Conscious Capitalism: Will Microfinance Change Economics?
By Annie Brown
Microfinance Focus Europe, 10 April, 2013: In last week’s opinion piece, I mentioned “conscious capitalism.” This term merits further discussion, especially within the context of failing economies and the growth of the microfinance sector. The “global recession” that began in 2008 continues to thwart economic stability. Millions of people in developed and developing countries are struggling to afford basic needs. In order to rebuild economies as well as prevent another global financial crisis, we need to rethink current economic systems. Microfinance has the capability to initiate this necessary transition.
Nobel peace prize recipient and founder of Grameen Bank, Muhammad Yunus was reportedly the first to use the term “conscious capitalism.” Since then, conscious capitalism has expanded far beyond the microfinance sector. However, it is significant that this term has its roots in microfinance. Microfinance is a very powerful tool because not only is it a socially conscious business model itself, it also facilitates the creation of new small and medium sized businesses.
While large multi-national corporations still wield considerable power within the EU, Europe’s brand of capitalism is well positioned to make a smooth transition to a more conscious economy focused on small and medium sized businesses. Most European citizens have access to services necessary for a productive and happy life, such as healthcare. Additionally, European nations are among is the most dedicated in within the developed world to the idea of microfinance and encouraging SME growth.
A lean towards small business in developed nations has begun, and will continue as large corporations fail to bring about economic progress. As the microfinance industry in the North expands and small businesses flourish, conscious capitalism has the potential to become more than just a business model. This could be the beginning of a re-imagined economic system.
The main differences between conscious capitalism as an economic foundation, and what we have in place now, are consideration for the well-being of others and the valuation of the non-material. In his book Small is Beautiful: Economics as if People Mattered, late German Rhodes Scholar and Oxford University professor E.F. Schumacher discusses the need for an inclusion of consciousness and compassion in modern economic thought. Even in 1973, when this influential text was published, Schumacher could see the negative effects of “top-down” economics driven exclusively by profit.
Schumacher writes, “If [economic thinking] cannot get beyond its vast abstractions, the national income, the rate of growth, capital/output ratio, input-output analysis, labour mobility, capital accumulation; if it cannot get beyond all this and make contact with the human realities of poverty, frustration, alienation, despair, breakdown, crime, escapism, stress, congestion, ugliness, and spiritual death, then let us scrap economics and start afresh.”
Fortunately, nations do not need to implement strict sanctions on big business in order to shift the current economic trajectory. Regulations to protect consumers, encourage social entrepreneurship and prevent monopolies are useful. However, as people recognize the ways in which many corporations exploit and manipulate both workers and consumers, their products will become less popular. This will create windows of opportunity for smaller, more socially conscious businesses to thrive.
Microfinance will be at the center of this shift from greed to generosity, profit to people. Of course, making a profit and company growth will and should remain major focuses. However, within a more conscientious economic system, these will not be an organization’s primary objective. A company can grow into a large, profitable corporation within the framework of conscious capitalism; but growth that comes at the expense of others would be considered failure.
This was clearly demonstrated by the microfinance crisis in Andhra Pradesh. Because microfinance built its reputation upon helping the poor and providing a social service, the entire sector suffered the moment it began to expand past the point where it could ensure the well-being of borrowers. As a result, new regulations and client protection measures were enacted.
Microfinance institutions serve as excellent examples to future businesses because they measure success not only in monetary gain and expansion, but also in social performance. In fact, the microfinance sector is driving innovation in social performance measures, which can be used by a variety of businesses in different sectors. Microfinance is one of the fastest growing sectors in Europe right now. This says a great deal about the power of socially conscious business.
Conscious capitalism is in demand right now. Consumers want to support companies that provide a good service and improve the quality of life. This means more than charitable events, donations and good public relations. It means structuring a business with human nature in mind to create a company that encourages employees and consumers alike to move beyond materialism and reach their highest potential on every level. Sound difficult? Lucky for us, microfinance is leading the way.
