Why not compensate for inflation?

jap

 

Somebody invests $100,000 in a social business. He will get back a total of $100,000 in 5, 10 or 20 years, and cannot take any dividend beyond that. Isn't it unfair? He should at least get back the real value of $100,000. Why not compensate for inflation? Or give some return on investment. 


You are right. In social business, investor gets back exactly the same amount money he invested, no inflationary adjustment or any other compensation is allowed.

First, in social business we have taken out the idea of getting personal monetary benefit, such as, profit.

Secondly, we want to get rid the notion of compensation for financial sacrifice. Once we open the flood gate of compensation, we'll have to deal with many such compensations, such as, inflationary adjustment, opportunity cost adjustment, present value adjustment, risk adjustment; one can keep making this list longer and longer.

If you yield to one type of compensation, it will be extremely difficult to defend yourself why you cannot agree to allow the next type of compensation.

Best thing would be to the keep the concept free from all types of compensations.

On the question of return, two principles of social business are:

a) No financial benefit in terms of profit (beyond getting the investment money back in its monetary units).
b) No compensation, for the losses in real value of the invested money, or on any other ground.

Social business is based on the selflessness of a person. Selflessness is expressed in his total commitment to the ultimate result in terms of impact on people's lives, not worrying about small financial sacrifices along the way. Selflessness means surrendering self-benefit.

Not getting the various financial compensations may be personal sacrifice in monetary terms but it is a gain in psychic terms. This is actually a form of social investment. His pleasure becomes more intense in reaching the social goal because he made those extra investments. That is really the ultimate compensation. Instead of receiving financial compensation one gets compensation in terms of pleasure received from the outcome of the investment.

Supposed some one does not want to trade this financial compensation by psychic compensation is there any way he can still be in social business?

Of course, he can. He can do it very easily. He can divide his investment in two parts. One part will be equity, accepting all its associated conditions (no profit, no compensation). Another part of this investment may be in the form of a loan with interest rate fixed just enough to cover all the financial risks around the equity investment, without making any extra financial gain for himself.

In such a case he may be considered as a full supporter of social business but his shareholding portion will be lesser than before.

This loan will be different kind of a loan from a profit maximizer lending to a social business. Profit-maximizing lender is lending to a social business without any consideration that it is a business dedicated to a social cause. He lends to this social business because it a good profit making investment opportunity for him.

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