The Free Market, Grameen Bank, and Mohammad Yunus.

Yesterday in my Economics class, we covered the concept of efficiency. By displaying how a free market is efficient I argued that the more free a market is the more value will be created. In other words, everyone is better off. The consumer is getting a deal, while the entrepreneur is making a profit. I also displayed the impact of regulation on efficiency and how government intervention reduces the efficiency of the market. Realize a free market is an ideology, one that may be impractical due to the fall of humankind (there will always be those who try to take advantage of the system). Thus, the free market needs some level of government oversight. Trying to figure out what that level is, is the $65,000,000 question.

All of us understand the importance of earned success. Thus, an economic system should be able to create jobs for as many people as possible. Thus a free market, one that is efficient, will provide opportunities for entrepreneurs to earn success. Arthur Brooks discusses this in his free market treatise. “Making a moral case for job creation is not hard: Jobs are not just a source of money for Americans; they are a ticket to earned success. High unemployment, especially when it is avoidable, is fundamentally unfair because it robs people of their potential fulfillment. It is especially harmful to the poor and the young, who have fewer economic opportunities then others.” Job creation is at the top of everyone’s what to do next list. To accomplish this, Brooks tells us there are three things that need to be our focus.

First, get government out of running businesses. As we have seen government choices on who to bail out and who to let fail has been cronyistic. We have been stuck at over 8% unemployment for quite a while now, and we need to commit to a free market situation.

Second, the government must do its job, guard against special interests. Cronyism is prevalent in our business and political system. This hurts the market and leads to monopolistic activities that hurt the consumer.

Third, keep the government payroll to a minimum. Large numbers of government employees require greater levels of taxes. Taxes reduce the ability of the free market to perform at an efficient level.

The level of efficiency within government is notoriously nonexistent. Whether it is FEMA and its inability to meet the needs of people in Louisiana. Or currently, in how the government has reduced America’s ability to compete, government is inefficient. However, a recent example of government inefficiency can be found in Bangladesh.

Mohammad Yunus, a professor of Economics, decided to go back to his home. He arrived in Bangladesh and ran into some women who wanted to start a business. They were complaining about the local loan sharks who were charging high interest rates. So he asked the women how much they needed to pay off the loan sharks and start their business. It equated to about $27. So he gave them the money out of his pocket. Thus, Grameen Bank was born, as was Social Business.

Eventually, 2006, Grameen Bank and Mohammad Yunus would be awarded a Nobel Prize for its micro-lending mission. Grameen Bank has been, “providing life-changing micro-loans to poor people.” Grameen loans money to woman who start businesses, and then pay back the money at very low interest rates. Last time I checked about 97% of the clients who borrow money pay it back. “With 8.3 million borrowers, Grameen is the source of capital for women entrepreneurs and has used its influence and resources to support education, community-hygiene initiatives, affordable healthcare and better nutrition.” Not only has the bank provided opportunities for its clients, it has provided opportunities for social justice and civic improvement. This is a great example of  an efficient market.

Another interesting fact about Grameen is that it is run by its borrowers. The borrowers are the majority owners and thus choose who the bank’s managing director is. The Bangladeshi government wants to change this arrangement. Grameen is a unique situation. “Grameen Bank is more than just another financial institution. It is a living demonstration of how people who lack advantages of any kind can nevertheless lift themselves out of poverty through hard work and personal accountability.”

The government of Bangladesh will never run this company better than the people who have been loyal to the institutional principles initiated by Yunus.  “The idea that poor people can run their own bank successfully has been very empowering.” And it is a testimony to the power of a free market.

And that is my thought for the day!

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s