After the Norwegian Nobel prize committee decided to give the United States president Barack Obama the peace price, a president that later came to continue to war in Iraq, and also fund insurgents in Syria, I seriously started to doubt the reasoning skills of the members of this Nobel Prize committee. And after having watched the documentary ‘The Micro Debt’ by Tom Heinemann, I have concluded that the Nobel Prize committee (at least those handing out the peace prize) do not know anything about what it means to create actual peace in this world. Because when they decided to give Muhammad Yunus the peace price, for having founded the Grameen Bank, and invented the concept of micro loans, and for thereby apparently having found a solution to poverty, they were obviously not using basic mathematics to assess the outflows of such loan methods.
Though, before we dive into the basic mathematics of Micro Debt and whether this can be a solution for poverty or not, let me share the story of Muhammad Yunus, his bank, and the stories that has begun to surface about his money lending practices. It begins in 1976 when Yunus (supposedly) found out that small loans could make a disproportionate difference in a poor person’s life. According to Wikipedia, the first loans Yunus gave, made it possible for the borrowers to profit. Yunus business expanded, and by July 2007, his bank had issued around US$6.38 billion to 7.4 million borrowers.
As mentioned above, Yunus was awarded the peace price in 2006 for his efforts to create economic and social development. However after the release of the documentary ‘The Micro Debt’ the Bangladeshi government decided to review Yunus bank, and Yunus himself was removed as Managing Director of his bank. This is not particularly strange considering the claims that are made in the documentary, and the compelling evidence that it presents, that the micro debt is not at all a solution for poverty, but rather a trap, making the large amount of borrowers worse off than before.
Though in this blog I am not going to focus on Yunus and whether the claims made against him are true or not. My focus will instead be the concept of micro credits and whether these loans makes any sense; is it really possible to remove poverty through debt? The Micro Credit concept is not unique to Bangladesh; it has also become popular in South Africa, where it has created the opposite of poverty reduction. The following quote gives a stark description of the situation that unfolded.
”The microcredit-induced problems that emerged in South Africa are two-fold. First, microcredit per se is actually an “anti-developmental” intervention. For one thing, it exists on paper to support the smallest income-generating activities, but in practice is increasingly all about supporting consumption spending. In South Africa, the microcredit movement has created an incredibly risky and expensive way to support the immediate consumption needs of the very poorest.
With few poor individuals possessing a secure income stream that might ensure full repayment of a microloan – unemployment is now higher than it was under apartheid – many of the poorest individuals have been forced to repay their microloan by selling off their household assets, borrowing from friends and family, as well as simply taking out new microloans to repay old ones. For far too many now “financially included” individuals in South Africa, using microcredit to support current spending has been a disastrous and irreversible pathway into chronic poverty.”
Milford Bateman, Microcredit has been a disaster for the poorest in South Africa, http://www.theguardian.com/global-development-professionals-network/2013/nov/19/microcredit-south-africa-loans-disaster (2015-09-25)
Academics and other proponents of the Micro Credit as a way out of poverty makes the assumption that the money lent will be used by the borrower to further his business. This however, is just that, an assumption. Most poor people are just as middle class people, not entrepreneurs, and do not have a very entrepreneurial relationship with money. The loan will be used to buy goods for immediate consumption, and will only serve to put more pressure on the debtor. In worst-case scenario, this will lead the already poor person, to loose the little safety they do have, when they are forced to sell their house to meet interest and installment payments.
Further, those borrowers that are indeed entrepreneurs, and that do invest their money in a business, there is nothing that says that these businesses will be able to profit. Nine out of ten startups fail – and that number will probably be even higher when not only you, but also all of your neighbors, decide to go out on the streets and sell the same thing – which did happen in South Africa.
Then we have the big problem when it comes to Micro Credits, the interest rates. On some of the Micro Loans that interest rate will be at 100 % or more. There is no startup that yields a sufficient profit to cover such a high interest rate. Conveniently for the creditors, most of the debtors are not proficiently literate, and will thus not really understand what they are signing.
Yunus was applauded when he was able to offer loans to poor people that cannot offer any securities in case they would forfeit on their installments. However, to ensure repayment of the loans, Yunus bank have developed a system of “solidarity groups”. It is these small informal groups that together apply for loans and its members act as co-guarantors of repayment and support one another’s efforts at economic self-advancement. Hence Yunus use the psychology of group pressure to ensure that the poor people are sufficiently motivated to pay back their loans. And even though this might seem innocent, in reality it has lead to the most horrific of consequences. One woman that was unable to pay her loan was pressed by her co-guarantors to take up prostitution as a way to meet her installment payment. That woman later poured kerosene on herself, and lit herself on fire. That is the effectiveness of group pressure when survival is in the picture.
