We are aware of the private sector, the public sector and the non-profit sector. To state the most important criticisms of the existing sectors: the private sector is believed to be only profit driven (no social aspects), the public sector inefficient, and non-profits are mostly unsustainable when it comes to financials (this is evident from the high mortality rate of NGOs). To address all these major flaws in the existing sectors we need a Fourth sector.
Two weeks back I attended the 12th World Business Dialogue at Cologne. It was an amazing conference where 300 business and economics students from across the globe were selected to interact with Europe’s top executives over several workshops. In one such workshop, we discussed the need to evolve a Fourth Sector.
The Fourth Sector comprises social businesses, examples of which I have been giving in my previous blogs and of which Maria spoke in detail in her recent blog. It is also called sustainable business or social enterprise. In the conference, I learned about a proposed concept that takes this nascent idea a step further.
The idea is that if such businesses have Real Return on Investment (RROI) which exceeds 5%, the excess amount should be spent on creating more such businesses. This is necessary to boost the Fourth sector. For example, if the rate of interest in a country is 10% and the return on investment on a social enterprise in that country comes to 25%, then its RROI is 15%.
So according to the proposed idea, if the RROI is above 5% (as in the example above), the entrepreneur should volunteer to spend the extra profit in setting up more such enterprises or donate the amount to a common fund that will invest in starting such enterprises. This will help to establish a chain of such enterprises in each and every industry and thus develop a Fourth Sector.
Great idea but a real challenge!