Alternative entrepreneurs

As wise people strive to stay healthy to reach their life objectives, wise businesses strive to be sustainable. As we need enough fresh blood to stay healthy, businesses need financial resources to be sustainable. However, building a business on maximising profit means confusing conditions with objectives.

This article examines the main objectives of entrepreneurship, and tries to formulate the differentia specifica of “alternative” businesses (1). An alternative business is a commercial or non-profit organization, where money serves the common good. In our opinion these enterprises are based on godsend principles. We have to promote them, so they do not become endangered species, but rather reach (or keep) a critical mass.

Questions

If we say business, what do we think of? What do enterprises enterprise? To make money? Only for themselves, or also for other people? Are there still people, who enterprise high-hearted? The article investigates these issues.

Theoretical background

Nowadays the notion becomes more and more widespread, that commercial organizations have to be socially responsible, and play a role in sustainable development. We see the proliferation of ethical investment funds, international companies publish sustainability reports. But what do we understand under sustainability in the business sphere? We have a definition for a decade (2), but the approach has not really been operationalized. Put it simple: everybody agrees with the principle, but the way I should live here and now to make the Earth sustainable does not even come to the mind of most of the people, but if it still does, they cannot answer the question. The corporate sphere has realized that this situation might endanger the status quo, as some thinkers (e.g. Daly [1991]) articulated zero growth as sustainable development in practice. This is clearly destructive to the growth myth, which is deeply embedded in the minds of micro and macro level decision makers, so the corporate sphere has established its very clearly operationalized sustainability definition. There is a consensus in this – at least among enterprises, as environmentalists remained silent so far. This definition appears for example in the guidelines of sustainability reporting (CERES, GRI [1999]) or in WBCSD (3) publications. Its essence is that the three pillars of sustainability is environmental, social and economic sustainability. This is most probably true, but there is a flaw: in practice environmental sustainability is made identical with eco-efficiency, social sustainability with sticking to some very basic employer norms (e.g. working conditions, abstinence from child labor), economic sustainability with the profitability of the company.

The three individual pillars cannot hold the “temple” of sustainability, unless we take into account a fourth thing, what we can call ethics, moral, self-discipline, humility or self-examination. But can this be perceived as a fourth dimension of sustainability? Probably no. Moral would rather be seen as a frame or glue to stick together the three factors. Assessing sustainability is not possible through predefined rigid templates, like a set of sustainability indicators. The nature of activity, the size of the company, the renewable nature of resources mobilized, the effect of the product on just distribution of wealth, or the international transport generated by the activity play an enormous, but often neglected role.

A more understandable approach might be if we try to depict sustainability, as the relationship of three concentric circles. The human sphere is based on natural resources, the market is based on the human sphere. In other words the economy is a subsystem of society, which in turn is a subsystem of nature (4). Many of our global problems stem from the fact that we increasingly try to live in such a spirit, as if this relationship (a natural law) were reverse. Mass civilization started to behave not as a responsible father, but as a slave master in exploiting nature (deforestration to build ships in the Roman empire, or to gain grass-lands in Ireland). This process speeded up dramatically since the industrial revolution. A newer development is that economy tries to extend its logic to the human sphere. If we make friends to use them for gaining benefits, this is no friendship any more. If the saving of life is an object of economic calculation, cost-benefit analysis is on a very wrong place. Ernst Schumacher [1991], in his classic work, describes the primacy of economic considerations in a most illustrative way (p. 40):

In the current store of condemning judgments few words have such crushing and decisive meaning as “uneconomical”. If an activity is marked uneconomical, this does not only question its right to existence, but also lost it once and forever. If we find out that something restricts economic growth, this is a shameful thing, and if someone still sticks to that, he is considered a saboteur or a fool. Say that a thing is unethical or ugly, soul-killing or debasing, dangers world-peace or the welfare of future generations – well, until you did not prove that it is “uneconomical”, in reality you did not question its right to exist, grow and multiply.

Any business decision we make, which try to extend the already overextended economic sphere is against sustainable development. Of course, this does not mean that economics, efficiency or profit are bad things, they are the best known practical inventions to fulfil material needs on a mass scale. They are right in their own place, but not beyond!

Is such thinking necessary?

But is it good, if we apply philosophy, ideology in observing businesses or work relationships? Is not business value-neutral? Not man is for business, but business is for men, so values play a fundamental role. Philosophical and ideological considerations are most advisable. Otherwise we tend to act operationally a whole life long, strategy is missing. As an excellent Hungarian architect, Dezső Ekler put: “what always come to our mind is the summer tyre of our car, our insurance and public utility bills, and everything, which is built around us from fear.” Matters like weekend shopping are of course important, man has material necessities, but man should not be ruled solely by material necessities.

Why do we have to redefine entrepreneurship?

