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Profits but also liabilities

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Lehman Brothers ….short terms profits and finally long term liabilities

In our economical environment, the social entrepreneurship trend seems to increase. The social entrepreneurship appeared in Europe and in the United States during the 90’s. This economical model, by opposition to the traditional economy, is not based on the maximization of profit, but is focused on social en environmental aspects, and these enterprises allocate their profit to meet these two requirements.

I often hear some remarks about social businesses who receive some subsidies from the authorities. People are wondering if the authorities are doing a good usage of their money when they are giving subsidies to social enterprises, subsidies that are necessary in some cases, in order to be on a break even position. This question is totally justified. The public money need to be allowed to projects that presents a real added value for the society, projects providing a return on social, environmental or public investment. But by asking such question, it is interesting to analyze two aspects of businesses or activities: profit and liabilities. The goal of companies, and specifically the one’s quoted on stock exchange markets,is to maximize and to make comfortable profits. We agree that profit is necessary to ensure the financing of growth and development of activities on a long term basis, but this maximization of profits is not always based on a long term view. By cutting costs in order to increase their short term profits, we nearly hear each day companies cutting in jobs. But by suppressing jobs, you are losing know-how. The question is to know, what the return value of the know-how is, on a long-term basis. By cutting in your know-how, you are cutting also in a potential source of long-term revenues. By re-injecting your profit in manpower development, you will probably do a better investment. And the cost for the collectivity would be less expensive. Indeed, people loosing their job depend of the collectivity. Here is a first example of the privatization of profit and the socialization of the liabilities.

Let us talk also about the financial crisis, linked to the sub-primes, where banks made profits at a certain time, and when the wind began to change, with a flow of bad news, with the bankruptcy of some banks like Lehman Brothers, the bills were presented to the governments, who had to inject money in safety plans, to protect the money of the citizen. In fact, it is the citizen who had to pay the bill to protect his savings.

And what about the environmental liabilities? Many industries are consuming raw materials, extracted from the hearth. The impact on the environment is important, when the companies try to minimize the preventive action to avoid a negative environmental impact, in order to minimize costs related to that prevention. Here again we are in front of a new example of privatization of profit, and socialization of liabilities. In a social enterprise model, the environmental impact will be minimized by using alternatives that will be probably more expensive, but financed with a part of the generated profits. In this case, the financial profit will be lower, but the environmental liability will be lower too. And let us take about the potential social positive impact. By using for instance recycling businesses and technologies to minimize the environmental impacts, we can create jobs for low or non qualified people, and so decrease also the social liability impact.

By mentioning these few examples below, I wanted to underline that it doesn’t make sense if you consider only profit and not liabilities, only private profit and not public liabilities. And often, the short profits are lower than the long term social, environmental or financial liabilities. These are the consequences of lack of long term view, of ethical vision. Some companies probably created financial value on a short term basis, but destroyed value on a long term basis, and the invested amounts and energies to reach finally such results appear to be a huge waste. Long term vision, quality and ethic are the component of sustainable businesses, and it is not so stupid to say that each business should be social, if you consider that the economy is there to serve the human being, and not the opposite. Economy can not exist without human being. There are running the economy and each of them should benefit of it.

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Written by Eric Saint-Guillain

November 19, 2012 at 21:39

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