When all you read is gloom, turn here for a much different perspective.

Monday, January 26, 2009

The 12 Step Program (For The World Economy)

by guest contributor and Good News Economist reader Dick Williams

A better world is possible. To get there, however, we must be honest about our failures. A Pollyanna spin on the current real world, in order to offset the pain that honesty often brings to the poor, will not serve us well. Every recovering alcoholic and every honest gambling addict knows that admitting the unmanageable problem is the first step. I could say, “Greed is okay; it will be balanced out by someone else's greed. I can stop my greediness any time I want.” Or I can look in the mirror every morning and say, “My name is Dick, and I am a raw free-market capitalism addict! Just one more day of resisting material desires and greed, so my family and I can enjoy a committed relationship with each other, other people, and the earth through a simple lifestyle. Just help me with one more day, God.”

One of my main concerns about current economic theory, particularly in Milton Friedman’s "standard model" form, is that its adherents can say so glibly that capitalism has been unequaled in its ability to elevate standards of living. That is true – but for only a relatively small proportion of the developed Western world, only the upper 10-15% of that population.

Yes, I am using my 20-20 hindsight, but I prefer to think of it as valid empirical data answering the question, "How does capitalism really work?" In its competitive form, not surprisingly, it creates phenomenal winners and lots of losers. My main gripe here is that economists who are addicted to their theories and wish to hang on to capitalism, with all its grim excesses, spin their own 20-20 hindsight by using average (mean) incomes and production figures (GNP, GDP, per capita income). This practice, from a statistician’s point of view is already seriously flawed, because it assumes a normal distribution and wealth and income are far from distributed normally. More enlightened interpreters will use the median income. But even that does not account for the overall distribution of income.

We must face the truth, and the truth is that our “standard economic model” has produced incredible wealth at the very top of the income distribution and unforgivable poverty at a continually increasing percentage (now up to 20% or even 30% in the developed world). Since 1980, although the per-capita income has increased, the real incomes of families in the lower 20-30% of the U.S. population have decreased markedly. The "richest country in the world," the U.S. is 17th among developed nations in the health of its income and wealth distribution. There must be something wrong here.

One of the difficult parts of this scenario is that, in the developed world, the poor tend to be invisible (Bagdikian, The Invisible Poor). It is easy to see the poverty in Bangladesh or Haiti, and the professionals can point to very low per capita incomes, GDPs, etc. The rich, created by Western capitalism, however, are very much there as well. But we tend to hide our poverty problem here in the United States. We scrape off shanty towns and build tacky but cute high rises of “affordable housing” which few residents can afford.

Now, for the good news: I've been quite inspired, in my researches and visits to the developing world, by the unparalleled success of Mohammad Yunus's Grameen Bank and its micro-finance system. This is capitalism to be sure, but of another stripe. It rewards the entrepreneurial spirit and raises the standards of living, not of the few but of entire communities. It also follows the general laws of supply and demand in the choices of enterprises that evolve within it.

It is very important to observe that micro-finance of the Grameen type does not just willy-nilly lend to every individual who wants to start a small business enterprise. It works within the rather tight social structure of associated groups of village women meeting every week, asking each other questions about how they spend their money, such as, "Do your children have shoes?" "Are you sending them to school?" "Is your home kept clean inside and painted on the outside?" "Are you raising a vegetable garden for your family?" And, finally, the group makes sure that everyone has brought their loan payment. One of the women who has learned how to keep records keeps close watch on everyone and assists any who, for some good reason, cannot pay that week to recommit to a more realistic repayment plan. It is peer pressure, but it is both negative and positive. The women are empowered; the men are usually excluded, because in that culture they are considered financially irresponsible.

Now this is capitalism with a cooperative, not competitive, structure. Enterprise is rewarded and the laws of supply and demand still hold. But cooperation is the regulating factor, which tends to create winners and more winners. No wonder that micro-finance is spreading all over the world -- even in the U.S. Let us be careful that it is not used by large financial corporations simply to enrich themselves at the expense of their clients, and that it does not become just another tool for the vulture capitalists!

We all need a twelve-step program toward cooperation and economic responsibility. Every day we must say to each other, “Just one more day in the simple lifestyle. Just one more day without selfish greed and irresponsible speculation for material gain. Just one more day trying to find ways to bring a fulfilling life to others

Dick Williams, Phd for "The Good News Economist" rwillskier@earthlink.net

[Editor's note: Several other organizations like Grameen Bank are demonstrating significant success with international micro-finance models for the poor. See www.mcc.org and www.meda.org for further examples.

As for Grameen Bank, "as of December, 2008, it has 7.67 million borrowers, 97 percent of whom are women. With 2,539 branches, GB provides services in 83,566 villages, covering more than 99 percent of the total villages in Bangladesh.

Grameen Bank's positive impact on its poor and formerly poor borrowers has been documented in many independent studies carried out by external agencies including the World Bank, the International Food Research Policy Institute (IFPRI) and the Bangladesh Institute of Development Studies (BIDS)."

There is no credit crunch at Grameen Bank. Please visit them at http://www.grameen-info.org to find out why.]

(Please keep those emails and article ideas coming. If you have an article, a link, or idea for an upcoming "good news" post, please feel free to send them on to: The Editor, good.news.econ@gmail.com)


  1. I am a HUGE fan of microlending and love Kiva.org which utilizes the same principles all over the world.

    While I agree that capitalism isn't perfect and the idea of cooperative capitalism seems superior to our winner takes all mentality, I think that the problem is legislative more so than the free market. We exist in a mixed economy and the government portion of that mix is failing to lead the poverty conversation in a meaningful way.

    I'm not big on government handouts unless they are needed, but that being said, fixing the wealth distribution in this country is largely dependent upon the tax code. As Warren Buffet pointed out last year, he's paying less in taxes than ever before and there's something wrong with that.

    If you look back at historical marginal tax rates, you will see top brackets over 90%. While these were extreme times, I would like to see us return to the 1980s when top tax rates were 50%. This should be adjusted to only apply to those making in excess of $10 million annually and adjust for escape hatches like non-qualified deferred comp plans etc.

    In addition, the long-term capital gains tax preference should be overhauled to apply only to holdings of five years or more instead of the current one year requirement. This would support growing businesses through stock ownership that will also help to build more stable share prices.

  2. Thanks Michael,

    Dick is quick to agree with your comments on taxation. Thanks also for the link to Kiva.org
    Indeed another leader in the micro-lending space.


  3. When will microfinance reach poor people in the developed world? We also want to start businesses.

  4. poor boomer,

    If you are really serious, have a close look at all the websites listed in this post.

    several have divisions that are focused heavily on the urban poor in the developed world.

    microfinance is *not* for those who are not serious and committed to mutual trust and effort.



We want to hear from you, and you know you want to say something...

FREE Good News delivered to your Email Inbox (With Easy Unsubscribe at Any Time)

Enter your email address:

Delivered by FeedBurner

If you prefer RSS feed subscription...

If you prefer RSS feed subscription...
...Click This Icon For The RSS Feed