What are we then able to conclude from all of this? One thing is clear: We cannot trust academics to know what is right! Even though they have a degree in economics, and even though they have received the Nobel peace price, that does not mean they actually understand how reality operates. Academics have their nose buried in deep books and because of that they will many times miss what is right before their eyes. Hence, we have to educate ourselves, and take responsibility. We cannot rely on a small intellectual elite to know how to solve such things as poverty – this is a problem that involves, and touches all of us, and accordingly it is everyone’s responsibility.
Then, the second thing we can learn: Change cannot come through DEBT. The very reason why we are living in a world where money is increasingly more difficult to obtain is because of DEBT. We live in a debt based system, and this forces us to work more – and even still there will/must be a loser. With debt, someone always loses; someone must be that poor guy that has to pay back the interest.
Real change will come through changing the structural design of the economic system – because only through changing the rules of the game are we removing this incessant fear of survival that is currently holding the entire human race in its grip. That structural change must involve giving all human beings a dignified life, real security, real safety, and easy access to money. This cannot come from debt, as debt is the very instigator of fear, anxiety and stress.
Hence, if you are interested in solving poverty, I suggest that you investigate the Living Income Guaranteed. This is an economical system that will revolutionize the way we think about money – and that is precisely what we need. We need something new, a brand new way of looking at things – a fresh start – free from debt and the old pessimistic ideas that apparently, poverty is unable to be removed from the face of this earth.
For more reading:
Watch the documentary ‘The Micro Debt’
Investigate the Living Income Guaranteed Proposal
This summer I had the mixed pleasure of reading a course in Microeconomics and International trade. In microeconomics the primary focus of the researchers is to establish ‘What is the market really doing and why?’ – and this is attempted to be done utilizing mathematical formulas; primarily utilizing the famous graph where two lines cross each-other, the one line sloping downwards (demand) and the other sloping upwards (supply) – and where they meet each other = that’s apparently the optimal price for the product and the optimal quantity of that product in that given market.
What first struck me as being fascinating about these theories was that they seldom predicted how the market would behave in reality, and neither could they be verified with empirical evidence – and most of the time the authors of the my books where busy trying to find reasons and various viewpoints as to why these theories wasn’t working “as they should” – and how they probably did work but it was just that the inventors missed to take into consideration some important factors and variables.
Though, what was the most fascinating about this entire area of research, was how there was this complete worship to the idea that lower prices = higher consumer satisfaction; and that apparently for a market to be functional, what is required is that we produce as many products as possible, to the lowest prices possible, because then the consumers are able to buy as much as possible, and then we’re apparently okay, happy, and have a fruitful existence here on earth.
Obviously, when I looked at these ideas, I silently chuckled – because the logical flaw of this assumption is glaringly simple = the producers are the consumers! YES – that’s the secret of economy and the reason why we’ve got so many unemployed in this day and age is because we’ve failed to understand that when a product is cheaper, someone at the other end gets less money, which in turns means that a (employee) consumer gets less money, which in turns means that the producer gets less customers = and it all ends up in such a way that most lose but a few that manage to reap the monopoly profits of those very low-priced products – because they’ve priced out everyone else.
It’s clear that we have to develop a new way of looking at economics, and that mathematics and statistics isn’t the way to go – no – we actually require to look at the actuality of what is going on. For example, poverty, what is the actuality of poverty? Why does poverty exist to begin with? It’s not a matter of mathematics, rather it’s a matter of seeing what is behind everything in this world – and that is MONEY – money that in itself is a completely innocent creation meant to be but a way of distributing goods and services to where they are required and wanted the most; but in our current system – money has become a point of control – where those that are already rich and on top of things with all possible means make sure the keep those stricken by poverty in place – else we wouldn’t anymore have a functional slave labor force that can produce all of our various gadgets and other mechanics of entertainment.
Thus, what we must ask ourselves, and economists more importantly, is why have we never used our knowledge to produce a sustainable system where all of us are able to create a life that is dignified, cool and enjoyable? What is required for us to do that? MONEY – and what do we need to bring through such money into this world? Resources – so what is then the solution – the real economic master plan as to how to create a world that would be sustainable and practical for all its inhabitants? To agree that we share the resources – at least the basic and most essential resources – those that we MUST HAVE in order to live.
