Friday, January 12, 2018

An exercise in hortatory optimism!

The world needs a new economic system that unleashes altruism as a creative force by assuming that human beings are born entrepreneurs and not mere job seekers. 

At an address in Prague in August 1996, Lech Walesa said that while the transition from capitalism to communism was easy, the transition from communism to capitalism wasn’t. “It is easy to make fish soup from the aquarium with living gold-fish, but just imagine what a challenge it is to try to make the aquarium with living goldfish out of the fish-soup,” he said, adding that this was what was being attempted in his native Poland.

Walesa’s fellow Nobel prize winner, Muhammad Yunus, has now drawn up a proposal to make soup out of an aquarium. Riding on the contested success of the micro credit movement, he presents a case for reinventing mainstream economics in A World of Three Zeroes. The proposal for the new economics aims to create a world with zero unemployment and zero poverty in an eco-friendly world that will have zero net carbon emissions.

In a realm where money begets money, Adam Smith’s invisible hand hasn’t served the poor which led economist Thomas Piketty to argue that progressive taxation alone can remedy growing income imbalance. Yunus’ contention is that neither of the two (progressive taxation or the invisible hand) will change the picture. He believes the solution rests on unleashing the entrepreneurial skills of the bottom billions in creating a mass base for building models of ‘social business’. The world needs a new economic system that unleashes altruism as a creative force by assuming that human beings are born entrepreneurs and not mere job seekers. In his hortatory writing, the author calls for a hybrid business model that is neither quite for-profit nor quite non-profit but one that partakes virtues of both in leveraging the innate human desire to be selfless.

Drawing inspiration from several of his social business models currently operative across the world, including Golden Bees in Uganda and the Human Harbor Corporation in Japan, Yunus is convinced that the old ways of addressing poverty and unemployment through charitable efforts and government programs cannot generate the desired 40 million jobs every year. The idea seems to have merit, and is the reason leading global companies like Renault, McCain, Danone and Essilor have contributed funds to run social businesses for providing multiple services to the needy in poor suburbs in both developed and developing countries. The bottom line, the author argues, is to give people the resources and know how such that they can grow and become part of the economic mainstream.

The proposition is promising but, like the micro-credit model, the idea of the social business smacks of overt optimism. That both are borne out of the capitalist economy can in itself be their undoing. Since the idea of social business is but an extended version of the micro credit model of entrepreneurship, its performance has a direct corollary on the future of social business. Despite claims, the short-term gains from micro loans have not translated into the creation of long-term assets. This has trapped a large number of poor recipients into a debt cycle. Barring a few exceptions, the majority of microfinance institutions have been on a profit-making spree at the cost of poor lenders. This is why it has remained a low-hanging fruit of the capitalist economy. Under the circumstances, will social business be any different?

Yunus’ intentions are noble and his approach is balanced and practical. The case for social business has been persuasively made but the precondition of a near ideal sociopolitical ecosystem to nurture it seems preposterous. Left on its own without a regulatory framework, there is a risk that unscrupulous capitalists will exploit the opportunity to colour their profit-making business as a ‘social business’. While no society is driven by greed alone it is also true that economics has remained the science of self-interest. It seems unreal to expect economic man and capitalist market to turn away from profit maximization.

The capitalist economy continues to build its social image through charities. But the trouble with a charity dollar is that it can be used only once while a social business investment dollar is recycled indefinitely. Yunus is convinced that a dollar invested in social business can contribute significantly to transforming local and national economies. Clearly, there is a need to rethink the tenets of free-market capitalism and the marketplace itself. Add to this the question of the coexistence of social business within the dominant world of the capitalist economy, and the risk of the former being usurped by the latter.

While it is true that only re-envisioned economics will recognize humans as natural entrepreneurs, best served not by jobs but by opportunities to make their own ventures in the marketplace, the challenge of re-imagining mainstream economics can only be seen as a work in progress. Yunus generates excitement about the potential of turning things around but there are more questions than answers in his vision. Though the humane proposal for economic reform is far from practical, A World of Three Zeroes does provide provocations for a wider engagement with development economists and specialists.

The review was first published in the Hindustan Times, dated Jan 13, 2018. 

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