Free Choice: the "Social Business" model and Free Software

No, I don't buy me chicken for the grill at the local co-op.

It disturbs that me shrimps from Wal-Mart might come from slave camps...

Love you,

Eugene

eugene, you are madder than a hatterful of boston tea parties.

....It's just not *legal* in many jurisdictions. But that's because of what the software does, not because of any inherent licensing restrictions.

A "social business", identical in every respect to a "Foundation" other than its "non-loss, non-dividend" instead of "not-for-profit" focus, is self-sustaining.

To me, this distinction is merely semantics; in fact, "non-loss, non-dividend" is how many "not-for-profits" organizations work, for the simple reason that if they don't at least break even, they'll cease to exist.

Basically, "not-for-profit" is a merely a legal status for the organization; it says nothing about what the organization supposedly does.

...at least from my perspective as a Free Software developer -- "if you want me to work on a feature you want, rather than a feature I want (and/or when you want), then you need to give me an incentive, or do the work yourself."

You know, mutual benefit -- basic economic theory.

Donations also help offset the direct expenses of providing said Free Software (hardware/bandwidth). Again, that whole "non-loss,non-dividend" thing.

i'm going to quote p9 and p10 of professor yunus' book, "Creating a World Without Poverty", here, and ask your opinion, Pizza, on whether this is applicable and relevant.

The Contribution of Nonprofit Organisations

.... Nonprofits may take many forms ... not-for-profits, nongovernmental organisations, charities, benevolent societies, philanthropic foundations and so on.

Charity is rooted in basic human concern for other humans. .... Generous assistance from people ... has saved tens of thousands of lives ...

so he lumps "not-for-profit" foundations in with "charities" because it is usually these organisations through which "charitable aid" is received. So in the context of "saving lives", it does "good". However, at the top of Page 10 he points out that due to the continued persistence of social problems, "charitable giving" suffers from the "old news" problem. In paragraph two, he points out that reliance on donations results in uneven distribution of funds. He also mentions the phrase "compassion fatigue".

He finishes up with this, on Page 11:

For all the good work that nonprofits, NGOs and foundations do, they cannot be expected to solve the world's social ills. The very nature of these organisations as defined by society makes that virtually impossible.

In other words, our very expectations of what a "not-for-profit" organisation is supposed to do - and be - makes people "shy away" from it. Additionally, in the United Kingdom "Charitable Organisation" has significant implications: it's virtually impossible, and extremely costly, to become a Registered Charity. The responsibility for the Directors is literally crippling: a simple oversight of a £0.32 receipt can, due to past abuse of Charitable Status, bring an immediate onslaught of excessively-attentative Government Regulatory Auditing machinery that can bring a charity to its knees and may result in the Directors being imprisoned. Over a £0.32 genuine mistake rather than a deliberate attempt at outright fraud.

So, there are accountancy practices and auditing procedures designed to restrict the scope of a Charity or Not-for-Profit that simply do not apply to a "business", even one where the sole and exclusive difference between a traditional PMB and a "social business" is that one and only clause "Do not make a loss, and do not pay out dividends" instead of "Maximise Profits and pay us money or else".

All that having been said, I realise that it is a subtle distinction - yet I do not see the Apache Foundation, for example, receiving "Investment" from Shareholders; I do not see any Investors putting up money for Sales and Marketing purposes such that the Apache Foundation can go out and make $USD 100 million in profits over the next four years, thus being able to employ 500 to 1000 people to further the social - and "not-for-profit" aims - of the Apache Foundation.

That's the difference. A "Social Business" can expect to be established just like any other business and expect to make millions which will be fed back into the business and nowhere else - especially not into the pockets of external Investors (other than to repay their initial investment). The employees feel that their work is valued; they receive the benefits of the fruits of their labour: they are empowered.

And a "not-for-profit" foundation has clear-cut, precise and restricted guidelines on what it can and cannot do, along with some quite specific (and very low) social expectations, which make potential investors feel more like charitable donors, along with the implication that the recipients are getting "hand-outs". The employees constantly are concerned that they might not get those hand-outs, some day; they are therefore disempowered.

I hope that makes it clearer, the distinction. If you believe that an example would help which doesn't come from the context of "aid-agency" please let me know and I'll try to think of one.

...at least from my perspective as a Free Software developer -- "if you want me to work on a feature you want, rather than a feature I want (and/or when you want), then you need to give me an incentive, or do the work yourself."

Donations also help offset the direct expenses ....

1) It's charity. it's hand-outs. you're begging. that lowers self-esteem. and... exactly as Professor Yunus points out, what happens when the donations stop? do you pull the plug on your hardware, a necessary and continuous "cost"?

2) Who's checking up on you to make sure that you're actually spending that hand-out to actually do the work? Do you *need* that money? Would Free Software be better off if that donation - however small - was invested in a much larger "Social Business" that was self-sustaining (and they then employed or contracted you to work on your project)?