Ágnes Nemes Nagy, a contemporary Hungarian poet says that the fiercest enemy of poetry is word. The mission of the poet is to clean and clean words, which are worn out and bleached in chat and blatter, by putting them to the fire of silence. But how are our words worn out? We say pig, and it is not one of the smartest animal, that comes to our mind, but the obscenities of others. We say honour, but we think that such a virtue really does not exist any more. We say public service, but we recall the images of leaders, who serve everything but not the public, although they are elected exactly for that. We say God, but many people think of a bearded old man from history books, whom street activists want to obtrude on them, while they are in a hurry to arrange urgent things. We say Christmas, and people think of presents not yet purchased, we say occupation and children, and we only see barriers to overcome.

So what shall we do? Should we forget about these words and sink them in the fashionable trap-door of politically incorrect expressions? Nowise! We rather think again what these words really mean, and what meaning they can give to our everyday life, if we look at them without their frightening connotations. Joy of life instead of boredom, action instead of apathy, praising each-other instead of chiding, love instead of hate.

What is meant by enterprise?

Coming to the central topic of the article let us see, how the expression “enterprise” has been worn out. In the Webster’s Dictionary we find the following: “1. a project undertaken or to be undertaken, especially one that is of some importance or that requires boldness or energy: To keep the peace is a difficult enterprise. 2. a plan for such a project. 3. participation or engagement in such projects: Our country was formed by the enterprise of resolute men. 4. boldness or readiness in undertaking; adventurous spirit; energy. 5. a company organized for commercial purposes; business firm.” As a delicacy we can learn that there is a city called Enterprise in South Alabama, and the spaceship Enterprise also sounds familiar, where the word specifies the peak achievement of modern technology.

American people consider entrepreneurship a dignified activity, and we could be proud to establish, run or serve an enterprise, after reading the five definitions above. Why isn’t it like that? A possible reason is that although we are aware of the meaning, definitions 1-4. slightly worn out from everyday use. Definition 5, however, is stronger than ever, and I must admit sometimes I am frightened to see where this meaning progresses (mutates?).

As there is a growing public discomfort about the declared egoism of enterprises, we often come to bad connotations. Entrepreneurs / enterprises are rarely seen as heroes of justice or true promoters of the public good. This negative feelings are probably not overwhelming, but definitely exist, and they are generally accepted in certain social groups. Most of the greens, for example, are embarrassed by the word business, and in their internal screen, the incarnation of environmental destruction start to take shape.

It would really do good to enrich the term enterprise with the brave connotations, that have been worn out. But how can we do that? Probably not by PR or other means of propaganda, but to live our own enterprise toward this end. To arrange our small, daily matters in such a way as if we did projects of importance, requiring boldness and energy. Let us participate, commit ourselves, undertake some great tasks bravely, with an adventurous spirit. If we are business decision makers, let us not only envision and beware of a shareholder crying after profit or a stern enforcer of regulation from Washington or Brussels, but listen to our own conscious. Anyway, archeotypical shareholders and regulators exist in much smaller proportion of the population, as we would think. According to recent studies, the public belief that shareholders’ only concern is profit does not hold true, they are exceedingly interested in long-term security, that is sustainability.

What is an alternative enterprise?

What do enterprises enterprise? To make money! We can do that, but money should only come in the second place. In other words let us enterprise for making fair living, but not for maximising financial profit. What is the figure behind “fair living” is something, what one should decide on his own. At the moment the question is not so much the figure itself, but recognizing that the limit exists. Fair living has a limit, profit maximization has no. In mathematic terms we can think of an equation, where profit is a framework condition, but the target function is something else. In economic science we can use the marginal benefit theory. This says that I increase my own benefit, until someone else’s benefit causes me bigger usefulness. More clearly: after the fifth glass of milk, I do not wish to drink a sixth, but I give it to my cat, realizing that she is thirsty as well. I do not give away the first glass; this way we revealed the silently decreasing marginal benefit.

But what should be the target function, if we manage to fight back profit maximising to the category of most important framework condition? Developing the state of natural environment and society. Developed countries should realize that they are best in economics, but the cost they pay are shrinking resources, degrading natural environment, atomising society: abating life everywhere. Developing countries could realize that above a certain level wealth does not bring more happiness, and in the fierce economic competition the GDP of developed countries is a moving target. If they look at this target, they keep on staying frustrated, if changing objectives, they become content.

Maximising environmental and social benefit is also important, because these data show deteriorating trends, while quicker or slower, but GDP keeps on growing. According to the marginal benefit theory our well-being is more and more important than our welfare, higher income does not compensate for frozen friendships, disjoint families, miscarried youngsters, or lost forests, polluted lakes, regulated and concreted riverbeds, large cities circumscribed and cut by an aggressive flow of cars.

How can we enterprise alternatively?

