Thought for the Day

[bcholmes]

To be sure, capitalism is thriving. Businesses continue to grow, global trade is booming, multinational corporations are spreading into markets in the developing world and the former Soviet bloc, and technological advancements continue to multiply. But not everyone is benefiting. Global income distribution tells the story: Ninety-four percent of the world income goes to 40 percent of the people, while the other 60 percent must live on only 6 percent of the world income. Half of the world lives on two dollars a day or less, while almost a billion people live on less than one dollar a day.

Poverty is not distributed evenly around the world; specific regions suffer its worst effects. In sub-Saharan Africa, South Asia, and Latin America, hundreds of millions of poor people struggle for survival. Periodic disasters, such as the 2004 tsunami that devastated regions on the Indian Ocean, continue to kill hundreds of thousands of poor and vulnerable people. The divide between the global North and South -- between the world's riches and the rest -- has widened.

[...]

What is wrong? In a world where the ideology of free enterprise has no real challenger, why have free markets failed so many people? As some nations march toward ever greater prosperity, why has so much of the world been left behind?

The reason is simple. Unfettered markets in their current form are not meant to solve social problems and instead may actually exacerbate poverty, disease, pollution, corruption, crime, and inequality.

— Mohammad Yunis, Creating a World Without Poverty

Also:

Over the years, I have been watching the difference between the business styles of the World Bank and Grameen Bank. Theoretically, we are in the same business -- helping people get out of poverty. But the ways in which we pursue this goal are very different.

Grameen Bank has always believed that if a borrower gets into trouble and cannot pay back her loan, it is our responsibility to help her. If we have a problem with our borrower, we tell ourselves that she is right -- that we must have made some mistake in our policies or in our implementation of those policies. So we go back and fix ourselves. We make our rules very flexible so that they can be adjusted to the requirements of the borrower.

We also encourage our borrowers to make their own decisions about how to use the loans. If a borrower asks a Grameen staff member, "Please tell me what would be a good business idea for me," the staff member is trained to respond this way: "I am sorry, but I am not smart enough to give you a good business idea. Grameen has lots of money, but no business ideas. That's why Grameen has come to you. You have the ideas, we have the money. If Grameen had good business ideas, instead of giving the money to you, it would use the money itself and make more money."

[...]

It is quite different with the World Bank. If you are lucky enough to be funded by them, they give you money. But they also give you ideas, expertise, training, plans, principles, and procedures. Your job is to follow the yellow lines, the green lines, and the red lines -- to read the instructions at each step and obey them precisely. Yet, despite all this supervision, the projects don't always work out as planned. And when this happens, it is the recipient country that usually seems to bear the blame and to suffer the consequences.

Comments

[hellsop.livejournal.com]

I am not sure that Yunis is correct. "Free enterprise" and "free market" as such have nothing to gain from keeping people in poverty. The poor do not have much to sell, and can buy even less. The failure of the free market to provide for the poor exists where the markets are (in fact) not free, for any of (or combinations of) many reasons, such as a powerful entity taking without buying the resources of the poor, steep restrictions on what trade the poor may engage in, etc. Those kind of things are outside of enterprise as such, and do therefore need to be handled by non-enterprise means.

[bcholmes.livejournal.com]

First, I don't think that Yunis' entire argument is contained in my quoted sections.

I think he's asserting (and I am sympathetic to his argument) that the current implementation of free markets and free enterprise always privilege profit more than poverty reduction or other social goals, and that the greater emphasis on free trade and globalization has manifested in greater inequality and more poverty and that this is not circumstantial.

The failure of the free market to provide for the poor exists where the markets are (in fact) not free

I don't think I can disagree with this strongly enough.

[didactic-cudgel.livejournal.com]

How can the free market or free enterprise, as non-sentient systems, have responsibility to the poor? Does Yunis provide an alternate and superior functional system that both creates capital and wealth while also flattening the bell curve of wealth distribution, that also doesn't remove the incentive to produce wealth?

[bcholmes.livejournal.com]

Urm. Your questions don't make any sense to me.