3) Charitable donations are, as Professor Yunus points out, haphazard, and it's no different in Free Software from in the poverty-stricken world dependent on "aid".

Overall, I believe that, just as Professor Yunus demonstrates in his book much much more can be achieved through Investors focussing on "Social Businesses" than can be achieved through the haphazard approach of "charitable giving".

[almost-]Lastly - one thing that I haven't emphasised enough: Investment in Social Business, the Investor.... I'm going to quote p36 instead of saying it myself, because it is utterly utterly to the point - and relevant :)

Another way in which people have tried to combine the dynamism and self-sufficiency of business with the pursuit of worthy goals has been through the creation of non-profit organisations that sell socially beneficial products and services. These companies are not true social businesses as I define them. They generally only achieve only partial cost recovery, which means that they do not attain the "lift-off velocity" that would enable them to escape the gravitational pull of dependence on charity. Also, they do not have the investor-owner feature that distinguishes social business, creating a source of funds with an interest in ensuring both the efficiency and effectiveness of the social benefits generated by the business.

Does that make it clearer?

Also, it's worth emphasising (p38 - "Where Will Social Businesses Come From?") there's nothing to stop a not-for-profit Foundation setting up a "Social Business":

Foundations may create social-business investment funds, operating parallel to but separate from their traditional philanthropic windows. The advantage of a social-business fund is that its money will not be exhausted even as it works to produce social benefits, continually replenishing the foundation's ability to support good works.

(The reason for this is because the social business must repay the initial investment, thus leaving the investor with the freedom to consider reinvesting that money in another social business).

the bottom line here is that if you're reading this, you really need to read Muhammad's book.

....It's just not *legal* in many jurisdictions. But that's because of what the software does, not because of any inherent licensing restrictions.

good point - I seem to have picked a slightly obscure example which, with a little belabouring and in a roundabout way, still illustrates the point - but as you rightly say it's freedom that's restricted by DMCA-like laws aimed at Copyright Cartelling.

I have to be honest, I can't really fit that into the introductory paragraphs, they're long enough as it is - I'll leave it like it is :)

thanks!

Erich E Kunhardt
Professor of Physics
Dean, School of Science and Arts
Stevens Institute of Technology

1) It's charity. it's hand-outs. you're begging. that lowers self-esteem. and... exactly as Professor Yunus points out, what happens when the donations stop? do you pull the plug on your hardware, a necessary and continuous "cost"?

...from that perspective, the software I'm providing is also a charitable act and a hand-out. Indeed, the vast majority of Free Software meets this criteria, as it generates no "revenue" for its producers, and is therefore non-sustainable.

But back to your point -- In extreme cases, I would have to pull the plug. However, I'm not at that point -- but I already have had to cut back on the bandwidth/server resources I allocate to the Free Software I host.

The mistake you're making here is that you're treating this as a "donation" but I'm treating it as "work for hire". In order to keep a roof over my head, food on my plate, and my wife's continued medical treatment, I need money. Most of this money comes from my day job, but I also do some work on the side for extra money. (Doctors are expensive!)

By tossing some money my way, I'll be able to create/enhance Free Software instead, and probably be able to implement the desired feature faster (and therefore cheaper) than the interested party would be able to do themselves, given my familiarity with the codebase.

Most Free Software is produced in what basically amounts to a charitable service, subsidized by external, profit-generating means. (like my day job, for example) Being paid for said free software makes the difference between it being a "charity" and a "social business", if you look at it from the producer's (ie my) perspective. Otherwise I'm just giving away handouts, which further reinforces the incorrect "Free Software" == "software that costs nothing" mindset.

I'm not going to work for someone else's benefit unless I also derive some benefit too. A "warm fuzzy feeling" is enough for some people, but "warm fuzzys" won't may my bills. Once my bills are paid, then I can afford the luxury of investing my time in "warm fuzzies".

2) Who's checking up on you to make sure that you're actually spending that hand-out to actually do the work? Do you *need* that money? Would Free Software be better off if that donation - however small - was invested in a much larger "Social Business" that was self-sustaining (and they then employed or contracted you to work on your project)?

The bottom line here is that you have no way of absolutely guaranteeing that I actually do the work; all you ultimately have is the possibility of punishing me after the fact. But how is this different than any other type of financial transaction? Or any transaction at all? How would a "Social Business" change this? (hint: It wouldn't)

These after-the-fact options include Legal intervention (courts), Illegal intervention (send some goons over) or tell the world (eg via the internet) to ruin my reputation.

In other words, it's in my own long-term interest to do what I've promised.

The more I read what you've written here, I get the impression that the ultimate goal of a "social business" is basically the same goal that governments ostensibly have. The only real difference between them is that of scale. Similarly, they both face the same basic problem -- human nature.

(And yes, I will pick up both of Yunus's books next time I'm at my local library)

(and incidentally, wasn't Yunus's microloan system funded by charitable donations? It's still not self-sustaining, and the original investors will never see their money back.)

