Vinoth Ramachandra

Archive for December 2011

I return to Ha-Joon Chang’s debunking 23 Things They Don’t Tell You About Capitalism.  In one of his chapters, Chang argues that people in poor countries are generally more entrepreneurial than those in rich countries. Most citizens of rich countries work for a company, doing highly specialized jobs. As a result, they spend their working lives implementing somebody else’s entrepreneurial vision, and not their own. According to an OECD study, in most developing countries 30-50 per cent of the non-agricultural workforce is self-employed (the ratio tends to be even higher in agriculture). In some of the poorest countries the ratio of people working as one-person entrepreneurs can be way above that: 66.9 per cent in Ghana, 75.4 percent in Bangladesh and a staggering 88.7 per cent in Benin. In contrast, only 12.8 per cent of the non-agricultural workforce in developed countries is self-employed.

For developing-country entrepreneurs, however, things go wrong all the time: power cuts, delivery delays due to bureaucratic red-tape, bribery and transport breakdowns. Coping with all these obstacles, Chang observes, requires agile thinking and improvisation. An average American businessman would not last a week if he had to manage a small company in Maputo or Phnom Penh. Why then do these entrepreneurs remain poor?

Recognizing the entrepreneurial energy of the poor has led many secular and Christian NGOs to leap on the “micro-credit bandwagon” in the past couple of decades. The main idea behind micro-credit is that the poor lack the necessary capital to realize their entrepreneurial potential. Regular banks ignore them and local money sharks charge exorbitant interest on loans. Enter the micro-credit (or, more broadly, the microfinance) industry which gives  poor people, especially poor women, small loans at reasonable interest rates to set up a food stall, buy a mobile phone to rent calls, or buy a cow or chickens and sell their produce.

This was seen as the magic formula to end poverty. It proved immensely popular among American donor agencies who saw it as a way of making every poor person a capitalist, no longer depending on government handouts. Governments, in turn, could simply forget the poor and leave their welfare in the hands of foreign and local development agencies who would distribute microcredit loans far and wide. The popularity of micro-credit reached fever pitch in 2005, which the UN declared the International Year of Microcredit. The following year Muhammad Yunus and his Grameen Bank in Bangladesh, widely hailed as the pioneers of microcredit, received the Nobel Peace Prize.

Unfortunately, the cracks in the micro-credit industry began to appear before this. And they have widened. Several books have questioned the claims that microfinance has significantly improved the lives of its clients. The problems are too numerous to mention. But just consider the woman who initially makes good money by renting out a mobile phone in her village. As soon as more “telephone ladies” appear on the scene, the incomes fall dramatically. The answer to such overcrowding of the market is to start manufacturing the phones yourself or writing software to develop applications for the phones. But this is a major step up and the “telephone ladies” do not have the education or wherewithal to move into manufacturing or software design. The problem is that there is only a very limited range of simple businesses that the poor in developing countries can take on, given their limited skills, lack of education and access to technologies, and the limited amount of funds that they can  mobilize through microfinance.

What is worse, however, is that without subsidies from governments or international donors, microfinance institutions have had to charge near-usurious rates. It has been revealed that the Grameen Bank could initially charge reasonable rates of interest only because of the (hushed-up) subsidies it was getting from the Bangladesh government and foreign donors. When, in the late 1990s, it came under pressure to give up the government subsidies, the Grameen Bank was forced to re-launch itself (in 2001) and start charging interest rates of 40-50 per cent. In countries such as Mexico the interest rates can be high as 100 per cent. Since few businesses can make the necessary profits to repay the loans, most of the loans now made by microfinance institutions go towards “consumption smoothing”- people taking out loans to pay for their daughter’s wedding or to make up a temporary fall in income due to the illness of a working family member. In other words, the vast bulk of microcredit is not being used to fuel entrepreneurship by the poor, but to finance consumption.

What really made rich countries rich is their ability to channel individual entrepreneurial energy into collective, productive enterprises. Even exceptional individuals like Thomas Edison or Bill Gates could become what they have only because they lived in societies that had good collective institutions: laws that enabled them to build large and complex organizations; a scientific infrastructure that enabled them to acquire their knowledge and experiment with it; an educational system that supplied trained scientists, engineers, managers, and workers to run these companies; a financial system that enabled them to raise large amounts of capital when they wanted to expand; patents and copyright laws that protected their inventions; easily accessible local and overseas markets for their products, and so on.

Poor nations need help in building effective institutions and collective, entrepreneurial organizations, if they are to get out of mass poverty. There are severe limits to developing individual talents alone.

This raises a major question: Are NGOs, both secular and Christian, unwittingly helping governments evade their responsibilities for social justice?

