Showing posts with label Muhammad Yunus. Show all posts
Showing posts with label Muhammad Yunus. Show all posts

Wednesday, June 04, 2014

Fundamental Microfinance

English: Roadside billboard of Deng Xiaoping a...
English: Roadside billboard of Deng Xiaoping at the entrance of the Lychee Park in Shenzhen (Photo credit: Wikipedia)
I am a huge fan of microfinance. But it has to be reimagined. It is one of the three basic ingredients, the other two being education and health.

A country like Nepal can not afford to only educate the kids, although it currently does a poor enough job of that as well. But adult education has to step in. You use the same school buildings, but perhaps in the evenings and during weekends, for adult education. Everyone, child or adult, needs at least 10 years of schooling. And you should be able to pick up no matter where you left. And you should have the option to move at your own pace sometimes. Perhaps you put FM radio to use. People could tune in at a certain time of the day to listen into lessons. There is one frequency for the first grade, another for the second grade and so on. Lessons should be available in your primary language. The Chinese have proven beyond doubt that you don't have to learn English first before the world opens up for you.

People like Mao and Fidel Castro have done impressive work in basic health. You provide basic training to a large number of workers who then fan out to where the needs might be. There is a fundamental need to take up this work with revolutionary zeal.

But a left leaning country like Nepal where even the so-called right of center party like the Congress calls itself "socialist" sometimes tends to not grasp entrepreneurship well. You can educate your people all you want, you can turn them into fighting shape in terms of health, but unless you can create jobs for them they are going to rust with disuse. You are going to pump up a population that is all ready with nowhere go to.

Left leaning political leaders should cultivate a healthy respect for entrepreneurs who might be millionaires. They are like hens that lay the golden egg. You don't kill those hens. You don't get in their way. When they create more wealth for themselves, they pay more in taxes. You can use that tax money to serve the poor all you want.

But then entrepreneurship goes way beyond people who establish and run big factories. Small businesses are all the rage. Even in a country like America the vast majority of new jobs get created by small businesses.

And then there are micro businesses. I am talking raising goats to sell, or cultivating vegetables to sell, small businesses that you could start with a hundred dollar loan. Access to credit should be like a right, just like basic education and health.

But then sometimes it is hard to create any meaningful business with just a hundred dollars. China does not have a track record in microfinance, but it has lifted more people out of poverty than anyone else. And they have done that by creating jobs at large scales through large scale factories.

Very few rich people choose to become entrepreneurs. I like to say being an entrepreneur is kind of like being gay. It is assumed perhaps one per cent of the population is biologically gay. So if very few rich people are entrepreneurs, it is erroneous to think all poor people are inclined to entrepreneurship.

Another dimension to microfinance would be that you would have something like a right to a hundred dollars in business loans every year, but you would also have the option to pool your resources. So 100 individuals should have the option to bring together 100 dollars each into a pool of 10,000 dollars for a one per cent share each in an enterprise led by one entrepreneur who perhaps ends up employing most or all of those 100 people.

If you make room for the fact that 5-10% of those loans will fail that you will happily write off, I think that could create a lot of small business action. And you will end up with a lot of workers who are also part owners in enterprises. That is key. Deng Xiaoping started by letting Chinese farmers own small plots of land. The sense of ownership is key. The right to property is a fundamental human right, like free speech. And the act of exercising free speech takes some practice.

Completely state owned enterprises are not simply failed Soviet era ideas. Modi proved in Gujrat they can outperform the market if they are kept free of political interference and are allowed to run on meritocratic guidelines. It makes sense for some companies and some enterprises to be 100% state owned. As long as they perform is all that matters. What is dead weight is companies that are state owned and run losses year after year.

You can also have companies that are partly owned by the state. You can have companies that are partly owned by foreign investors.

