Pushing the concept of social business
FTX, a crypto assets exchange in the US, founded and run by Sam Bankman-Fried collapsed recently and has filed for bankruptcy. FTX, along with related firm Alameda Research, is said to have incurred losses of $3.7 billion.
The crypto market is in turmoil as these firms are closely connected and generally lend and buy from each other. Other crypto firms that have collapsed recently include Voyager Digital Holdings, Celsius Network, and hedge fund Three Arrows.
The narrow segment of investors who also refer to these assets as crypto currency have poured in lot of money. There are always people who think anything is worth buying as long as you can get a higher price for it. You can see them tearing up slips of paper outside race courses.
What makes FTX unique is the philosophy that its founder touted. Called ‘effective altruism,’ the idea was that one should compare charitable causes and only contribute to those that generate a high return. So you might choose cancer research over an orphanage. Bankman-Fried publicly claimed that he was into business only so that he could generate large sums of money that he could give away.
He said he wanted to prevent future pandemics and make the world a better place. He created an FTX Foundation that called for proposals and is said to have committed about $160 million to various research and other causes. Needless to say, all this generated favourable press, generating more investments. He soon was listed among the world’s 100 richest people.
The problem was that Bankman-Fried did not seem to know too much about how to run an organisation. The new chief executive, a turnaround expert, has said that he sees in FTX a ‘complete failure of corporate controls.’ He says many assets are missing or stolen. There was no separation of activities between FTX and its related units, poor records kept of monies lent and owed, and so on. Fortunately, none of the major banks and financial institutions have much exposure in this chimera of cryptoassets and so the disease may not spread to the larger financial system.
Like in the heyday of derivatives, people are investing in cryptoassets without understanding what they are. Those with money to spare can throw it into cryptogutters and that is not our concern. But finding otherwise sensible money managers in reputed investment firms motivated by ‘effective altruism’ to invest in a questionable business is surprising. There are other concepts floating around that make more sense if you want to do good through business.
Business with a cause
One is ‘social business’ where firms have both business and social objectives to aim for. These organisations are committed to running on sound business principles and while meeting their social objectives, yet generate a surplus or at least do not make a loss. Mohammed Yunus, of Grameen Bank fame, has been promoting this idea and his collaboration with Danone in Bangladesh runs along these lines. There are many other such firms around the world.
And an even more powerful idea is Gandhiji’s trusteeship. Gandhiji never thought there was anything wrong with business or capitalism. He only wanted people to run their business well, but think of the money they made in excess of their needs as being held in trust for society and to use it accordingly. Like Jamnalal Bajaj. When successful business people approached him to give it all up and join the freedom movement, he would send them back saying your skills are in business and do that well.
If Azim Premji and Bill Gates are able to give away large sums to charitable causes, it is not because they mouth shibboleths about charity but are smart businessmen who made money. They would make Gandhiji proud.
The writer is an emeritus professor at Suffolk University, Boston