The more I read what you've written here, I get the impression that the ultimate goal of a "social business" is basically the same goal that governments ostensibly have.

nope. again - you _really_ need to read the book. professor yunus outlines, clearly, succinctly and precisely why, in every single instance of every single "human system" - government included - the failures abound.

and, illustrates why, against the exact same odds that you "expect" (human nature), the Grameen Initiatives suceeded. despite the offices being burned down numerous times, especially when his efforts clashed head-on with corrupt government officials.

i'll find the quotes for you, in a couple of hours (got stuff to do right now) but there is absolutely no escaping it: not one single "accepted" method works, and Professor Yunus shows us another way.

but... just to say: no, Yunus' microloan system was *not* funded by charitable donations; yes it *is* self-sustaining, and yes the investors *have* received their money back.

the reason is simple: human nature.

professor yunus points out that extremely poor people have, due to their daily brushes with death a highly creative ability (to survive). and their life-long entrapment (usually by money-lenders) means that they are SO GRATEFUL to escape from poverty that they will do ANYTHING to repay a loan.

the repayment success rate is 98.5% - something ridiculous like five times higher than ANYWHERE in the western world.

ok i gotta go, i'll find the quotes later.

So this "social business" model will supposedly succeed where *all* others have failed. Given that quite a few of the other models looked pretty good in theory, what makes this new one so special that it won't eventually fail?

As far as rebuilding their torched offices -- I wonder who/what paid for that? Meanwhile, it sounds like what they're truly fighting is corruption (government or otherwise). So what happens when corruption inevitably infects the Grameen folks?

To quote Yunus: "...poverty is created by economic, social, and political systems, and by false ideas—not by the laziness, ignorance, or moral failings of the poor."

I'd postulate that poverty is created by systemic greed, which might even be designed into said system. Even if it isn't designed in, unchecked corruption rapidly becomes systemic, rotting any system from the inside out, no matter how noble the initial goals of the system.

I think you are shortselling Free Software when you mention only the social aspect of it, though. Because FS is very active in politics pursuing its interests and spread its idealogy.

I think you are shortselling Free Software when you mention only the social aspect of it, though. Because FS is very active in politics pursuing its interests and spread its idealogy.

The bottom line here is that you have no way of absolutely guaranteeing that I actually do the work; all you ultimately have is the possibility of punishing me after the fact.

precisely. as a *charity* there is no way to hold you accountable, guarantee that you will do the work, instead of squandering the money - so see below (answer to next part of your question).

(also as mentioned previously, that's why "official" charities have such onerous auditing and regulatory restrictions and oversight - so much so that in the UK many people walk away from being a Director of a Registered Charity because the burden of responsibility, the work involved, and the risks of being jailed, are far too high.)

But how is this different than any other type of financial transaction? Or any transaction at all? How would a "Social Business" change this?

as a director, you would be answerable to the shareholders - and you could be sued for not pursuing the shareholder's interests, according to the "Articles of Incorporation".

So this "social business" model will supposedly succeed where *all* others have failed.

yes. this is a small list of Grameen Family businesses. muhammad yunus describes the successes, the failures, the lessons learned from the failures, and how they progressed to turn them into successes. p60-66 describes how the Grameen System evolved in the face of the 1998 flood, known in bangladesh as quote "THE FLOOD". 2/3 of the country was underwater, for eleven weeks. under the circumstances, large-scale loan defaults were not unexpected, but the scale was larger than they anticipated. analysis showed that the areas had been struggling for quite some time: they therefore took this into account and designed "Grameen II" to compensate (p64 outlines the changes and the reasons).

it's this adaptability - the willingness to not "lie down and die" - that is what makes the Grameen Family so... so... inspiring!

Given that quite a few of the other models looked pretty good in theory, what makes this new one so special that it won't eventually fail?

many many reasons - here are some that i can think of off the top of my head 1) self-sustainability is "built in". 2) there's a willingness to trust and encourage the goodness in people. 3) it really _is_ a business model. not a charity model. that makes people _want_ to make it succeed, particularly because they own the business. 4) professor yunus is the catalyst who keeps an eye on the "bigger picture, using creative thinking and above all a willingness to _trust_ people and encourage the best in them, to succeed against "the systems".

my apologies, pizza, there is so much to answer here! i'm pressed for time, but wanted to just say this:

you are throwing up an inordinate number of "problems". this is good, because it is by answering these very issues that the solutions are highlighted and spelled out.

professor yunus went through exactly the same things. he was told "he would fail". "nobody will lend money to the poor: they will never repay it". "you can't do this". "that's government's job". the list went on and on relentlessly for years and decades. and he DID NOT STOP.

so, please do continue to pose these challenges and play the role of "devil's advocate" - yet at the very same time i would ask you to think carefully about why it is that you want to place roadblocks in the way. all the time.

lastly, before i come back later when i have more time, i thought of a better way to answer your question about the difference between charity and social business, it's with another question:

when you receive a hand-out via the paypal donation button, do you invest that money in self-sustaining investments that will achieve two things 1) free you from the dependence on hand-outs 2) allow you to RETURN that money so that it may be donated to someone else?