There is no one size fits all. The key point is entrepreneurship has to be nurtured. It has to be allowed to flourish. There does not seem to be only a left or right way of doing it. State owned enterprises can work. Private companies can fail. Small business owners can create jobs. Large companies can stagnate. The job market is and should be a dynamic situation. As long as the cat catches mice is all that matters.
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Friday, October 04, 2013

The For Profit Sector

Mother Teresa of Calcutta (26.8.1919-5.9.1997)...
Mother Teresa of Calcutta (26.8.1919-5.9.1997); at a pro-life meeting in 1986 in Bonn, Germany (Photo credit: Wikipedia)
(published in Vishwa Sandesh)

The For Profit Sector
By Paramendra Bhagat (www.paramendra.com)

More than 80% of the people in America work for private companies. That is how they put food on the table. Another 15% or so work for the government. This economy requires 5% of the people to stay unemployed if it is to have a robust labor market. As in, a 100% employment rate is highly undesirable. That is why governments deem it worth it to issue out unemployment benefits: keeps the labor market fluid. The non profit sector steps in for those who don’t receive unemployment benefits or welfare checks. And then there are the uncared for untouched by the private, public and non profit sectors. Those seek Mother Teresa. Sadly, that still leaves a segment of the population that is truly uncared for, especially so in the global context.

In poor countries the private sector might be weak, the public sector might be relatively too dominant and getting in the way, the non profit sector might be overly strained or barely existent. But even there most people work private sector jobs to put food on the table for their families. That includes the informal sector in countries like India. The informal sector of the Indian economy comprised of businesses that don’t hold licenses and don’t pay taxes is rather large. And then there is the mafia that also largely revolves around money making. In some countries of Latin America the drug mafia is so large it functions as a parallel government. The Mumbai origin Dawood Ibrahim is listed as one of the 40 richest people in the world.

In the scheme of things I think the royal throne goes to the entrepreneurs in their multitudes. Entrepreneurs are not rich, greedy people lording over the hapless. They are people who create wealth and jobs. They pay taxes with which governments invest in people’s education, health and infrastructure. Entrepreneurs literally create wealth out of thin air. Bill Gates’ 50 billion dollars is not money he stole from someone. Those 50 billion dollars simply did not exist before he came along. And good thing he is putting that money to good use through his foundation. He has been fighting poverty like he were some kind of a Maoist.

The corporation is one of the greatest inventions ever. And entrepreneurship makes sense for people in all income brackets. I am a huge fan of micro lending. Everyone deserves access to not only education and health but also credit.

Abraham Lincoln did what no entrepreneur could have: he ended slavery. And someone like Gandhi is both Lincoln and Mother Teresa. Muhammad Yunus of Bangladesh ran his enterprise like a non profit. There is no denying the role of the leaders of various sectors. But as a country like Nepal moves towards a decided economic focus, I think appreciation for entrepreneurship will have to take deep root in the culture.

A country like Nepal that has numerous communist parties and it looks like most of the major non communist parties also call themselves socialist, I think interesting concoctions can be imagined. You can have companies that are partly owned by the government, you can have companies that are majority owned by the government. But for the most part it is best if the government stays out.

A left leaning country runs the danger of wanting to kill the hen that lays the golden egg. Nehru was key to India’s independence, but he also gave the country his gift of socialism, which was well meaning, and perhaps made Cold War sense to him, but that has also meant the legacy of too much red tape and misallocated resources with India ending up with the much derided “Hindu rate of growth” for decades.

Unleashing the entrepreneurship potential of the new generation in Nepal is partly a policy challenge. Some warning signs are the mindless, xenophobic rhetoric against Foreign Direct Investment (FDI) that seems to have a permanent place among a segment of the Nepali political spectrum. The choice is clear. You can bring in foreign capital, or you can send away your workers to Dubai and Malaysia to labor in uncertain circumstances. After Baburam Bhattarai signed BIPPA, a pro FDI agreement, his own Deputy Prime Minister stood up against it to score cheap, misguided political points. I was perplexed. Hostility to FDI is a sure recipe to a perpetuation of poverty in Nepal. Is poverty what Nepali nationalism all about? As in, to lose poverty is to lose the essence of what Nepal is all about? Beats me.

China never tires of pointing out how much more FDI it attracts year after year as compared to India. FDI is not only a good thing, it is something any sensible country competes for. That includes the rich economies.

I would hope that the Maoists would learn to respect entrepreneurs the way they have worked hard to accept other political parties. Their pro poor origins would be best reflected in the resources they should be able to marshal for education, health and infrastructure. Get the literacy rate up dramatically, up the vaccination rates. Train tens of thousands of health care workers and send them out to the villages, Mao style. But do not kill the hen that lays the golden egg. Let entrepreneurs run full speed.
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