I'm not sure that the word "responsibility" fits in there at all. It's sort of like asking "how can the free market have responsibility to maximize profit." I mean, it's clear that the current free market system selects for businesses that maximize profit, and that those are the businesses that dominate. But, uh, responsibility isn't really a concept that factors in there.

Yunis' book is about social businesses, and why he thinks that social businesses are a good way of creating institutions that are more likely to succeed at social goals like poverty reduction. Microcredit lending institutions are one form of social business, for example.

I'd also suggest that current business structures don't produce wealth: they consolidate wealth so that fewer people have more of the money. That's been a clear trend over the last fifty years.

I'm not entirely sure I'm agreeing with everything Yunis has written. He says things that make me go, "really?" Like, he doesn't think that the World Bank should be eliminated. But his arguments are interesting.

[didactic-cudgel.livejournal.com]

Two things lead to my placing "responsibility" in there.

from the original Yunis quote:
What is wrong? In a world where the ideology of free enterprise has no real challenger, why have free markets failed so many people?

and from hellsop:
The failure of the free market to provide for the poor exists where the markets are (in fact) not free

Both statements imply or seem to imbue free market/free enterprise with a sort of duty (else, how can there be a failure?) to the poor. That implication made no sense to me, hence my question.

In any economic system, there will always be people on the left tail of the bell curve. At least, any that I've ever seen, and those that try to flatten the bell curve cut down the tall flowers and starve off the short ones.

Of course, I don't believe that there is anything wrong in inequitable distribution of wealth, so we see things differently a priori.

Again, edited to fix mark-up. PIMF

[bcholmes.livejournal.com]

To recognize that the system selects for certain attributes is quite a bit different than saying that it has certain responsibilities.

Of course, I don't believe that there is anything wrong in inequitable distribution of wealth, so we see things differently a priori.

There's unequal, and there's grossly unequal.

Further, the unequalness is trending toward more and more unequal. Personally, I have a problem with that and view it as a failure of the system.

[didactic-cudgel.livejournal.com]

To recognize that the system selects for certain attributes is quite a bit different than saying that it has certain responsibilities.

Then I misunderstood your intent and read a different implication. My mistake.

As for the failure of the system, what's the solution? Government?

[bcholmes.livejournal.com]

what's the solution? Government?

I doubt that the solution is going to be neatly summarized in one-word answers.

Yunis' book is asserting that one item that can play a role in the solution is what he calls a social business. I'm not sure I'm persuaded by his argument, yet, but it's an interesting one.

For my part, I think two things:

1) I don't think that there is "one" solution. I think solutions will require multiple strategies, some of which will fail.

2) I'm not sure that the world is ready to be at the solution stage yet. I think that we may need to talk about the scope and complexity of the problem for a while. I think some people (like Yunis) have been thinking this through longer than others, but I think there's a real dearth of large-scale conversation about the problems.

[didactic-cudgel.livejournal.com]

1) certainly true
2) almost certainly true, and, frankly, beyond my abilities. I'm just an idiot on the internet. And a shallow thinking one at that.

[bcholmes.livejournal.com]

To be even more clear, the idea that combined annual income of the 225 richest individuals in the world is greater than the combined annual income of half of humanity should be, in my opinion, an intolerable outcome.

[aquaeri.livejournal.com]

The failure of the free market to provide for the poor exists where the markets are (in fact) not free

This is in fact mathematically proveable not to be true. Truly free markets have as a natural consequence a few rich and a lot of poor. I unfortunately don't have a cite for this - I read about it in I think a chemistry text (as an example of how human intuition about randomness is really lousy). But the computer simulation is simple enough that you can set it up and prove it for yourself.

[bcholmes.livejournal.com]

I am not sure that Yunis is correct. "Free enterprise" and "free market" as such have nothing to gain from keeping people in poverty. The poor do not have much to sell, and can buy even less.

Also: what the free market gains from poverty is access to cheap labour. Only the poor are going to work for a dollar a day.