or do you spend it all?

in other words, do you live off the principle, or do you live off the earnings?

this is the difference in thinking behind the currently-accepted practices of those people involved with Free Software - whether it be through Foundations, Charitable Donations or other.

we simply don't have the business sense to live off the earnings rather than off the principle - or, worse, PMBs encourage us to become "wage slaves" where we are asked, more often than not, to sacrifice the very Free Software Principles we uphold in order to "make a profit".

it is ironic that i wrote about this as far back as 2003 with the article Open Investment where I advocated that free software developers consider setting up self-sustaining investment funds which will free them from dependence on PMBs and Charitable hand-outs.

my goodness i wish that professor yunus had written his book already, by then!

more later.

pizza - after a little bit of thought: i changed my mind about going through the book finding page numbers and quotes to illustrate points - i'm going to ask _you_ to please do that. read the book, and then quote the pages which answer your own questions.

in the meantime, i would ask anyone _else_ who wishes to enumerate "roadblocks" and "this won't work because" style arguments to likewise first read the book.

otherwise we will end up with me being sued for copyright infringement for typing out the entire book.

what i am interested to hear from people is ways in which free software can fit the "social business" model. for example, regarding the suggestion of Muhammad Yunus that "Foundations" could set up social business funds (p38), i'm interested to hear from people how that could be done by Free-Software-based Foundations such as the FSF, Wikimedia, Apache Foundation and other Foundations, to create sustainable business models with Articles of Incorporation that have "non-loss, non-dividend" at their core.

i'm interested to hear from people who will write up a boilerplate "Articles of Incorporation" for European, UK, U.S. companies.

i'm interested to hear discussions of business plans for free-software-based social businesses, and what the goals are.

i'm interested to hear - most of all - how to begin to leverage free software to make it useful to the average person, to solve real issues. This is where Professor Yunus started - at the "bottom of the barrel" where everyone else had exploited them and written them off, and he found people with absolute hearts of gold, people who have mouths to feed and who will do absolutely anything if you give them an opportunity and show them how to escape from poverty.

Being paid for said free software makes the difference between it being a "charity" and a "social business"

no. the definition of a "social business" is a company - a COMPANY - a STANDARD COMPANY - with directors, shareholders and "articles of incorporation" which MUST by law be "enacted" by the directors to the satisfaction of the shareholders...

... in other words EXACTLY like a NORMAL and LEGAL business, with the SOLE difference being that the articles of incorporation DO NOT state "you will maximise profits"; the articles of incorporation DO NOT state "you will pay us a dividend". they state instead that "you will not make a loss".

in this way, the articles of incorporation, which MUST be legally enacted by the directors, can also include other issues - such as "make good free software and pursue free software ideals [political, social or other]" - without there being a conflict which usually results in "maximisation of profit" being the sole and exclusive winner.

when you say " Being paid for said free software makes the difference between it being a "charity" and a "social business" " i get the distinct impression that you are entirely misunderstanding what a "social business" actually is, and its implications, and i believe that you are focussing on the word "social" without understanding that there are legal corporate responsibilities behind the word "business".

it's an easy mistake to make, and professor yunus dedicates about two entire chapters to illustrating the distinctions and subtle differences between the definition of "social business" and all other forms of societal money transferrance whether they be NGOs, aid agencies, PMBs etc.

remember - his degree is in Economics, and he found it to be utterly useless in the face of the consequences of the war in Bangladesh, in the early 70s, and has dedicated his entire life to working out a solution and articulating it, with clear examples, and outlined every single objection - of which you have enumerated only about... I would guess - about 30% of them so far - and he illustrates how they were irrelevant, or how they were overcome, or how they helped refine the business model into the incredible world-wide success that it has become.

thank you for that, sye. side-note: the vedic method of teaching is that you only answer the questions that the students ask. this has many many benefits. 1) the student has demonstrated curiosity to know the answer, and is therefore much more likely to be willing to listen (!) 2) the student will ask the questions when they are ready to ask them, and not before.

overall, the student develops at their own pace - not at one which society or parents dictate. i have several people in my family who are teachers: one of them advocates that there should be a system of "teaching credits" or "coupons". everyone should be entitled to them. even aged 70 years old, if someone who decided that they didn't want to be a disruptive little s**t aged 12 and so "skipped school", even aged 70 years old and unable to read or write, they should be entitled to return to school because they are now ready and willing to listen and learn.

... but that's a little off-topic for this particular article :)

Or for a limited liability corporation, two people.

I've actually been down this road before; I did a lot of research into setting up a non-profit organization for a group I'd helped found here. I decided that it was better off incorporating as a regular business with "social goals" in its article of incorporation due to the flexibility and simplicity it afforded. However, neither was meant to be as the other people involved never could agree on the the purpose of the organization, instead spending their time on fluffy form/appearance matters. No agreement == no point, and I eventually walked away with a very bad taste in my mouth.