Thus, I stand behind the Living Income Guaranteed – which is a functional, effective and sustainable way of creating a new world for all people where money will be shared – and for those economists that want to make a difference – I suggest that you investigate this concept and bring your knowledge to the table and help to create something from which we can all benefit!
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Seeing the economic status/conditions of this country, and being able to fit it into the bigger picture that includes all of the world nations, has helped me to better understand the global hierarchy of nations and how individual countries play specific roles within this.
Within this, currency manipulation and separation through cultural identities is key – also the competition point, which is expressed through nationalism.
One of the best tools to keep any nation bonded to maintaining its role in the global hierarchy is nationalism – one of the best forms of control is to have one identify with and begin to love and revere their chains – this obviously applies at the individual level in interpersonal relationships as well. Religion also plays a major role in this as the antidote when the conditions of a nation are adverse, giving all kinds of justifications as to why things are the way they are or false hope that it is all somehow ‘for the better.’
Identifying oneself with impoverishment, destitution and extremely adverse conditions carries with it great psychological implications – usually a degree of shame and a complete lack of self belief and self will – we all know how hard it is to be poor in the west at a social level and the implications this has – now imagine the massive degree of poverty that is standard, normalized and accepted in countries such as this, and how broad and far reaching these conditions are with regard to their effect on the psyche of the individual – conditions that we in the west would be appalled by, as we now see people rioting in the streets due to their living conditions worsening – whereas in countries such as this, it is already standard, accepted. It is fascinating because in this country, the protests and riots you see in the streets are actually the political minority upper-class who are angry about any attempts by ‘corrupt’ politicians to improve the lives of the poor majority lower class – this majority poor lower class simply don’t have the time or resources to gather and form a force to protest or riot, they are too busy surviving (or not even).
So our own lack of awareness to the lives of the impoverished in our own countries in the west are really just ‘the tip of the iceberg’ when you broaden that to a world-scale, and our lack of education and proper media reporting/exposure plays a major role in this – also the fact that as nations who naturally compete according to the laws of economics, this ignorance can also be justified because as long as we are on the winning team, things are fine apparently. If anything, our main priority and inclination is to take advantage of and exploit such conditions, which really something that is done quite extensively.
Language barriers and cultural norms are exacerbated through the competition principle – most racism in the world is not overt but rather implicit, the principle of ‘it is different from me therefore I value it less’. The competition principle – expressed through cultural identity – places the lens through which we tend to judge things that are different and not normal in our own cultures, which is really an unfortunate thing because when you get down to it, you realize that it is all essentially the same stuff – predictable humans behavior based on circumstances/conditions – but just appearing differently because we are coming from different perspectives that are shaped by our conditions – again here economic conditions play the largest defining role.
For instance, in my experience I have noticed the tendency for many foreigners who come here to judge this country – which is quite an easy thing to do, given the conditions here and the issues they create – without ever considering that they themselves have in fact played a role in why things are the way they are in places like this. National borders are really illusory when it is plain fact that the entire world is very directly connected by a global economic system, and of course more indirectly connected through relationships.
When you break down borders and view this as a global issue, you also realize that in fact, what we would call ‘normal middle class’ people in western/developed nations, who we consider as not being rich, are in fact within the top %10 of the worlds richest people – so when people in the west feel disempowered to act and make any change for the better in their world within the mentality of ‘poor little old me, what could I possibly do?’ – understand that there are people in this world – China serves as a great example of this – who live in complete slavery. They get up, work for 18 hours, with short breaks for meals and hygiene upkeep to make sure they are still alive and can work – sleep for 6 hours and then repeat. People who would look at the lives of middle class people like ourselves and think ‘omg, they have 2 or 3 hours of free time to themselves every day and bit of extra money in the bank?’ what a life! I only wish I could ever be so privileged, the things I could do with all that freedom…’
We are also – in the case of Thailand – talking about a nation where certain basic freedoms are not even allowed by the rule of law – for instance while we have free speech in the west – although that is questionable and constantly under duress – this pales in comparison to a nation like this where for instance you literally cannot say any thing negative about the monarchy – you would be thrown in jail.
In the west, our lack of understanding and our inaction comes largely from information control and manipulation, but when we are talking about a country with money and resources through which the individual tends to be more enabled and have more opportunity, ignorance is more of a choice – whereas in Thailand there is a large amount of information control on the internet and in media in general, and again very limiting economic conditions – many people genuinely don’t know what they don’t know and have no way of ever finding out, and thus have very little chance or opportunity of being able to help themselves.
So this really all puts into perspective our self-responsibility and our responsibility to our world as middle-class westerners.