The average human today lives longer, travels further, burns more carbon and eats more food than in any generation before us. The unsustainable consumption habits of Europe, the USA and Japan have been promoted worldwide and are now being emulated by hundreds of millions in China, India, Brazil and Indonesia. The carbon-fuelled, capital-intensive approach to economic development has gathered so much momentum that, however much the world’s leaders may pay lip-service to caring for the planet, very few have the imagination and courage to envision alternative pathways.

Not surprisingly, the face of the earth too is ageing. Its skin (the soil) is drying up and becoming more reliant on chemicals. Its arteries (the rivers) are choking with industrial waste and blocked dams. Its lungs (the forests) are gasping for air, having been steadily shredded for timber, paper, cash-crops, ranches and highways. Its energy reserves (oil, coal) are being consumed faster than ever. While all our countries display the symptoms of this deterioration, in none is it so glaring and amplified as in China.

This is the verdict of Jonathan Watts, the environmental journalist and China correspondent of the Guardian newspaper. I have just been reading Watts’s fascinating account of his journey from the Tibetan plateau to the decimated forests of Heilongjiang, describing the tragic contradictions of China’s accelerated ‘progress’. In When A Billion Chinese Jump (2010), Watts repeatedly points out the gulf between the stated aims of the Chinese leadership when it comes to ‘scientific development’ and the realities on the ground.

Despite its dictatorial leadership, the Chinese government seems less able to prevent an environmental meltdown than leaders in democratic nations because it is more addicted to rapid growth. Moreover, power lies neither at the top nor the bottom, but within a middle layer of bureaucrats, with their own fiefdoms, and local developers whom it is difficult to hold to account. The per capita energy use in Shanghai now exceeds that of Tokyo, New York and London, and is 50 per cent higher than the global norm. And it is the conspicuous consumption of rich Shanghai shoppers that is being pushed as the lifestyle norm in all the other mega-cities in China.

“Hopes for a green future are premature,” writes Watts, while fears of the red past seem outdated. “If any single colour predominates in today’s China, it is the grey of smoke and ash and concrete, of horizon-blurring smog, of law-obscuring vagueness and of colour-stifling monotony. More species are dying out, fish stocks are declining, water shortages are growing more severe, deserts are encroaching on cities, glaciers are shrinking and the climate is becoming more hostile. Countless millions die each year of environment-related disease. Yet the government is choosing farm animals over wildlife, monoculture over biodiversity, concrete over earth and weather modification over truly ambitious moves to tackle global warming.” (pp. 388-9).

Is China the biggest threat to global security? It would seem so, despite the American political and media obsession with Iran and Pakistan. For China’s domestic addictions and environmental problems have spilled over into the rest of the world. As its own forests, fields and mines struggle to satisfy an expanding national appetite, China is depleting Siberia’s forests and Mongolia’s ore deposits. Obese children used to be rare in China; now nearly 15 % of the population is overweight. To feed its growing livestock, China imports huge quantities of soya, much of it from Brazil, which has accelerated deforestation in the Amazon region. The high-protein, high-octane, junk-food lifestyle has consequences for global food security, climate change and South East Asia’s wildlife. Toxic dust from factories and deserts in Shanxi and Inner Mongolia drift across the Pacific to the West Coast of California. Dams and river diversion projects in Tibet and Yunnan are affecting millions of people living downstream in Thailand, Cambodia, Laos and Burma. Chinese cash and political support is accelerating the filthy extraction of oil from Canada’s tar sands and propping up evil regimes in resource-rich nations like Sudan, Zimbabwe and Burma.

In the lead-up to the Copenhagen Summit on Climate Change, China promised to cut the carbon intensity of its economy (greenhouse emissions relative to GDP) by 40-45 per cent by 2020. However, if it continues to grow at 8 per cent per annum, and remains unable to kick its coal habit, both its per capita carbon output and its historic emissions (those accrued over the past hundred years or more) will have exceeded that of the UK by 2020. There is still a long way to go before it catches up with the USA in both per capita and historic emissions culpability- but I think I have said enough on this Blog about the latter that I’ll quickly pass over this point!

If China is becoming the biggest threat to global security, India must lie not far behind. Its political elites care more about “national prestige” than human rights and the welfare of future generations. (How strange, then, that Europe and the US are looking to these Asian powers to rescue their economies!). If conservation is to stand any chance of working in China, India and elsewhere, environmental laws and well-articulated policies are not enough. There has to be a widespread cultural conversion: new values and attitudes, new understandings of what constitutes the “good life”. And, in my experience, that conversion has to begin in the middle-class Christian churches of Asia (which includes people like me).


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