What should I do if I am an entrepreneur or an employee of a company? Try to do good for the people, and at least not to hurt the environment (that is for all living and unliving, which is not human). You will most probably be able to make your living. The stockholder anxious for profit and the law enforcement body will not close down the shop. The billboard campaign of the Hungarian Catholic Church made this appeal to people some years ago: “Doing good is good!” The reason for the message most probably was that despite the world “good” has been worn out slightly, it is still generally accepted by believers and non-believers.

We are convinced; there are enterprises, which are on a good way to reformulate their target function – or keep the extraordinary orientation. But are these really enterprises? We can find some, but really well-known companies like the British Body-Shop or the Americal Ben & Jerry’s are very rare. Besides unlimited and limited companies, we find the most versatile organizational forms, ranging from foundations to special schools, from public benefit companies to cooperatives. These are all very much enterprises, according to the renewed sense of the term. Alternative enterprises are organizations serving a morally higher objective than maximising profit, although they are economically viable. This morally higher objective, in other words public good can be environmental or social benefit, correction of “market failures”, e.g. producing healthy food locally, small-scale energy production from renewable sources, serving other kind of basic local needs, or helping handicapped people. Alternative enterprises could be limited companies, foundations, or organizations without legal and economic forms. Alternative enterprises (5) cannot be observed and understood without women and men operating them. In the sustainability ranking of KÖVET they are called sustaining companies.

Are there examples?

In Hungary we tried to find examples of alternative enterprises. We feel that the five enterprises in the table below are alternative. Alternative in the sense, that they have at least one or two crucial aspects, where values overcome profit. Despite of the undeveloped stage of the empirical research, we find useful to name the examples:

What will happen to traditional enterprises?

So what will be the case with enterprises and companies in the traditional sense? First of all, with a little self-irony, it is not very probable that from next month alternative enterprises impose a serious jeopardy for mainstream economics. They rather fill the market gaps, but they would need more moral and financial backing. Returning to the traditional enterprises; these can change as well. For the slow but sure change we can find good examples in the spreading standards of ISO 14001, cleaner production, environmental reporting, and most recently, corporate social responsibility (CSR). If the reader has doubts of the viability of alternative enterprises, he can lean back in the armchair: there is an abundant need for companies, which basically remain as they are (of course with the clear signs of gradually developing environmental and social awareness). It is possible to produce bread or shoes as an alternative entrepreneur, but it is not possible to make hi-fi sets or automobiles at the moment. The point is not to make everybody alternative, but to save the alternative enterprises. To avoid that they become an endangered species, to help them to reach a critical mass.

We would like that they are noted. To know that it is possible. To realize that they are not more vulnerable to bankruptcy than “usual” enterprises. To put them to the list of best employers, at least in the heads of the talented youth. To make some banks proud of being able to offer credit for them. To make some local governments eager to be able to attract alternative enterprises to their region, and not the largest plant or hypermarket, which can cover the most green square meters. It is also easier: alternative enterprises do not have to be invited and attracted, but to be noted and let live.

Tóth Gergely

(1) Alternative enterprises could also be called enterprises for something else (than profit). They have to be economically viable, but they also have to have higher mission and objectives than maximising profit. The key managers are important agents, but their personal beliefs are not satisfactory; the whole organization must act in this spirit. We will use the term alternative enterprises, (or businesses, or entrepreneurs) and will show their main differences as regards traditional or neoliberal enterprises.

(2) Sustainable development in short is such a development, which meets the needs of the present without compromising the ability of future generations to meet their own needs (Our Common Future 1987).

(3) World Business Council for Sustainable Development.

(4) Based on the ideas of Mihály Polányi.

(5) Which are also called alternative capitalists, the autonomous, diamond or social enterprises.

Alford, H. J., Naughton, M. J. [2001]: Management, as if faith mattered, University of Notre Dame, Notre Dame, Indiana.

Daly, H. E. [1991]: Steady-State Economics, Island Press, Washington, D.C.

CERES, GRI [1999]: Sustainability Reporting Guidelines – Exposure Draft for Public Comment and Pilot Testing, March 1999, Coalition for Environmentally Responsible Economies (CERES) on behalf of the Global Reporting Initiatives (GRI), Boston.

Schumacher, E.F. [1999]: Small Is Beautiful: Economics as if People Mattered, Hartley & Marks.

Verfaillie, H. A., Bidwell, R. [2000]: Measuring eco-efficiency – A guide to reporting company performance, Final Draft Report, June 2000, WBCSD, Geneva.

Alternative Entrepreneurs DVD

Language: Hungarian with English subtitle
Length: 60 minutes
Year of publication: 2006

Description: Can we imagine a modern society, where profit is an important instrument, but not the final objective? Can any company operate realistically in such a spirit? KÖVET made a movie, in which we demonstrate - through real examples - the 'greening' and 'CSR' (Corporate Social Responsibility) process of today's corporations. We also introduce so called 'Alternative Entrepreneurs', whom we think are the closest to economic actors working in harmony with the ideal of sustainable developement.

To order the DVD, send an e-mail to info@kovet.hu. Price: 9 euro.