It's not the legal status that matters, it's the people involved, and what they're trying to accomplish. The legal status is just another tool to help them achieve their goals.

Meanwhile:

as a director, you would be answerable to the shareholders - and you could be sued for not pursuing the shareholder's interests, according to the "Articles of Incorporation".

...like the customer couldn't sue me for breach of contract if I wasn't an incorporated business? Again, where you see charity I see a client. (actually, if I were to incorporate, I'd be *less* likely to care, as the business shields me from liability unless I've committed criminal acts.)

***

I'm not playing the Devil's Advocate here; I'm genuinely attempting to figure out what you're trying to propose. You're the one putting forth an argument (more accurately it's a series of overlapping assertions) so the burden of proof/support falls on your shoulders.

You need to cite specifics to support specific arguments, because Telling us to "read this book and you'll understand" is a cop-out. It ends up degrading your argument to "read this book, it'll solve all problems!" Needless to say, that sends my BS detector into overdrive.

(Again, I intend to read Yunus's books; I've placed a hold with my local library, and they'll call me when they arrive. Maybe tomorrow?)

Meanwhile, from what I can tell, your fundamental argument seems to be " Free Software Organizations have legal status X. X is always bad, Y is always good, so FSOs should be Y and everything will be better." You never really explained why X is inherently bad and how Y will better serve the goals of said FSOs. Indeed, you never made the distinction between FSOs, Free Software Developers, and indeed, Free Software (or even just Software) itself, and the unique cost structure that it incurs.

One could argue that Free Software in of itself is fundamentally in opposition to any business model, social or otherwise. The only way anyone makes money with FS is by selling ancillary services (support, customization, etc); developing the actual software itself is a loss-leader at best, and at worst a "charitable donation" on the part of its developers. Didn't all Free Software start out in that manner?

i'm interested to hear - most of all - how to begin to leverage free software to make it useful to the average person, to solve real issues.

And there you I think you finally made your point. All you need to do now is come to an agreement what "real issues" means, ways to solve said issues, which way you'll actually go, and finally, what role free software can play in that solution. As part of the implementation of a solution, Free Software comes in at the end of the process, not the beginning.

Yunus's Grameen bank was a (damn good) solution to a "real issue" and Free Software probably helped, but only in an incidental manner rather than as an intrinsic part.

Not all problems can be solved with a "bottom up, help people help themselves" approach. The classic example is grazing fields succumbing to the tragedy of the commons.

I suggest you read the book 'Collapse' by Jared Diamond; it explains many "real issues" in terms of population growing beyond their land's environmental capacity, and provides examples of societies that have succeeded and others that have failed.

The smallest ones succeeded via a bottom-up approach, the larger ones via a top-down, and the mid-sized ones pretty self-destructed.

(Diamond's earlier book 'Guns, Germs, and Steel' is also a good read, but not directly applicable here)

ok - since you asked so nicely :)

here's a couple of examples to get things started:

Creative Commons / Free Software Books / Educational Material

A well-known book company invests say... $USD2m into a LLC that is a "social business". rather than being paid "advances", free software and other authors are given "loans" to write material, where the required material is thoroughly researched - including market research and opinion polls (i'm just following the example of Grameen Danone here) - in advance, and so the urgent need for the required information has already been thoroughly established.

The author(s) of the material will be expected to repay that loan, from the sales of the book. They will receive 100% profits once the loan is repaid - pro-rata if there are many authors, based on value of contributions, details on how this is done to be described later).

Authors will also be expected to participate actively in "marketing" their book and "train" others in its material and knowledge, in classic "Networking" form. (To some extent, this is already done, in the form of "talks" at free software presentations - but the bit that's new is the formal "Networking"). People receiving the information will be expected to pay to be "trained" - and if they cannot afford them, they can apply for social business "loans" from the parent company - or from the original authors - to do exactly that. Repayment of any "loans" will be strictly according to "social business" rules (in particular, the total amount repaid will never exceed 100% of the original loan).

"Networkers" will be able to run courses and lectures, thus extending the reach of people to whom the information is disseminated. They can expect to be paid for this, by people who - again - can apply for "loans" to pay for the courses. If those talks are given in Bangladesh, the individuals may of course apply for microloans from the Grameen Bank, but elsewhere an alternative source of funds must be sought. Again, the "Networkers" have the right to train "other Networkers", thus further subsidising their income to repay their loans.

To go back a few steps and fill in some of the missing gaps:

1) Regarding the "pro-rata" payment system, the books' material (available online e.g. through lulu.com again for sale/download as a PDF) is available as a GPL or Creative Commons project, where anyone can contribute. Formal structure is placed behind the svn or git repository such that contributions can be formally recorded and thus the amount of words can be used as a metric to guage the percentage profits given to a contributor. but wait - there's more! :) quantity does not equal quantity! on the web site through which the books are sold, there is a Web 2.0 "feedback" system of commenting and "ratings" system. The readers are encouraged to highlight sections, phrases and paragraphs of interest to them (just like the GPLv3 "annotator") and so, in this way a "value" can be attributed to the words of a particular author.

