Friday, October 10, 2008

Why Grameen Bank Can Continue Through the Crisis

Today's SPIEGEL ONLINE has an interview with Nobel Laureate Muhammad Yunus, founder of the microcredit institution, Grameen Bank. Yunus received the 2006 Nobel Peace Prize for his efforts on behalf of a financial system that placed its highest priority on "providing the greatest benefit possible for human kind," rather than the usual priorities of "the maximization of profits and rapid growth." At the present time Grameen appears to be maintaining its stability, while just about every major bank around the world has at least one cause for significant distress. Is this just because Grameen is small?

The SPIEGEL ONLINE interviewer (Hasnain Kazim, translated from the German by Charles Hawley) framed the question in terms of whether there were lessons that "the entire finance world" could learn from the Grameen model. Here is Yunus' reply:

The fundamental difference is that our business is very connected to the real economy. When we provide a loan of $200, that money will go to buy a cow somewhere. If we lend $100, someone will maybe buy some chickens. In other words, the money goes to something with concrete value. Finance and the real economy have to be connected. In the US, the financial system has completely split off from the real economy. Castles were built in the sky, and suddenly people realized that these castles don't exist at all. That was the point at which the financial system collapsed.

Given my own preoccupation (thanks to Isaiah Berlin) with the need for a "sense of reality," particularly when the World Economic Forum meetings continue to remind me how much of that sense has been lost, these are refreshing words. In a financial system where debt itself became a commodity that could be traded (and thus inflated to unrealistic prices), there is something comforting about an exchange system that is still grounded in the more concrete realities of cows and chickens. Yunus hit on just the right metaphor: It is almost as if the entire vocabulary of current financial practices provided the building blocks for those castles in the sky; and, since the words had concrete semantics (even if they were understood by only a very elite few), the world at large took it for granted that the castles were just as concrete, so to speak.

When you think about it, this economic crisis is a postmodern malady for postmodern times. If the very "possibility of attaining truth" can be questioned as being nothing more than idea represented by some configuration of significant symbols, then why should the concept of price (continuing to cleave to Robert Solow's preference for talking about economics in concrete language) be any less vulnerable to questioning? What is debt-as-commodity other than such a configuration of significant symbols that became endowed with semantics more on the basis of rhetoric than on the foundation of any concrete logic? Cows and chickens, on the other hand, are not significant symbols; they are objects through which one can obtain food, clothing, and possibly even shelter. Grameen Bank thus confines itself to exchanges grounded in such objects, rather than those fictions of convenience that would change the rules of the game for those playing for "the maximization of profits and rapid growth." The problem is that the new rules were the rules of a confidence game; and Grameen, with its unconventional system of priorities, knew enough to stay out of that game.

This is not to deny that objects cannot have their own problems. Cows may not give enough milk; and, as a result of their diet, the milk they give may be sour. Chickens may not lay enough eggs, and the chickens they then breed may be too scrawny to eat. Nevertheless, these are problems of resource management; and those who know about farming are likely to be better equipped to deal with them than with problems of debt management. I suppose that the basic Grameen principle is that the customer should worry about sensible resource management and let the bank worry about responsible debt management. Somehow I just cannot imagine Wells Fargo thinking in those terms (although they may well have done so in their earliest days)!

No comments: