Saturday, October 14, 2006

The Right Winner - Muhammad Yunus

Under the heading ‘The Adam Smith of Poverty’, The Times (London) delivers a short editorial piece that both understands what Adam Smith was really about and how his ideas are part of the long path out of poverty, by enabling individuals to create wealth, a process once started that demonstrates to other individuals what they can do for themselves. It is the gradual, incremental and slow accumulation of capital, allied to toil, the division of labour, the propensity to exchange and trust that lifts the poor out of poverty.

The focus of the Times’ editorial is on Muhammad Yunus, winner of this year’s Nobel Peace Prize, a Bangladeshi economist who has devoted his life to a business idea that he was repeatedly told must inevitably fail: a strictly commercial bank for the “unbankable” poor, people otherwise in thrall to loan sharks or bonded labour. “Personally modest, Professor Yunus is an ambitious businessman, a convinced capitalist and a visionary determined to unpick the locks that imprison the poor. His key is credit – he calls it microcredit – and it works.”

“The Grameen Bank that he founded in shocked response to the dreadful Bangladesh famine of 1974 lends minute sums, enough to buy a cow, chickens or straw for making stools: stepping stones to economic independence. Almost all Grameen loans are to illiterate, landless and often even homeless women, the most disadvantaged of the absolutely poor in an impoverished and deeply conservative Muslim country. They have no collateral; they sign no loan agreement; they are the people most vulnerable to cyclones and other natural disasters. Yet Grameen’s repayment record is an extraordinary 98.5 per cent.

“His business model turns convention inside out: priority goes to the poorest and the bank relies on honour and peer pressure. To qualify, borrowers must form a group of five women who must decide which two should get the first twelve-month loans, and what they should be for. Repayments, in tiny instalments, start being collected at village level a mere week later, and only if the first two keep up their payments do the others get loans. The bank helps people to rebuild if their businesses are wiped out by disaster, but requires them to repay these loans, too.

The Make Poverty History campaign has implanted the idea that all debt is a curse, but debt can be beautiful; it is by borrowing that people with nothing can escape. The poor are poor because they have no money.”

Smith’s historical social evolutionary model understands the simple truths that Muhammad Yunus demonstrated – the pathway to commercial society starts with a whimper, not a bang. Smith’s use of the Four Stages of theory of development from low-tech hunter-gatherers, through shepherding, farming and (‘at last’) to commerce, tracks the relentless progress of humankind from savage ignorance to high-tech civilised society, and its possibilities for those still trapped in poverty.

Smith was not about large-scale projects, coasting along on billion-dollar loans or grants through the sticky hands of governments of brigands, strong armed thugs, fraudsters, and thieves. Nor is it about the palliative hand-outs of well-meaning, but at root economically ignorant or politically naïve, charities.
Commercial society nowhere took root over the millennia by either the billion dollar or charitable routes, nor, as Smith showed, did languages, literacy, moral sentiments, technology or wealth creation. Everything that originates from the top down is liable to be corrupted into social tyrannies, the prodigality of elites, the vain glories of empires, their offensive wars for trivial ends, and the decay and destruction of wealth, as history documents on too large a scale to be dismissed as the isolated aberrations of personality or the mere anecdotes of circumstance.

The propensity to exchange begins with two individuals. If it takes root and spreads, wealth creation commences. Smith’s parable of the arrow maker and the hunter in Wealth of Nations began when no World Bank, United Nations, government Development Department, NGO, theory of politics or economics or religion existed. It was already widespread before it was noticed.
Muhammad Yunus and his Grameen Bank began without the aid of any of the fore mentioned institutions. Indeed, he began in defiance of their collective wisdom. He began in direct contradiction of what they stood for and the benefits of his work were proven long before ‘Make Poverty History’ (more correctly, the Perpetuate Poverty Movement) retreated to the very approach that continues it.

For once, the Nobel awarders of their Prize got it right. Adam Smith would be proud of them and of Muhammad Yunus. I think we should be too.


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