Additionally, particularly invaluable comments can be incorporated into the book itself (the comments themselves can be "rated" by other readers, including the authors!) and thus, readers themselves become "authors", and can also receive a share of the profits from the book.

2) An area of particular attention which is significantly lacking that has resulted in the failure of the OLPC project is "training material" for teachers. Many governments were over-the-moon at the thought of having cheap educational computers, which they desperately need instead of spending fortunes on read-only paper materials which are quickly out-of-date. But the one lacking area is: training.

The above infrastructure could easily provide a vehicle for the creation and distribution of "training material".

3) Translations. comes under the heading "authors".

i gotta go - more later.

... to point out the benefits of the above:

1) the most fundamental and absolutely vital point which i cannot overemphasise enough is: by doing business as a "social business" it dove-tails with the existing "social business" Grameen Family of businesses, all of which are legal corporate entities with "non-loss, non-dividend" legally-binding "articles of incorporation" at their core. with investors who recognise that their investment will be repaid, in time (without menace of "profit maximisation"), and whose primary interests are to see the "social benefits" enacted, which was the whol reason why they invested in that "social business" company in the first place, rather than giving the money away as a "hand-out", or putting it into a PMB.

thus, when you begin speaking to someone who needs your training material, you can explain that you are a "social business" and they will go "Oh - you mean like Muhammad Yunus says? OH verygood, verygood, he is such a wonderful man - let me get my lawyers to look over your business plan and articles of incorporation, when can you provide these training materials, and what will your loan repayment terms be?".

if you went in as a PMB, they would be extremely wary, and would anticipate that you were there to rip them off at extortionate rates. if you went in as a charity, they would be equally wary, because charities are utterly distrusted: they have caused enormous disasters by dictating what should be done with the money (Professor Yunus' book is full of such examples). etc. etc.

2) it's an exciting innovative scheme, one which has not been engaged in by the free software community before.

3) on the surface, it looks just like an ordinary "networking" scheme (one which i've not seen done at all by free software developers) but there is a key difference: there is no threat of "profit maximisation" in place to over-rule our desire to enact our Free Software Principles [political or social - thanks for pointing that out, nymia]. in fact, if we fail in some way to enact those Free Software Principles, our Investors will, at the Shareholders' meeting, point this out to us and guide us into doing better. (or firing us if we're being blatantly disruptive about it).

4) the entire technology developed to actually support the business is, as we wouldn't have it any other way, Free Software. the Web 2.0 enabled "auditing" system providing feedback from customers, networkers etc. etc. actually puts money into our pockets that pays back our social-business-loans or, if those were not taken out or were repaid, puts actual cash in our pockets.

there's much much more i could say on this but i am pushed for time - many apologies - i have to write up the 2nd idea.

Redhat, Novell, IBM and Ubuntu and many other companies and Investment companies put up say... $2m to create "Distributed Call Centre" infrastructure, as a "social business". (technical hat on: combination of a CRM, Asterisk, libjinglep2p from googletalk technical hat off). Free Software developers are given "social business loans" to fund the development of the software, which has XMPP, SIP, IAX2 and POTS front-end telephone/VoIP "numbers" which are directed round-robin to any number of "support" people.

The back-end software is ENTIRELY distributed, peer-to-peer. Call logging and notes are placed into a distributed (git-based) database, such that off-line operation (note-taking without having to maintain an expensive GSM/EDGE or 3G connection) is the same as online operation.

The built-in conferencing system will allow a translator, if necessary, to be brought into the conversation. This can be achieved at the push of a button by the support engineer, routing through to the first available translator. If one is not available, a pre-recorded message in the caller's language can be played, explaining that they should leave a message, their message will be translated off-line, and they will either be called back later or they can ring back later to pick up any (translated) responses.

As there is no "servers" needed, the cost of deployment is minimalised (and scalable): anyone who wants to be a translator or a support engineer may simply install the software onto a suitable device, or they may register available telephone numbers and times where they may be reached with the distributed infrastructure.

The initial investors anticipate their investment into the software engineering development to be returned from the developers by virtue of the developers receiving a cut of the support call charges - again: it's the "Networking" principle. The developers also receive a cut of the support call charges for "ongoing maintenance" (btw - development should STOP when the software actually does what is needed of it - this is a flaw of many free software development efforts).

Support engineers can "register" their availability in a "bidding" system, where times like Christmas and Easter will perhaps have higher support value but potentially less custom. Regardless - they receive a percentage of the support contract's value. Failure to fulfil a contract (failure to be available) results in a "penalty", unless it can be shown to be a technical fault, under which circumstances an investigation is initiated and a bug-report filed with the developers (or telecoms engineers).

