Muhammad Yunus is a living example of how one person’s hard work, good will, and creative thinking can enhance the lives of millions of people. Unfortunately, his inspiring and well-intentioned recent book is a striking example of the limits of this approach.
The founder of Bangladesh’s acclaimed Grameen Bank, a Nobel Peace Prize laureate, and a pioneer of “microlending,” Yunus deserves enormous credit for lifting tens of millions of his countrymen and others out of poverty through an innovative financial product that enables entrepreneurs without credit histories or collateral to borrow money.
The success of the movement he spearheaded has been nothing short of astounding. Microcredit, Yunus writes, with justified pride, has “unleashed the entrepreneurial capabilities of over 300 million poor people around the world, helping to break the chains of poverty and exploitation that have enslaved them.” Grameen Bank today provides more than $2.5 billion per year in collateral-free loans to 9 million women and enjoys a repayment rate of 98.96 percent (as of 2016). It has recently established branches in the United States and has bred copycats the world over.
In A World of Three Zeros, Yunus has even bigger goals in mind: He not only wants to suggest how we might eradicate poverty, but also how we can do away with unemployment and even eliminate carbon emissions. He proposes to do all this via what he labels the “social business” model, which he defines as “a nondividend company dedicated to solving human problems.” Social businesses, he explains, are funded by investors who seek only the return of their investment and a modest administrative or “share transfer” fee, and the entrepreneurs pledge to plow any profits back into the company to promote further growth. Yunus highlights several Grameen-linked entities in Bangladesh and abroad, as well as other efforts in Africa and Latin America, that have fruitfully implemented the social business model, thereby helping export and expand his vision.
Overall, Yunus’s program is entirely virtuous and forward-looking. He wants impoverished youth to become job makers, not job seekers. He appreciates it is a “responsibility of society” to “help people escape dependence on the state as soon as possible.” He firmly believes that “modern technologies” make it easier for us “to grow the economy, lifting communities and entire societies out of poverty, while also protecting the environment.”
But it is in illustrating how the successes of microfinance can scale—how we might “redesign the economic system to redesign the world”—that Yunus falters.
It bears noting, first, that some studies have shown that a large percentage of microfinance customers use their loans for household or consumer purposes, not entrepreneurial investment, while others reveal that the richest of the poor benefit far more from microcredit than the poorest of them. One scholar at the Washington-based Center for Global Development observed bluntly several years ago that “we do not have credible academic evidence that microcredit on average lifts people out of poverty.”
Scaling the microfinance approach to billions of people only compounds these problems and uncertainties, and A World of Three Zeros, for all its uplifting rhetoric about unleashing the power of youth, technology, and good governance, as well as its shining examples of successfully social businesses, provides little concrete guidance for how a market-based system of global finance can plausibly be converted to one predicated on Yunus’s model.
On the contrary, some of microfinance’s most accomplished and vocal advocates, such as Joanna Ledgerwood, a USAID-funded microenterprise specialist, have literally written the book on how microlending institutions can reconfigure themselves into commercial deposit-taking banks.
As Ledgerwood and her colleagues write in Transforming Microfinance Institutions: Providing Full Financial Services to the Poor, “the integration of microfinance into the formal financial sector” represents “the best way to achieve the outreach needed to substantially increase access to financial services for the world’s hundreds of millions of low-income households.”
Yunus, however, erects strawmen aplenty (e.g. “we need to abandon our unquestioning faith in the power of personal-profit-centered markets to solve all problems”), pays obeisance to contemporary liberal pieties (the Paris climate conference was “a victory of the people, led by committed activists who never gave up campaigning for their cause”), and cites jaw-dropping inequality figures (including that the richest eight people in the world are wealthier than the entire bottom half of the world’s population combined) without offering context or explanation of how and why inequality harms the economy.
And those specific proposals that Yunus does provide—simplifying laws governing microfinance, reducing regulations discouraging small business, rejiggering welfare to encourage individual independence, updating immigration laws to spur travel, persuading the ultrawealthy to donate their fortunes—are largely anodyne, unrealistic, or inadequate.
Instead, we can thank decidedly for-profit businesses like General Electric, IBM, and Monsanto for contributing innovations that have helped lift hundreds of millions from the clutches of poverty. Or we can recognize newer companies like Gigawatt Global, which, by profitably installing the largest photovoltaic field in Rwanda and developing solar fields totaling another 150-plus megawatts across sub-Saharan African, have done well by doing good.
Of course, the market is far from perfectly efficient, and there is unquestionably a place for social businesses and microlending to fill in the gaps on a micro-level. But the pursuit of profit, pace Yunus, not only isn’t equivalent to greed but also remains the single most powerful force for human flourishing.
Muhammad Yunus is a heroic figure for our time and an accomplished economist. But remember, he was awarded the Nobel Peace Prize, not the prize for economics. This shortcomings of this book perhaps hint at why.
