Events

Vijay Mahajan

Re-imagining Capitalism: Accounting for Externalities

Editor’s Note: This post originally appeared on Nextbillion.net on April 20, 2012, as part of a series on the Sankalp Forum.

Vijay Mahajan, chairman and founder of the BASIX group. (Image credit: Sankalp)

Historically, when we hear the word “capitalism” we think: markets, businesses, goods and services. But more recently images of Occupy Wall Street, broken global financial markets, inequality and ‘Too Big to Fail’ banks spring to mind. Clearly, there has been a shift in our thinking. From a description of an economic system, capitalism, to many, now represents the big bad markets.

At the Sankalp Summit 2012 last week in Mumbai, the opening plenary, “Reimaging Capitalism” set the tone for the following two days. The panel talked about the need to ‘reimagine’ capitalism, pushing us to conjure up creative definitions of how markets function and what they can do. What would it take to imagine markets being used as more than just a money-making tool?

Listening to the panel, the word that immediately popped into my head was externalities. Economics teaches us that when a good is produced, there is a cost or benefit to society, which is often forgotten by us consumers in day-to-day life.

One of the panelists, Vijay Mahajan, chairman and founder of theBASIX group pointed at the bottle of water on the table next to him, when you look at price we only look at the Maximum Retail Price (MRP). Mahajan suggested that the cost of a product to a buyer is not only the price that they pay for it, but its actual cost includes factors that we often forget to acknowledge; the non-recyclable nature of the plastic, the impact on the environment when the bottle was produced and the water was sourced, the thirst that the water quenched. In other words, the negative and positive externalities.

Social enterprises in that sense have started to assign value to these externalities – it is something that we, at Acumen Fund are starting to try and tackle, along with a group of other organizations in the sector that look at impact investing rating standards. When we make an investment, we assign value to how many lives the company positively impacts, not only how many units are sold. It’s a complicated conversation though. When Acumen Fund investee LifeSpring helps a mother safely deliver a baby girl – it is not only the cost of delivering the baby, but the positive externalities that LifeSpring is having.  For example, how do you measure the impact of the young girl, who 30 years later may positively benefit society by, for example, starting up a school in her locality? This is something that would not have existed had she not been delivered safely in the first place, which makes the accounting difficult.

(The opening plenary at Sankalp. Image credit: Sankalp)

But it’s not just accounting for externalities. During the plenary, another panellist Pravesh Sharma, managing director of Small Farmers Agribusiness Consortium (SFAC), outlined panchsheel (a hindi word meaning five-principles). He suggested that by adopting these five principles of good business, we could successfully re-imagine capitalism. Companies and growing economies, have to be inclusive and open, fuelled by innovation and enterprise, be environmentally and ecologically sustainable, be built on a truly global model that can replicate itself across the world, and exist to provide a voice of choice to even the most marginalised individuals.

Enterprises choosing to target markets that are underserved, or where the market has traditionally “failed,” face a significant series of challenges, only one of which has been outlined above around accounting for externalities. This makes discourse on how markets can do good all the more necessary. The only way to truly innovate, and not regurgitate old ideas is to keep the dialogue open. It’s encouraging to see forums like Sankalp providing a platform to push the conversation further, and allow experts and others to debate how we need to re-imagine capitalism, to truly ignite change.

___

Keya Madhvani is a Business Associate in Acumen Fund’s India office.

Comments

Questions for Aspiring Leaders

Bavidra Mohan, Acumen’s India Fellows Manager, attended this years Aspen IDEAS festival as a Scholar. The Scholarship program was established to invite guests from around the world to bring a diverse set of experiences, voices and perspectives to the rich conversations that take place at the IDEAS festival each year. [Read More]

10 Books We’re Reading This Summer

What are you reading? It is a common question here at Acumen, an organization full of avid readers constantly trading favorite book titles that discuss leadership, impact, development and branding. Here are 10 stellar books we’re reading this summer. These books and others provide a framework of thinking, a spark of new ideas, a platform for debate. So, what are you reading? [Read More]

How Acumen Brought Back my Fire

Eda is an East Africa Regional Fellow from Nairobi, Kenya and is the Founder and Director of Halisi Trust, an organization that seeks to challenge the vices that plague society and encourage transformational development in Kenya’s youth. When Eda applied for the East Africa Fellows Program, she felt disillusioned and stuck. Below, Eda discusses how Acumen’s Regional Fellowship Program brought back her fire. Now, Eda has engaged nearly 6,000 people through outreach events and the Mkenya Halisi movement continues to grow. Acumen is currently accepting applications for the next class of East Africa Fellows. APPLY TODAY! [Read More]

Imagining the world as it could be

Christine Gitau is an East Africa Fellow and an enterprise coach at Craft Afrika, which provides business support services to craft entrepreneurs, enabling them build viable and thriving businesses in Kenya. At Acumen we often use the term “Moral Imagination” when talking about leadership. Christine wrote a reflection on how this concept has shifted her thinking. We could not be more proud of what she is building! [Read More]

How two Acumen Fellows are disrupting the education model in India

Whether its running youth soccer programs, providing vocational training services, or transforming the education system in India, Acumen India Fellows are driving real change in their communities.  Abbas Dadla and Abhilasha Sinha are India Fellows who are addressing the teacher shortage in India through the use of technology and peer collaboration. Find out what they are building below.  If you have grit, resilience and a commitment to creating change in your community in India, East Africa or Pakistan, we encourage you to apply for the Regional Fellowship Program! [Read More]

Meet Manjushree Patil, Founder of Aatman Academy

This month saw violent tragedies in Pakistan and Kenya, regions where Acumen works and which five classes of Acumen regional fellows call home. Among them there are dedicated teachers like Acumen India Fellow Manjushree Patil, crusaders against sex trafficking, builders of government, creators of liberating mobile medical technologies, and curators of slum sports programs. The need for strengthening the connections between those who are working for positive change against seemingly impossible odds has never been greater. We at Acumen have never been prouder to be the thread tying together these courageous individuals. Read more about Manjushree and how she is changing her community in India below! [Read More]

No, not silence again!

The Acumen Fellowship’s Cambridge Leadership Associates (CLA) training is notorious for digging deep, breaking Fellows down to reveal their deepest fears, identifying the sources of resilience that will fuel them with the tenacity to continue along the path to social change. Kahabi G. Isangula is an East Africa Regional Fellow living in Tanzania and recently participated in our CLA training. Get an idea of what it is like, below!  [Read More]

Announcing the Class of 2015 Acumen Global Fellows

Acumen Global Fellows are architects for the impact sector. They are innovators, game changers, visionaries, with various professional experiences looking to make substantial change in the world. They have thrived in companies such as Google; they have started their own companies in Sri Lanka, Canada and Malaysia.  They are choosing the challenge of working alongside our portfolio companies and immersing themselves in a rigorous leadership training. [Read More]