The proposed investors (IBM, Redhat, Novell and Canonical) could of course utilise this infrastructure internally in their own companies, to provide tech support to their customers, with their own present "tech support staff" effectively "outsourced" but still operating within the offices.

Anyone may "join in" and become a "tech support" engineer by virtue of installing the distributed software, registering their area of expertise, availability and will immediately begin receiving support calls - and therefore money. Part of the money received will go into paying for the initial development.

The percentages of repayment etc. at each stage are something that is beyond my scope to specify: it's open for debate.

Of course, it goes without saying that there is a "match" between the "book training" idea and this "conferencing" idea: the infrastructure for part of the "course training" could be done via the conferencing system, because the conferencing system is a peer-to-peer distributed skype replacement.

And, to that end, also, the peer-to-peer distributed skype replacement will be of great interest to free software developers for many other reasons: reliability of communication.

btw - this "software support" conferencing idea isn't new, it's an idea discussed and floated by many other free software people.

also - of course - it doesn't have to be restricted to just "software support".

iiinteresting. someone advocating that the status quo is efficient :)

A very interesting article and discussion lkcl. I will see if I can track down the book here in the Philippines and read it. It has got me thinking about a few things too regarding the setup of my own company. Thanks.

yaay. i'm not alone. hurrah :)

There are some outstanding problems/weaknesses I see so far, but I'll reserve judgement until I get to the end of the book.

yaay. as a coherent whole it definitely needs reading all the way through. such a simple idea, so easily misunderstood because it requires illustration against so _many_ failures of quite literally all other types of financing systems.

so it is so easy to dismiss the idea as "yet another failure" - except that's not possible to do because it's actually _working_.

and it is so easy to dismiss the idea as "the same as any other type of financing system" because of the similarities to charity, PMBs, NGOs, coops - yet social business is none of those.

the success however comes definitely from the way it is applied: the recipients of the microloans are treated with respect, trusted, and encouraged to think for themselves. (unlike when government-funded hand-outs^H^H^H^H^H^H^H^Hcharity gets involved where they dictate every single aspect of the "project" and walk away when it's "done").

Back to your um, advocacy -- You apparently left out a major point that makes things much clearer: Investors and Owners are not the same; although Investors can own, and Owners can invest. The Social business model explicitly repays investors (which can in fact see a gain when you look at investment from the perspective of a loan) but once repaid all profits remain within the business.

yes, yes, yes, and yes. i did mention these things - just... not as clearly as you have. thank you.

it really _is_ just a "business" with a "non loss, non dividend, social goals" as part of the articles of incorporation. the implications of that however are absolutely astounding - and easy to miss - and it takes an entire book to illustrate and drum home the point.

Another requirement is that the workers and/or clients of the business need to make up the lion's share of the owners.

really? ah. i missed that bit. thank you. (got a page number?)

But no matter what the business's bylaws are, it still relies on the integrity of people in charge (or who want to be in charge...) in order to stay true to the original spirit of the business.

absolutely. grameen telecom is a case in point: the xxxxers (investors) decided that once the business was successful (and the bangladesh government had signed off on the airtime licenses) that they would renege on the agreement to sell the business to the workers, thus making the workers owner-investors.

the disintegritous investors claim that the agreement with professor yunus, joint-winner of the 2006 nobel peace price, is "unenforceable". that's going to cost them a hell of a lot.

... but, ultimately, there's nothing they can do, and here's why: investors are just "investors". they cannot do _anything_ unless the directors do not enact the articles of incorporation. and if the directors are enacting the social-business-led articles of incorporation, with the socially-focussed articles being things like "make sure that people get good service" and "make sure that people are charged a reasonable amount for phones", then there's nothing the investors can do.

yes they're "in control", yes they'd _love_ to rip up the articles of incorporation and start telling the directors to exploit the customers for all they're worth... but they can't!

the other way to look at your comment is that you are saying that the directors might be disintegritous. if that's the case, then the directors can be sued for not enacting the articles of incorporation, thus neatly solving _that_ problem.

where you have cartelling between the investors and the directors, _then_ you have a problem. i have to say in the grameen family example of businesses, the chances of grameen trust - and professor yunus - getting _that_ really wrong are pretty slim.

recipients of social business funds are not receiving the money in order to be "milked" for profits: they are receiving the money yes with the aim that they will pay it back but yes they are encouraged to feel that they are worthwhile and that they are not going to be exploited.

thus, the recipients of the funds are empowered beyond belief: not only are they being encouraged to sustain and better themselves, but they are being encouraged to do so _without_ the disempowering threat of having to "repay with extortionate interest"

they get to enjoy the fruits of their labour.

they are no longer "slaves".

it cannot be overemphasised enough that social business is about empowerment, all the way.

it cannot be overemphasised enough that profit-maximising businesses are about enslavement, and about working out who will be the best slaves, because PMBs are never about money, they're always about profit.

and by "slaves" i mean in both first _and_ third world economies.

But one thing struck me from what you described above, and that is the idea of micro-investment.

