profit in social outcomes with the company charter modified to reflect that this is the entire point of the business.
Within a decade this concept has been embedded in the model of the Community Interest Company and B Corporations and in 2010, reflected in the evaluation criteria for the UK Social Enterprise Mark.
The need for a national scale investment fund for social enterprise as described in the 'Marshall Plan' became apparent to both US and UK government after the 2008 credit crisis.
P-CED was incorporated in the UK IN 2004 where it has since been used to fund an humanitarian mission in Ukraine. Success is reflected in influences which have led to the long tail of a 40% increase in domestic adoptions.
Focus meanwhile remains on the many disabled orphans in state care, the Abandoned children of Ukraine.
All very much under radar until the credit crisis started making others think about "social" capitalism.
1996 Synopsis of a white paper for People-Centered Economic Development
2004 Business Plan - Tackling UK poverty with localised economics
2004 Interview with Terry Hallman by Inci Bowman of the International Committee for Crimea
2006 A 'Marshall Plan' for Ukraine
2008 Principles of people-centered economics
2009/10 Economics for Ecology, Sumy Ukraine
2009 Article; Rich Nations shut out of the UN
2009 Papal encyclical
3rd Jan 2008
In Creating a World Without Poverty, Muhammad Yunus describes social business::
"A social business is defined as a non-loss, non-dividend company dedicated to meeting social needs; such as ensuring affordable healthcare for all, promoting better nutrition for children, creating employment for the unemployed, moving towards a safer environment, enhancing the process of women empowerment and providing safe drinking water. "
September 27th 2009
The Economist discusses the foundation of the GIIN and the social impact bond.
13th July 2010
EveryChild leads a delegation with a report to the House of Commons which warns that the goal of eradicating extreme poverty by 2015 is unlikely to be realised unless more emphasis is given to children's rights to be loved and cared for in a family, and to be free from exploitation, abuse, neglect and violence.
Harvard Business Review publishes 'Creating Shared Value' by Michael Porter and Mark R Kramer. They say "Businesses must reconnect company success with social progress. Shared value is not social responsibility, philanthropy, or even sustainability, but a new way to achieve economic success. It is not on the margin of what companies do but at the center."
11th February 2011
The story of children abandoned to state care in Ukraine and described in the article 'Ukraine: Death Camps, for Children' becomes mainstream news and an article in the Sunday Times. It was Torez, we can now reveal, that was described in the article.
18th August 2011
Terry Hallman dies in Kharkiv, Ukraine. His passing give the opportunity to reveal a dialogue with the US Senate.
5th November 2011
GE raises the bar on social business
December 2011 The European Commission uses the term 'social business' to cover an enterprise: whose primary objective is to achieve social impact rather than generating profit for owners and shareholders; which operates in the market through the production of goods and services in an entrepreneurial and innovative way; which uses surpluses mainly to achieve these social goals and which is managed by social entrepreneurs in an accountable and transparent way, in particular by involving workers, customers and stakeholders affected by its business activity.