Banker to the Poor (21 page)

In my youth, I considered myself a left-of-center progressive because I did not like the way things were, nor did I like the old conservative ways. Like many Bengalis of my generation, I was influenced by Marxist economics. But I also never liked dogmas or groups who told people how to think and what standard practices to follow. I was never an Islamist, but neither could I reject my culture. I never wanted to be so radical that I could not say my prayers or show respect to the Prophet.

Most of my university friends were socialists who believed that government should take care of everything. At Vanderbilt, Professor Georgescu-Roegen, though not a Communist, admired Marxism as a logical construct. So his teaching brought a social dimension to economics. Without the human side, economics is just as hard and dry as stone.

In the United States I saw how the market liberates the individual and allows people to be free to make personal choices. But the biggest drawback was that the market always pushes things to the side of the powerful. I thought the poor should be able to take advantage of the system in order to improve their lot.

Grameen is a private-sector self-help bank, and as its members gain personal wealth they acquire water-pumps, latrines, housing, education, access to health care, and so on.

Another way to achieve this is to let a business earn profit that is then taxed by the government, and the tax can be used to provide services to the poor. But in practice it never works that way. In real life, taxes only pay for a government bureaucracy that collects the tax and provides little or nothing to the poor. And since most government bureaucracies are not profit motivated, they have little incentive to increase their efficiency. In fact, they have a disincentive: governments often cannot cut social services without a public outcry, so the behemoth continues, blind and inefficient, year after year.

If Grameen does not make a profit, if our employees are not motivated and do not work hard, we will be out of business. Grameen, a for-profit bank, could also be organized as a for-profit enterprise of a non-profit organization. In any case, it cannot be organized and run purely on the basis of greed. In Grameen we always try to make a profit so that we can cover all our costs, protect ourselves from future shocks, and continue to expand. Our concerns are focused on the welfare of our shareholders, not on the immediate cash return on their investment dollar.

There is little doubt that the free market, as now organized, does not provide solutions to all social ills. It provides neither economic opportunities nor access to health and education for the poor or the elderly. Even so, I believe that government, as we now know it, should pull out of most things except for law enforcement, the justice system, national defense, and foreign policy, and let the private sector, a "Grameenized private sector," a social-consciousness–driven private sector, take over its other functions.

Almost from the start, Grameen gave rise to many controversies. Leftists said that we were a conspiracy of the Americans to plant capitalism among the poor and that our real aim was to destroy any prospect for a revolution by robbing the poor of their despair and their rage.

"What you are really doing," a Communist professor told me, "is giving little bits of opium to the poor people, so that they won't get involved in any larger political issues. With your micro-nothing loans, they sleep peacefully and don't make any noise. Their revolutionary zeal cools down. Therefore, Grameen is the enemy of the revolution."

On the right, the conservative Muslim clerics said we were out to destroy our culture and our religion.

Wherever possible, I try to avoid grandiloquent philosophies and theories and "isms." I take a pragmatic approach grounded in social considerations. In everything I do, I try to be practical. I rely on learning by doing, while making sure that I am moving toward achieving a social objective.

I am not a capitalist in the simplistic left/right sense. But I do believe in the power of the global free-market economy and in using capitalist tools. I believe in the power of the free market and the power of capital in the marketplace. I also believe that providing unemployment benefits is not the best way to address poverty. The able-bodied poor don't want or need charity. The dole only increases their misery, robs them of incentive and, more important, of self-respect.

Poverty is not created by the poor. It is created by the structures of society and the policies pursued by society. Change the structure as we are doing in Bangladesh, and you will see that the poor change their own lives. Grameen's experience demonstrates that, given the support of financial capital, however small, the poor are fully capable of improving their lives.

Some need only $20, others $100 or $500. Some want to husk paddy. Some want to make puffed rice. Some make earthenware pots and pans, while others buy cows. But—and note this, development specialists around the world—not one single Grameen borrower requires any special training. They either have already received this training as part of their household chores or have acquired the necessary skills in their field of work. All they need is financial capital.

Somehow we have persuaded ourselves that the capitalist economy must be fueled only by greed. This has become a self-fulfilling prophecy. Only the profit maximizers get to play in the marketplace and try their luck. People who are not motivated by profit making stay away from it, condemn it, and search for alternatives.

We can condemn the private sector for all its mistakes, but we cannot justify why we ourselves are not trying to change things, not trying to make things better by participating in the economy. The private sector, unlike the government, is open to everyone, even those not interested in making a profit.

The challenge I set before anyone who condemns private-sector business is this: If you are a socially conscious person, why don't you run your business in a way that will help achieve social objectives?

I profoundly believe, as Grameen's experience over twenty years has shown, that personal gain is not the only possible fuel for free enterprise. Social goals can replace greed as a powerful motivational force. Social-consciousness–driven enterprises can be formidable competitors for the greed-based enterprises. I believe that if we play our cards right, social-consciousness–driven enterprises can do very well in the marketplace.

Economic protectionism, subsidies, and welfare benefits were instituted by well-meaning people to soften capitalism's hard edges.

I believe in the central thesis of capitalism: The economic system must be competitive. Competition is the driving force for all innovation, technological change, and improved management.

Another central feature of capitalism is profit maximization. Profit maximization ensures the optimal use of scarce resources. This is the feature of capitalism that led us to create the image of a greedy (almost bloodthirsty) person in the role of profit maximizer. We have presumed that the profit maximizer has no interest in achieving social objectives. We then postulated that true entrepreneurs are a rare and special breed of people whom society should feel lucky to have. We feel so grateful to them that we give them all the privileges we can afford—credit, social recognition, tax holidays, priority access to land, market protection, and so on.