I'm sure this has been done before and is known by another name, but I'm not an economic or financial expert so apologies if I re-tread a very worn path and seem stupid.

The idea I had was to offer microinvestment in businesses. This sounds like cheap shares / penny shares at first glance, so please allow me to explain with an example.

The new company I am starting will be making a product that could easily be distributed on the OLPC as it is now - it uses the libraries already installed; and would come in at a few hundred kB which is not bad for a full application. It should be useful too because it will offer OLPC users access to one of the most important tools available to science.

But wouldn't it be nice if we could receive micro-investment for our company. What I mean is offering something like a part of a share which is available for a very small amount (say, 1 cent) which even schools in developing countries could afford: perhaps even buying a few to give to each student. In return, we take the money (which is small admittedly, but it should mount up with global distribution) and use it to develop the software in accordance with the investors needs. They have a say in this, so if they want the application in a particular language, we can offer someone something to do it.

Of course, each student's influence will be minor; as probably will be each schools or villages / towns. But taken over an entire country, this influence might mount up to be quite large.

In return, the investors get influence over the company and the product instead of being patted on the head and told to think that they must be lucky to get handouts; and, if the company works, they get a return on their investment and make some money out of it. We also get feedback off our users; and hopefully build a community with them. We all gain from this.

Of course, implementation is not simple: dealing effectively with finance laws will be tremendously hard. As will administering it (though good software might play a part in reducing the burden), transferring tiny amounts of money back and forth; and ensuring that micro-shares are not bought by large companies trying to take over or compete with us, i.e., making sure that micro-shares go to the people they are meant to will be difficult.

Any comments on this castle in the sky?

yes!

What I mean is offering something like a part of a share which is available for a very small amount (say, 1 cent)

well... just my naive $0.01: offering 100 million shares @ $0.01 amounts to the same thing, although you might end accidentally on the spammer-listings "buy stocks in this company! now! only $0.01!" ha ha :)

(p.s. can i have my $0.01 in shares of your company?)

which even schools in developing countries could afford: perhaps even buying a few to give to each student. In return, we take the money (which is small admittedly, but it should mount up with global distribution) and use it to develop the software in accordance with the investors needs.

so... effectively... you're suggesting... instead of receiving small amounts of money (from many people) to be contracted for provision of software/services, you're suggesting to receive small amounts of money (from many people) to invest in software/services where they then have effectively some ownership of the the software/services.

where, of course, i'm assuming that the company they are investing in

They have a say in this, so if they want the application in a particular language, we can offer someone something to do it.

as owners of the company, yes, they have much more right in deciding its future.

i didn't mention it but professor yunus also describes a future concept he would like to see happen: social stock market. a global market where it is only possible to trade stocks and shares of "non-loss, non-dividend, social-

now of course it would be fantastic to see such a stock market as a distributed peer-to-peer application!

no, not a stock market "analysis" tool, an actual STOCK market. with stocks and shares, publicly traded, being PKI-cryptographically-openid-pgp-digitally-signed and then stored in a distributed peer-to-peer database :)

i _wish_ i'd complete sentences :)

"where they are investing of course in a social business" is what i meant to say :)

.... would actually, i think i'm right in saying, be more like "bonds" than it would be like "stocks". if there's no dividends, and the investment agreement is that the investment will be repaid (possibly with interest) within a certain amount of time (which is negotiable), then this is more like bonds. or mortgages.

well... the thing is that the kinds of people who will want to invest in a social business are entirely different from those people who invest in "normal" stocks and shares.

the only thing that any investor - large company or individual - can do is "have their money returned, plus interest", and the only thing that they can do, as an owner, is review the performance of the directors to ensure that they are complying with the articles of incorporation.

it's not like they can sack the directors for not maximising profits or anything, because there will be nothing in the articles of incorporation that says "maximise profits above all else" !

other than that: if a small investor has some shares, then they get to keep them: it's not like they can be _forced_ to sell those shares, against their will, or anything.

so from all perspectives, there is not only no incentive to carry out hostile takeovers but even if one was considered, and successful, there's nothing that the new owners could achieve by doing so!

lkcl: "(p.s. can i have my $0.01 in shares of your company?)"

lol! Sure! But this illustrates one of the problems. How can you get the $0.01 to me without losing a lot of it in fees (PayPal costs would be many times the value I think - and how many common is it as a payment method for developing countries? In the Philippines, PayPal doesn't even operate due to concerns about security).

I guess social businesses would be far less attractive to normal investors so they might not be interested, but of course a hostile take-over bid could be launched after the aggressive company buys the micro-shares.

I think this system could be a good idea, but its implementation is just too difficult until a genuinely equable micro-payment system is in place. Unfortunately, it's the developing world (those that we most want to deal with) that will lag behind in the requirements to participate. Of course there are ways around, but none are as simple as a class session going to a website and "booking" micro-shares for the class.

I'll put you down for a $0.01 share anyway and you can owe me. ;-)

revolution money exchange - people with accounts are allowed to transfer money "free of charges".