The Scope of Social Entrepreneurship

• Human Relationships in the Field of Business     • Guiding Principles of Social Entrepreneurship

On Social Entrepreneurship – Bernardo M. Villegas, Ph.D.

Let me give a theory about you who are in cooperatives and social enterprises. You are the answer to the people now on the left who are saying after all Karl Marx was right, when he said capitalism is evil. Because what is happening in Europe, the States, Japan, to all of these advanced countries that are now in recession—they are thinking of all the evils of Lehman Brothers, all the evils of these investment bankers who were paying themselves billions of dollars while the whole economy was going down. And they say you see, Marx was right. Profit is bad. Profit explains all of these things, greed. That is clearly a misinterpretation of what the real meaning of profit is.

Profit, as you know, is the difference of revenue and cost. How do you maximize revenue? Unless you are in the business of monopolizing or rent seeking or in drugs and evil things, usually when a business has high revenue it means it is producing a product or service that is very acceptable to the public, and the public is willing to pay a good price for the product or service that you produce. That means that you are making the public well off, happy, enjoy life. And that means that with the high revenue you have, you are serving the public. The other way is to make sure that the costs are kept as low as possible so that revenue minus cost will have a bigger profit.

If you are able to manage your cooperative, your company, whatever your organization is in such a way that you are efficient in the use of your resources, you are also serving society as you are using scarce resources better. Now that is the way you should look at anything that you do for profit.

 Now, once you understand that profit itself is a reflection of virtuous things you are doing, the other question is, what do you do with that profit? So that is where we can make a difference. Some people may want to be millionaires and make all that profit, and their only desire is to multiply the numbers of cars they have, to multiply the number of houses they have, to multiply the number of times they go abroad. And I am sure we do not fit into that category. We would like to share whatever that million is, to people who are less well-off than we are.

And that is the meaning of social enterprise. It is like any other business where you have to worry about marketing, about production, about human resource management, about financial management. So all of the expertise of a top manager has to enter into any social enterprise. Without that you are not a social enterprise, you are in the Red Cross. But social enterprises are very different from charitable organizations. You are going to contribute to Philippine inclusive growth because you have institutionalized social enterprises.

And why do I use that word again and again? There was a very important meeting with James Robinson, who was one of the authors of a best-selling book Why Nations Fail. The thesis of this famous political economist is that nations fail because they overly depend on personalities. Robinson said those countries that are able to institutionalize what are being done by one generation in building inclusive, as opposed to extractive, institutions and will now be transferred to the next generation—those are the countries that succeed economically.

And I am so glad this is demonstrated in you because you made testimonials on people who already are gone from this world, but their memory lives on because they did so many things that are now enshrined, incorporated in what you are doing. So that is my first point about our service to the Philippines. You are very patriotic because you are building institutions that are inclusive.

Now the second thing that I’d like to say is marketing-for example, the social enterprise called Human Nature, or the rags that were being used for crafting high-fashion clothes. Here it is very clear, the model is to make use of the underprivileged to manufacture high fashion goods that will be bought by the rich at a very high price.

 But the other thing that is more challenging and that what you are doing, most of you are identifying the consumer needs of the poorest of the poor. How do you look for goods and services that will alleviate the living conditions of those who are earning only four hundred pesos a day, five hundred pesos a day? But you are able to make sure that they are able to make full use of that income to get nutritious food, to be able to get medicine, to get socialized housing and so on and so forth.

It is very easy to from our ivory tower to say, oh I think the poor need this, the poor need that, without consulting them. And therefore I would produce this for them.

My most important message here is, make sure what you are doing to the poor is really something that they need. Sometimes common sense will tell you, but it is useful to back up your common sense with empirical data by conducting consumer research.

Bernardo M. Villegas, Ph.D., Dec. 6, 2012