The Myth of Micro Finance

Nirmalya Biswas, writing in Mainstream, explains the ‘micro finance’ model has been touted in recent years as a means of poverty ‘alleviation’ is in fact another means to exploit the poor. Neo- liberalism, the contemporary face of capitalism, tries to solve the problems it creates by the same factors that cause its crisis. On the one hand, there is a surplus of capital, on the other hand there is a surplus of the poor. Micro financing apparently tries to solve the problems of the poor but in reality is just another means of multiplying the return on capital.

Similar too is the recent interest expressed by the Tatas and others to create housing for the poor in Mumbai.

Micro Credit appears to be pro-poor in form but in content it is actually anti-poor to the core. The adverse clauses of the loan agreement are carefully kept hidden in a ‘sugar-coated’ loan package. The ‘ever-trusted’ media censors certain pertinent information in fear of full disclosure of the evils of Micro Credit. The penniless poor listens to no reason but gracefully accepts the loan offer to avail the ‘cash inflow’ and solve the present crisis temporarily. The taste of its bitterness becomes palpable only when the installments fall due.

Wall Street Crisis and Das Capitalism

One week of the collapse of the New York investment banking network, and its ‘rescue’ by the US federal government speaks louder than any arguments against the “free market”. The stock market, considered the ideal mechanism in identifying winners and losers and thereby contribute to an efficient system in contrast to ostensibly inefficiently run government enterprises, has spoken loudly and clearly. An unbridled, or insufficiently bridled, system where companies run by teams of specialists and accountable to no none but a small base of investors has run amok with the bad bad governments bailing out investment banks in the heart of what Maxim Gorky once called The City of Yellow Devil. The devil has certainly reared its bloody head all over Wall Street last few days with a vengeance.

The $700 billion bailout by the US federal reserves is nearly twice the GDP of the apparently roaring economy of India! While investment banks are in the business of making money out of nowhere, these do have an impact on the real economy since industries depend on investments by what is ultimately speculative finance capital for sustenance and growth. The whole web of finance transactions is said to be so complicated that the bankers themselves have lost track of the sources and direction of transactions.

A Politician called Manmohan Singh

One of the ‘selling points’ for the neo- liberal reforms initiated during Narasimha Rao’s years of prime minister- ship was that these reforms were worked out and led by a non- politician- Dr Manmohan Singh. Indeed, his continued projection as a non- politician- and specifically as a professional economist- has been seen to provide a legitimacy for the neo- liberal offensive, though sometimes it has been used by his political opponents to attack his credentials in holding a political post.

Both of these perspectives are flawed, and nothing could be farther from the truth. Manmohan Singh’s professional background as a technocrat cannot be reason enough to see him as a non- politician.

Markets Forget Nothing, and Learn Nothing

David Bensman writing in the Dissent Magazine points to five major lessons from the impending collapse of US economy (link via Bookforum) and summarizes:

An earlier generation believed that the world learned its lessons from the Great Depression. Governments created regulatory agencies to rein in irrational exuberance and make sure that the fundamentals—a stable currency and sound financial institutions—served the needs of the real economy by making it possible to buy, sell, trade, and invest. In this chastened world, governments regulated banks so that investors could borrow to build new factories and inventors could raise funds to build prototypes.

Neo-liberalism turned this world on its head. By deregulating financial markets, neo-liberal ideology cast financial institutions as our primary innovators—the principal engines of wealth creation. America returned to the pre-New Deal days chronicled by Thorstein Veblen, when financiers hobbled engineers, when mergers and acquisitions (they were called trusts and monopolies back then) provided the fast track to profits and glory, when conspicuous consumption represented greatness.
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More than a decade ago, James Tobin suggested that taxing global currency transactions would be a grand way to restrain speculation while raising money for development. Today, Dean Baker, chronicler of the real estate bubble, suggests a similar tax on stock transfers. Neo-liberals and their apologists will condemn this approach as a sure way to retard capital formation. Let’s hope that people have finally learned their lessons from neo-liberalism’s recurring fiascos. It is time to get real.