Newsom, I’ve read the article you suggested. And I find it full of a number of inaccurate assertions:

1) “Why is giving high-interest loans to the inner-city poor considered exploitative in the United States but wonderful and compassionate in Bangladesh?”

Payday lenders profit from maintaining high debt levels for low-wage employees already mired in debt. That’s exploitative.

Microloans give people with no employment and virtually no access to credit seed money to start up their own business ventures. Completely different purpose. Not exploitative.

2) “A deeper look at this institution shows not a success but precisely the sort of flop you might expect from a government-subsidized program that is predicated on the view that money alone is the answer to poverty.”

It is very hard to conceive of any argument against the provision of capital to people without access to capital, for the purpose of starting up businesses where they can become self-employed and thus not dependent on either government help or a rapacious employer.

Also, if any Grameen-type institution is started with government funds, it should nonetheless be profitable. If the program is unprofitable it should be dropped, whether privately or publicly funded. And if publicly funded and profitable, it does not fit the definition of “subsidised”. It is a net profit center, not a funding sink.

3) “Why is giving high-interest loans to the inner-city poor considered exploitative in the United States but wonderful and compassionate in Bangladesh?”

Again, it’s all relative. Payday loans do not offer a way out, but rather ensnare low-wage earners in a cycle of debt. Grameen-style loans offer a way out of poverty.

High interest? Loan rates of 20% in Bangladesh are less than one-fifth what any local money lender would charge. Any loan program should be undertaken with an interest rate high enough that the lender makes a fair return on his investment.

Has such a program ever been shown to be “a flop”? Not that I can find. But obviously, if an application fails, the model should be corrected and tried again. The failure of Studebaker should not be used as an indication that any automaker must inevitably be doomed to failure.

Bottom line, a microlending institution should always be managed for profitability. If it is, the investor profits whether he be an individual, an institution or a government. If it isn’t, the model should be changed.

The original Grameen Bank- Bangladesh says of itself “Borrowers of Grameen Bank at present own 94 per cent of the total equity of the bank. Remaining 6 percent is owned by the government.” And if 94% of the equity of the bank has been provided by repayment of loans, I think that’s a very good track record. The government’s six percent would appear to have been very well invested.

They further say “Ever since Grameen Bank came into being, it has made profit every year except in 1983, 1991, and 1992. It has published its audited balance-sheet every year, audited by two internationally reputed audit firms of the country. All these reports are available on CD, and some on our web-site : http://www.grameen.com”

As a model, then, the original would seem to be on a good business track.

http://www.grameen-info.org/bank/GBGlance.htm

Finally, your article says “We are told that Yunus discovered a wonderful new way of making profitable loans to the poor by doing something that all conventional bankers in Bangladesh had overlooked. Half the population lives below the poverty line in Bangladesh. Are we really supposed to believe that banks blithely overlooked millions of poor people out of bias or hatred or snobbery?”

Yunus found a model no one else had thought of. And it has worked very well. Now entrepreneurs are trying it in a number of other countries. It is quite conceivable that the mindset of previous South Asian bankers was such that they did not consider their poor to be likely bankable economic risks. If so, they have been proven wrong.

michael says:
“I note in passing that neither Venezuela, Argentina nor Ecuador have seen juntas, other than one failed one in Venezuela”

argentina: peron came to power following a military coup in 1943. the military seized power in 1976 and only let go following the falklands debacle in 1983.

venenzuela: apart from the recent coups (two attempts by chavez in 1992), and one against him in 2002, this country’s history is peppered with coups and military juntas. i can’t be bothered to list all the players, they’re that numerous.

ecuador: 1960′s military junta, 1970′s general rodriguez lara seized power, general vargas lead military uprising in the 1980′s, military briefly seized power in 2000

again, michael:
“Pinochet’s reforms were nothing to brag about. In a country where most people were barely scraping by, and were dependent on their government pension for their retirement, they saw it utterly destroyed. I see no way anyone could support this kind of economic shock therapy– it was a tragedy, a mistake and a failure.”

you conveniently neglect the conditions that lead up to the coup. remember this was the only coup in chilean history, so quite anomalous. allende won power with a minority vote, the oppostion being split. he then set about turning chile into the world’s first democratically-elected marxist state. the americans were not amused by his nationalizations of various us interests, and their involvement is well covered in the media. less well covered is the support, overt and covert, that allende got from the soviet bloc, very keen on helping their poster boy.

anyway, not wanting to recount the whole cold war, allende’s economy was an absolute disaster, high inflation,(that’s what destroyed those on fixed rate pensions), economic regression, unemployment, and expropriation of property.

pinochet’s coup arose from widespread dissatisfaction amongst the middle-class, alarmed at the increasing poverty and insecurity of property rights.

all other military regimes of south america followed the dirigiste economic model. pinochet abandoned this and set the chicago boys on implementing liberalization. pinochet did voluntarily cede power via the plebiscite, and left the country was in much better shape (pick any statistic – child mortality, longevity, gdp, literacy etc) than when he came to power.

unforgivable though the torture and murder (3000+ deaths) were, the pinochet era was unique in not impoverishing the nation.

leftists hate pinochet not so much for the numbers of dead, (desaparecidos in tiny uruguay during their dirty war were three times those of chile), nor for the improvement in living standards over the course of the regime, but for his deposing allende, who had been the only marxist to ever gain office democratically.

life is very tough in argentina right now, and the streets of buenos aires are filled at night with cartoneros, scavengers of the rubbish, who sell waste cardboard for pennies. a far more desperate picture than when i was last there in 1992.

south america has a long and sad tradition of despotism and shaky property rights. anyone who’s really interested in why poor countries stay poor should spend time in central or south america.

only ph d’s have the requisite knowledge to comment…
the unwashed shall kindly just listen respectfully.

I just happened to look at this blog for the first time since May.

I’m surprised at the unprofessional criticism aimed at someone whose views you don’t agree with.

Wesley:

Either you have the wrong guy, or you are badmouthing me because you don’t share the same economic views. I doubt you have spoken with someone who went to school with me, as my three degrees were obtained in 1993, 1997 and 2002. As for “promoting” this is the only article I’ve ever written. My background is in financial markets and corporate finance, not economics. I have studied economics for many years, but have never written or advertized my knowledge in any other way. Besides, anyone who would know me knows me to be relatively self-deprecating. My name is not a common one: the odds that you know someone who knows someone else with my name are very slim.

Dalton:

We meet again, and as with your email barrage (where it was you who would not stop emailing), I see you still refuse to stop. Indeed, I did come at you very harshly, as you were the only one of the many responses I received who was rude, unprofessional, insulting, and antagonistic. As you know, you were dishonest in the same way that Wesley appears to be. You claimed that you had a Mises contact who said that I was all too well known at Mises.org (in a negative way). Again, it was my first article, and any search on Mises will reveal that I signed up on Mises.org in April, and had maybe one blog comment on the site – meaning, no one knew me here at all, and they still don’t.
It is a shame that economics can’t be discussed in light of truly understanding cause and effect, and that instead we try to badmouth each other. If we would all like to be professional, I would be more than happy to discuss our differing views, and compare the merits and legitimacies of our various views. Just because some of us believe markets work and others don’t, need not be a reason to insult each other. Indeed, I could well be wrong with my theories. What I care about is truly understanding how the world works.

You have my email address: I will be glad to discuss my work and yours. Wesley, I would be more than happy for you to attempt to prove to me that you know who I am and that I am someone who somehow promotes myself as you unfairly accuse.

With the news of the current health test on Hospitals in Europe due out shortly it has to be a worrying time for the economy. Let’s hope we’re not headed for another collapse again.