Friday, October 13, 2006

Commerce as Peace

An economist has won the Nobel Peace Prize. In particular, Mohammed Yunus, the founder of Bangladesh's Grameen Bank, is splitting the prize with the bank itself. Mr. Yunus was an economics professor at an obscure university when he got the idea for microcredit, the idea that financial institutions can make money by lending to very poor people who have no collateral to pay money by conventional means, and are stuck either with borrowing nothing or borrowing at an essentially loan-shark rates. His belief, which was subsequently borne out, was that many of these people would in fact pay their loans back. As the International Herald Tribune reports, the selection of Grameen and Mr. Yunus means that the people who give out such prizes are catching up to something that some of us have known for a long time:

The prize lends heft to an idea already gaining ground in antipoverty circles: that capitalist methods can be more effective in curbing poverty than traditional grant-giving by governments and bodies like the World Bank.

The award "is fitting acknowledgment that the ways of the market are not necessarily evil, that markets can be harnessed as forces of good if done properly," said Nachiket Mor, executive director of Icici Bank, India's largest private-sector lender. Mor manages about $550 million in microcredit, the small loans modeled on the Grameen model.

This has been a theme of this blog for a while. (See here for an example.) If someone else has something you want, there are two ways to get it – to persuade him to give it to you by giving him something that you have and he wants, or to take it from him by force. The first way is commerce, the second is conflict. The greater the relative returns to peaceful commerce, the less conflict there is likely to be. Anything that promotes the merging of people into a larger commercial economy (and in the case of poor Bangladeshi women, who were the main clients in the early days of Grameen, out of the household) is thus to be applauded. The more women, or minority ethnic groups, or any other vulnerable groups can be knitted into commercial ties with the dominant group, the lower social conflict will be. There are no guarantees of course come as the Jews of 1930s Germany found out. But a large body of work finds that nations that trade more fight less, and a lot of my current research focuses on the impact of free commerce within a country on the amount of ethnoreligious strife there.

Most of the research on Grameen that I have been able to find looks at the performance of the bank itself, rather than what subsequently happens to the people who borrow money from it. And it does make money, despite its clients being undesirable by conventional lending criteria. But there is some research on the individual borrowers. It suggests that people who participate get better health care, suggesting an overall higher standard of living. But it also suggests that the main beneficiaries are people who already have assets (mostly entitlements to crop income, presumably) that yield a relatively stable, if low, income flow. Those who are the most vulnerable – those afflicted with tremendous poverty and income instability – do not appear to benefit much. So there are still problems to be solved – people who have trouble getting credit often have trouble for a reason, and even a bank like Grameen whose objective is to help the poorest and which is subsidized to some degree cannot completely overcome this problem.

One of the most compelling problems is state predation. Bangladesh is,
according to the anti-corruption group Transparency International tied as of 2005
with Chad as the most corrupt country on the planet. All of Mr. Yunus' efforts would be for naught if all of these newly empowered women had most of their rewards taken from them by some thuggish bureaucrat. It would be interesting to follow the progress of these micro-entrepreneurs to see whether any work their way up into higher strata of the Bangladeshi economy and, if they do, how they interact with the state once they become a noticeable target. One can accept that culture freezes out some demographic groups from the opportunities that others have, even while insisting, as I do, that competition can break these forces down if the state does not excessively restrict it. And so Mr. Yunus can be a hero even as his solution is necessary but not sufficient for helping the people who live in places like Bangladesh take charge of their own fate.

Still, that the Nobel committee recognizes that commerce is a force for peace has made my day. Some of the “statesmen” who got the prize in the past were clearly pursuing various selfish interests rather than peace itself; that Yasser Arafat got one looks absurd in hindsight. There is a place for diplomats and ministers in this world, but it is the businessman (or, in the Grameen case, the businesswoman) who actually wants, because he benefits from it, people to work together peacefully.


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