‘ Economics is a pointless subject,” Muhammad Yunus, the Nobel Peace Prize winner, finance pioneer, and scoundrel analyst told Time publication a few months ago.
Little did he realize that he would shortly have the chance to illustrate his point. Following the resignation of Bangladesh’s autocratic perfect minister, Sheikh Hasina, earlier this month, Mr Yunus was chosen to lead the government’s caretaker government.
Founded in 1971 after a terrible war of independence, Bangladesh is an unlikely candidate to be a poster child for growth, given its exploding community and serious risk to natural disasters. But by the 1990s, it had a reputable say to this subject. Bangladeshi figures like Mr. Yunus ( with his Grameen Bank ) and Fazle Hasan Abed ( the founder of the anti-poverty nonprofit BRAC ) were using a third tool, civil society, when many other developing nations were being suffocated by the neoliberal Washington Consensus.
In Bangladesh at the beginning of the 2000s, I first first saw the first work of these ground-breaking NGOs. They searched for options in the field rather than on the board, creating a global petri dish for developments in creation. As one of my respondents put it, Bangladesh was” the Wall Street of creation”.
Like the real Wall Street, however, Bangladesh’s model ran into trouble around 15 years ago, when Ms Hasina returned to power ( she had previously served as prime minister from 1996 to 2001 ). The head of the liberal Awami League and the girl of Bangladesh’s” foundation father”, Mujibur Rahman, Ms Hasina was actually seen as a symbol of democracy. However, her career took an disturbing move toward authoritarianism and widespread corruption, and things finally came to an end this summer when she attempted to impose a violent crackdown on relaxing student protesters.
This year’s turmoil was a reaction not only to Ms Hasina’s restrictive elections, but also to her monetary policies. To be sure, fast GDP growth and equipment advancements gave Bangladesh a reputation as an financial” magic”. However, Ms. Hasina had repressed the civil-society organizations that had initially put Bangladesh on the image of creation. She was particularly scornful of Mr Yunus, whom she called a” harpy”. Her state pursued him on a number of false constitutional claims after she forced him to step down as Grameen Bank’s head in 2011.
Ms Hasina’s personal financial strategy was to get a page out of the typical development-economics playbook. To saddle export-led development, she positioned Bangladesh as a low-cost manufacturing hub for clothes. With breathtakingly low wages and little oversight, the country became the nation’s fast-fashion sweatshop.
There were very few job opportunities for college graduates outside of state positions, which are distributed through a corrupt, cooking quota program. The summer demonstrations were caused by this method, along with higher prices and other lingering results from the crisis.
Bangladesh’s development qualifications are in a major exam now that the groundbreaking youth have given Mr. Yunus an extraordinary degree of influence on the national and international stages. Was the civil-society-centric” Bangladesh type “always only a colorful aberration from classical economics and its plan prescriptions, or does it represent a real challenge?
The main innovation of microfinance was that it provided loans without the financial or legal guarantees ( such as collateral and binding contracts ), which regular economics insist were necessary. Despite what the conventional wisdom would suggest, global microfinance institutions ( MFIs ) report repayment rates of over 90 %.
While Mr. Yunus was widely regarded for his contribution to one of the most significant development initiatives of the past few decades, I have long suspected that the internal insight at the heart of the microfinance model might influence our thinking more widely.
Rather than assuming that consumers ( mostly poor people in Bangladeshi villages ) were utility-maximising” rational players” for whom payment would be absurd in the presence of force, MFIs took a chance on them. And instead of targeting individuals, MFIs lent to groups of five or so women. The logic of this approach is obvious because people are almost always a part of groups. Intra-group dynamics are infamously undertheorized in economics, where households and firms are the main decision-making agents and analytical tools.
MFIs adopting this strategy lead to social cohesion in the recipient groups, who typically hold regular meetings and public repayment rituals, resulting in prosocial behavior from all participants. As I have noted in work contrasting India’s SKS Microfinance with Grameen Bank’s track record, it is these social-reinforcement mechanisms, rather than the economic incentives, that underpin the model’s success.
Another valuable insight from microfinance is that getting group sizes right is crucial, which in this case typically means keeping groups small. While Leopold Kohr and E F Schumacher made this point in the past, mainstream economists still are obsessed with scale economies ( bigger is always better ).
The Bangladeshi microfinance model is unique because it was incubated in the Global South rather than imported into it, and has been replicated in more than a hundred nations. Because of its provenance, it is well suited to the cultural context in which it operates. For example, since borrowers in heavily rural, agriculture-based economies generally find it difficult to access banking services, microfinance bankers have recognised the need to go out to the villages.
Mainstream economics has largely dismissed the insights from microfinance as folksy, feel-good anecdotes. But in a new project, in collaboration with a team of scientists, I explore the potentially profound significance of” social preferences “in economic arrangements.
Could a system designed to “involve” people’s instinctual rather than deliberative behavior elicit systematically different behavior? What if we place the premise of a prosocial economic agent rather than an egotistical, atomistic one? What if we reorganize our networks to improve their cohesion? Perhaps we could avert economics ‘ self-fulfilling prophecy of a commons tragedy. If we stop” crowding out “our intrinsic goodness, perhaps we can build what Samuel Bowles calls a” moral economy”.
One hopes that Mr. Yunus will inspire Bangladesh to turn from being the world’s sweatshop to acting as the world’s laboratory for social and human development. The “banker to the poor” can help give economics the real-world experience and spirit of innovation it so desperately needs at a time when many are debating what comes after neoliberalism. ©2024 Project Syndicate