why not smell a rat?

From blog.Mises:

November 6, 2006

Grameen is a bust

Jeffrey Tucker

Here is a chart from the JEL showing that the much-praised Grameen Bank is a highly subsidized, unprofitable, and unsustainable institution. I have a piece on this subject coming out tomorrow but I was just visiting with BK Marcus on the subject of why is it that so many otherwise libertarian writers were so quick to buy into the Nobel Prize rhetoric about how Grameen is using the magic of credit to the poor as a means of social uplift. BK said it was because libertarians generally overvalue the idea of universalized individual entrepreneurship and undervalue the role of wages and large-scale capital in driving economic growth. Could be: but I still don't entirely understand why so many writers and thinkers on the market side of the debate didn't smell a rat here, especially when the subject has been so well exposed on the scholarly literature. In any case, more tomorrow.

Nov 6, 2006 11:41 AM | comment | Digg | contact Jeffrey Tucker | other posts

[Update: "Microcredit or Macrowelfare: The Myth of Grameen" by Jeffrey Tucker]

I want to expand on my entrepreneurship comment.

There's a tendency in the left wing of libertarianism (a tendency I very much understand and sympathize with) to overextend the concept and virtues of entrepreneurism, because

1. most people don't really understand what it is, and
2. it doesn't suffer from the standard associations of capitalists and capitalism.

Schemes like the microcredit hoax skillfully play against the old "wage slave" connotations and play up the poor-entrepreneur romanticism of many free marketeers and other anti-socialist populists.

Hernando de Soto is another international figure who appeals to the romantic vision of a People's Capitalism built on the wealth-creating efforts of illiterate and impoverished entrepreneurs.

The difference, however, between the "people's capitalism" of de Soto and the microfascism of Nobel laureate Muhammad Yunus is that de Soto's proposal is based on the acknowledgment of homesteading and private property as the basis for collateral loans (including, of course, private risk), whereas Yunus's vision is one where the world's poor find salvation in socialized credit.

Both are neoliberal in the sense of using free-market rhetoric to promote the organization of central government, but at least de Soto recognizes the role of property, capital, and risk in the creation of wealth.

In one of his lectures, Murray Rothbard refers to his heroic uncles who saved and invested in a small chain of drug stores in New York City. But as Rothbard emphasizes, entrepreneurship isn't a science; it's an art. Only some individuals will have the talent. His uncles' stores went out of business, and the men returned to the proletariat. Earning wages was the most wealth-generating activity both for them and for the economy at large. Why should that be any more shameful than the recognition that not everyone can sing well for an audience or create beautiful sculpture? Failure is as key an ingredient in the capitalist economy as it is in art. (And everywhere else, but that's a whole different blog post.)

So is that all there is to this where's-the-outrage mystery? Have libertarians slacked off on Yunus and Grameen simply because they've overextended the romantic vision of the rags-to-riches entrepreneur?

I don't think the cult of folk entrepreneurship is a complete explanation.

Many libertarians -- even those who acknowledge (in theory, at least) all state action as based in the violation of rights -- are just too spooked by anarchism.

Even if we avoid the A-word, the consistent anti-statist position seems unreasonable, or at least unrealistic from a strategic perspective. Neoliberalism is tempting. It seems like a viable direction, however short of the goal we all acknowledge it to be. A half step toward liberalization is better than the socialist status quo.

Only the radicals within libertarianism are unwilling to involve the state in reform. Lowering taxes and tariffs, abolishing regulations, cutting back on spending, we will accept small improvements, but we reject outright any creative or proactive role for the state in liberalization.

We have reasons for this intransigence. As Rothbard was always pointing out, what looks like a half-step forward, with the help of an apparently liberalizing government, is usually a step backwards, a way to increase the discretionary power of the state.

To paraphrase one of my favorite essays by Lew Rockwell, the free market is not a public policy option: it is the elimination of public policy itself.

When you learn of the level of government involvement in something like Grameen, don't just cross your fingers and qualify your praise; dig out the rat!