Tomorrow (Wednesday) at Vendome

Tomorrow (Wednesday) at Vendome, starting 6 PM.

If attendance is robust I might have just 5 minutes to present but if it’s sparse I might even be able to tell you about two books on poverty reduction and also read one of my new short stories (flash fiction) to you.

So it’s win-win: Either we get a great turnout or each of us who attends gets lots of time to present.

One of the books about poverty reduction has to do with the microfinance idea (Muhammad Yunus, Grameen Bank, Bangladesh) and how it has failed. Instead of reducing poverty it has created a “local neoliberalism” that often makes the poor worse off – even as it is creating “microfinance millionaires.” The author, Milford Bateman, also describes (by contrast) how various other models have worked very well for reducing or eliminating poverty in various parts of the world (Mondragen in the Basque region of Spain, Township and Village Enterprises on the southern coast of China, etcetera).

The second book is about the concept of a universal basic income as an approach to reducing poverty. This is a hot topic in Canada nowadays.

https://en.wikipedia.org/wiki/Basic_income_in_Canada

Book Share Book Share: (Milford Bateman) Why Doesn’t Microfinance Work? The Destructive Rise of Local Neoliberalism (2010)Muhammad Yunus received the Nobel Peace Prize in 2006 for his Grameen Bank initiative which was celebrated as a way for even the poorest of the poor to escape from poverty. Author Milford Bateman refutes this rosy picture of microfinance. The basic design of Grameen Bank soon underwent a commercialization, which began to overturn most of the principles that Yunus had insisted were essential to achieving the Grameen Bank’s purpose. Bateman explains that “new wave” microfinance initiatives have created a “local neoliberalism,” which generates microfinance millionaires (because the microfinance institutions provide a disproportionate profit incentive for the winners) and leaves many of the clients in even deeper poverty than they were before they borrowed from the microfinance institution.

As a contrast to that failure of “new wave” microfinance, Bateman summarizes a number of case studies in which a very different approach has in fact been successful in lifting the general population out of poverty, either in a region (e.g. the Mondragon initiative in the Basque region of Spain) or a country (e.g. small and medium enterprise initiatives that were an essential part of Japan’s economic recovery after 1945 – along with the larger scale industrialization). A careful reading of the book indicates that these success stories have often – perhaps always – incorporated a type of “microfinance” or microcredit that is specifically designed to benefit the population at large, including the poorest of the poor. Thus the title of the book is potentially misleading. The author has worked as a consultant on local economic development for international development agencies, local governments, and NGOs. He notes that some form of “microfinance” had been in existence for a long time. The Grameen Bank model never seriously challenged market capitalism. Instead, it created a story that those in poverty were themselves to blame because now they had a way out. “So, Yunus’ idea and ideals were never about seriously challenging capitalism, but essentially about bringing capitalism down to the poor to legitimize and strengthen it.” (p.203)

Some individuals associated with microfinance institutions have risen from very low incomes into “stratospheric wealth.” These “microfinance millionaires” are emblematic of a process that undermines sustainable economic development for all, as the author explains. “The problem is that the lure of such huge financial rewards inevitably distorts and misdirects the institutional response to poverty, especially rural poverty.” (p. 124)

Bateman explains that the great majority of the “new wave” microfinance loans are to pay for costs of consumption (basic needs) and not for starting up small enterprises. This is contrary to the popular myths, intentionally cultivated, which most people hold about what microfinance is doing.

A false premise inherent in the Grameen Bank strategy was that it would be possible to create an unlimited number of microenterprises because their growth would automatically generate a corresponding increase in the demand for their goods and services. This premise was quickly shown to be false in Bangladesh, writes Bateman, but that fact was kept quiet by the proponents of microfinance. Another fact kept quiet has been the mass exodus of clients from the microfinance system.

The author notes that there are some minor positive impacts of “new wave” microfinance, such as “providing important immediate help for ‘at-risk’ individuals recovering from conflict, natural disaster, or economic collapse….” However, the net effect is a “gradual and inexorable primitivization and weakening of the typical local economy in microfinance ‘saturated’ countries, regions, and localities….” This can be referred to as an “Iron Law of Microfinance,” Bateman states (p.206).

Having abandoned the redeeming features of the original Grameen Bank model, the “new wave” microfinance is increasingly greed-driven. The system is designed to benefit two groups: First, the institutional investors, many of them located in rich countries; and second, the owners and employees of the microfinance institutions themselves (the latter being part of the antisocial phenomenon Bateman calls the “microfinance millionaires”).

For more than thirty years the microfinance industry has been searching for evidence of positive impacts of microfinance on sustainable economic development and poverty reduction. Except for the ability to pay for itself, Bateman argues, there is essentially no such evidence to be found. “The ‘new wave’ microfinance model’s claims to be a poverty reduction tool are now dead in the water.” (p. 207)

Despite that lack of evidence, microfinance continues to be promoted by the “neoliberal elite.” This is because removing subsidies and promoting dependence on market interest rates is a global imperative of neoliberalism.

An essential element for sustainable economic development with economic equity for all, is political solidarity dedicated to that principle. Seducing individuals to become microfinance entrepreneurs (maybe even millionaires) undermines that political solidarity.

Bateman gives eight examples (case illustrations) of financial sector models that have been associated with local and regional development success: 1) Japan’s quick recovery after the Second World War; 2) the Basque (region of Spain) experience with a community development bank; 3) Northern Italy’s local-regional financial model; 4) Taiwan and South Korea (previously extremely poor countries whose success in the second half of the twentieth century became associated with the so-called East Asian “Tiger” economies; 5) local finance crucial to China’s rise to power; 6) the widely-known success of Kerala state in India for its achievement of very high levels of human development despite persistently low levels of GDP per capita; 7) Venezuela’s popular economy experiment; and 8) Vietnam’s poverty-reduction model, widely recognized as one of the most successful of the last twenty years. In the section on Vietnam, Bateman emphasizes its heterodox microfinance model which “works spectacularly well” and summarizes (pp. 195-196) several key differences from the “new wave” microfinance model: a) Vietnam’s MFI (microfinance institutions) are not privately owned, but typically public or semi-private entities. b) They have much lower administrative expenses partly because they do not pay big salaries and bonuses and partly because they are subsidized by outside bodies and the state. c) They do not borrow to fund their activities, relying instead on equity, donations, and savings. d) They are mainly policy-based lenders, providing loans to initiatives most likely to help with development and poverty reduction. e) They charge much lower interest rates than elsewhere in the world (in 2008 between 8 and 13 percent).

This book raises a raft of complex questions, but is certainly an important contribution to understanding how poverty can be reduced and human development fostered worldwide