I am proposing two changes to this basic feature of capitalism. The first change relates to this overblown image of a capitalist entrepreneur. To me, an entrepreneur is not an especially gifted person. I rather take the reverse view. I believe that all human beings are potential entrepreneurs. Some of us get the opportunity to express this talent, but many of us never get the chance because we were made to imagine that an entrepreneur is someone enormously gifted and different from ourselves.

If all of us started to view every single human being, even the barefooted one begging in the street, as a potential entrepreneur, then we could build an economic system that would allow each man or woman to explore his or her economic potential. The old wall between entrepreneurs and laborers would disappear. It would become a matter of personal choice whether an individual wanted to become an entrepreneur or a wage earner.

The second change relates to how an entrepreneur makes investment decisions. Economic theory depicts the entrepreneur as only a profit maximizer. Indeed, in some countries, like the United States, corporate law requires the maximization of profits. Shareholders can sue an executive or a board of directors that uses corporate funds to benefit society as a whole rather than to maximize the profits of the shareholders. As a result, the social dimension in the thinking of the entrepreneur has been completely bypassed. For social science and society itself, this is not a good starting point. Even if social considerations have a very small role in the investment decision of an entrepreneur, we should allow them to come into play for the overall social good. A human being's social considerations are qualities that can be inculcated through generating appropriate social values. If we leave no room for them in our theoretical framework, we will be encouraging human beings to behave without respect to social values.

The market, of course, needs rules for the efficient allocation of resources. I propose that we replace the narrow profit-maximization principle with a generalized principle—an entrepreneur maximizes a bundle consisting of two components: (a) profit and (b) social returns, subject to the condition that profit cannot be negative. (Actually, neither of these components should be negative; but I make this conceptualization in order to stay close to the existing profit-maximization principle.)

All investment decisions can be taken within a range of options. At one extreme, the capitalist will be guided purely by the profit motive. At the other extreme, a social entrepreneur will continue to be in the market for as long as his or her socially beneficial enterprise is at least breaking even.

Under this principle, a social entrepreneur could, for example, run a health-care service for the poor if it is financially viable. Other such enterprises might include financial services for the poor, supermarket chains for the poor, educational institutions, training centers, renewable energy ventures, old-age homes, institutions for handicapped people, recycling enterprises, marketing products produced by the poor, and so on.

Would these types of social-consciousness–driven entrepreneurs be rare and difficult to find? I don't think so. The more we look for them, the more we'll meet them and the easier we will make it for a person to become one.

I assume that society is made up of many different kinds of people. At one extreme, there are capitalists seeking personal gain who want to maximize profit alone, without social considerations. They would not mind investing in an enterprise that creates negative social returns, as long as it yields a maximum personal profit.

At the other extreme, there are entrepreneurs who are strongly motivated by social consciousness. They are drawn to investments that maximize social returns, provided the enterprises are financially viable.

In between these two extremes, the bulk of entrepreneurs mix profit and social considerations in a way that takes them to their highest level of self-fulfillment. Through various means of social recognition and rewards—I am thinking of prizes, honors, public acknowledgment—societies can influence more and more entrepreneurs to move in the direction of social-consciousness–driven investments.

Specialized institutions can be created to help generate more and more of these investments. An individual entrepreneur can run an enterprise which pays some or no attention to social returns, but she or he can also initiate and operate one or more financially viable enterprises devoted exclusively to maximizing social returns, either as an individual or as a part of a trust or not-for-profit business organization.

This scenario not only brings businesspeople of the future closer to real life, but it also creates room for a socially and environmentally friendly global economy.

Economics must show that a market economy does not necessarily have to be a playground for "bloodthirsty" capitalists; it can be a challenging field for all good people who want to pilot the world in the right direction.

Where should one place Grameen philosophy in the spectrum of political ideologies? Right? Left? Center?

Grameen supports less government—even advocating the least government feasible—is committed to the free market, and promotes entrepreneurial institutions. So it must be far right.

Grameen is committed to social objectives: eliminating poverty; providing education, health care, and employment opportunities to the poor; achieving gender equality through the empowerment of women; ensuring the well-being of the elderly. Grameen dreams about a poverty-free, welfare-free world.

Grameen is against the existing institutional framework. It opposes an economy grounded solely on greed-based enterprises. It wants to create social-consciousness–driven enterprises to compete with greed-based enterprises.

Grameen does not believe in laissez-faire. Grameen believes in social intervention without government getting involved in running businesses or in providing services. Social intervention should come through policy packages encouraging businesses to move in directions desired by society. It should provide incentives to social-consciousness–driven enterprises to encourage the competitive spirit and strength of the social-consciousness–driven sector.

All these features place Grameen on the political left.

Since Grameen cannot be judged on the basis of its position in relation to the public and private sectors, it is difficult to use traditional political terms to label Grameen. Grameen is opposed to both public and private sectors as they are commonly understood. Instead, it argues for the creation of a completely new sector—what I call the social-consciousness–driven private sector.

Who will or can get involved in this? Social-consciousness–driven people. Social consciousness can be as burning, or even more burning, a desire as greed in an individual human being. Why not make room for those people to play in the marketplace, to solve social problems, and to lead human lives to a higher plane of peace, equality, and creativity?