Sunday, August 14, 2011

'Social Business': Nobel Peace Prize Winner Muhammad Yunus Promotes New Way To Fight Poverty

The Nobel Peace Prize winner who invented microcredit presented his latest idea for combating poverty, "social business," to the State Department on Thursday.

Muhammad Yunus, the Bangladeshi economist who has championed microfinance as a way to alleviate poverty in the developing world through entrepreneurship, told The Huffington Post that he would encourage U.S. policymakers to change the way they administer foreign aid. Instead of giving handouts of food and other aid, Yunus argues that donor nations like the United States should help fund groups based on a model of social business.

Not quite a for-profit company nor a nonprofit philanthropy institution, a social business is a hybrid in which owners recoup their investment but take no more in dividends. The goal is not to get rich but to provide health care, housing, clean water, nutrition for malnourished children, renewable energy and other goods "in a business way." Yunus said the business model is aimed at "creating a new space without closing down the other sides."

While in Washington to speak to a gathering of international development and aid organizations, Yunus met privately with Secretary of State Hillary Clinton. She has been a longtime champion of his microcredit work and Grameen Bank, which he started in 1983 to make tiny loans to the poor, 97 percent of them women.
While Yunus was recently forced by the Bangladeshi government to resign from Grameen in what is widely viewed as a politically-motivated move, he said he hoped Clinton would step up her support of social business to help empower the powerless.

He suggested Haiti, whose economy remains shattered from the January 2010 earthquake, as the logical place to start.

"People are getting everything free because so much donations have come in" from the international community, he explained. "Free food, housing in the camps. So when the bulk of the things are free, you are not building the economy ... Life cannot go on in a charity mode all the time. We have to shift from the charity mode to the business mode."

Yunus cites collaborations with companies like technology giant Intel and Dannon yogurt parent company Danone as examples of social businesses that can replace welfare to maximize good and not just profit.
Yunus' work has not been without controversy. Microfinance banks in India and Mexico ostensibly modeled on Grameen have turned into what Yunus calls "loan sharking" operations that charge high interest rates in pursuit of big profits.

Earlier this year, he wrote about "mission drift" as microfinance has become more commercialized. "Poverty should be eradicated, not seen as a money-making opportunity," he argued.

Yunus said predatory micro-lenders have given his movement a bad name. "Yes, this is a problem," he told HuffPost. He calls for more regulation as well as drawing a line between for-profit and not-for-profit operations. "Today there [are] no distinguishing marks so everything is called microcredit, and then blame comes to the microcredit part which is dedicated to serving the poor -- which is unfair."

So, too, say Yunus supporters -- a group which includes Clinton and other U.S. diplomats -- is the recent action by the Bangladeshi government to force him out of Grameen Bank. It began a review after a Danish documentary broadcast in Norway accused Grameen subsidiaries of gouging poor borrowers with high interest rates. Yunus was later cleared of wrongdoing but informed by a 77-year-old finance minister that, at 70, he was too old to stay at the bank's helm.

Without a bank to run, Yunus has turned to selling his vision for the social business model. But not everyone is convinced the idea could be a panacea for poverty.

"I don't share his fascination with that," said Daniel Roodman, a microfinance expert at the Center for Global Development. "What has reduced poverty is not social business but traditional businesses creating jobs. ... Social businesses are not what made America rich."

Yunus thinks social business has tremendous promise, but must develop with deeper roots. He believes if societies change their mindset to teach students that the goal of education is not to get rich but to enrich one's life by helping others, the business model could drastically reduce poverty in this century. And then, as he said when accepting the Nobel Prize, "the only place you would be able to see poverty is in the poverty museums."

Much Ado About Connectivity

ONCE upon a time, the slaughter of cows was a major political issue in Bengal. There was a clause about it in the Bengal Pact of 1926—an agreement between the Hindu and Muslim communities which, if implemented, could have avoided partition. Now, six and a half decades after partition, there is a thriving trade in cows from India to Bangladesh. As a 2010 article in the LA Times reported:

A dirty little secret that most Indian politicians don’t discuss is the thriving cow smuggling trade from their Hindu-majority nation, home of the sacred cow, to Muslim-majority Bangladesh, where many people enjoy a good steak. The trade is particularly robust around the Muslim festival of Eid.

Estimates suggest 1.5 million cows, valued at up to $500 million, are smuggled annually, providing more than half the beef consumed in Bangladesh.

The profits can be significant. A $100 medium-size cow in Jharkhand is worth nearly double that in West Bengal and about $350 in Bangladesh.

Gordon Gekko’s greed-is-good philosophy, Adam Smith’s invisible hand, what economists call arbitrage—call it what you will, but you would be somewhat right for thinking that the profit motive is triumphing over politics, market forces are breaking down thousands of years’ old taboo.
Somewhat right, but not wholly. There is more to the tale.

Once upon a time, it was Bangladesh that wanted to erect restrictions on travel to and from India. In 1972, Bangladesh was adamant that the two countries should have a visa system between them. Back then, the Bengali Muslim majority of the country feared that Hindus who migrated around partition would return en masse.
Things are different these days. It is now India that is erecting a fence around Bangladesh. And to guard that fence, the Indian republic has been effectively giving its Border Security Force a licence to kill. The cattle drivers across the border operate under a place that is more dangerous than the Wild West.

The BSF killed about a thousand Bangladeshis, and perhaps as many if not more Indian nationals, in the past decade. The trigger-happy BSF had come under scrutiny after killing a teenage girl who was returning to Bangladesh with her family. The brutal image of Felani’s hanging body spread around the world. The BSF was roundly criticised in the western media including the Guardian and the Foreign Policy. Eventually, the Indian government pledged that only non-lethal force would be used in the border.

Have the killings stopped? As late as in June, the BSF allegedly tortured and killed a mentally unbalanced person called Maqbul Hossain.

Don’t expect to hear about that when everyone discusses connec-tivity.

When pressed, the stock-standard line in India is that a fence, and regrettably, the use of force by the BSF, is necessary to keep illegal immigrants out.

What is the response from Bangladeshi officialdom? Silence or denial.

This is the big taboo, the subject never to be raised, according to our policymakers.

Are there undocumented Bangladeshis in India? Absolutely.

One is likely to encounter Bangladeshis in construction sites or rickshaw stands in any major Indian city. One is likely to find a Bangladeshi domestic help in most Indian cities. And these Muslim folks speaking in Faridpur or Noakhali dialects are not part of the Hindu exodus or are West Bengali Muslims.

How many of them there are in India? How much do they contribute to the affluence of the Indian middle and upper classes? How much do they contribute to our remittance?

No one knows. Because, formally we don’t even acknowledge their existence. In fact, our government doubts whether Felani was a Bangladeshi.

So, there are undocumented Bangladeshis residing in India illegally? But let’s not forget, whether as a rickshawallah in Delhi, housemaid in Mumbai, or a road construction worker in Hyderabad, these people are contributing to the Indian economy. They make it possible for the Indian middle class to enjoy its new-found prosperity. Whether we admit it or not, there is a form of connectivity that doesn’t wait for a prime ministerial communiqué.

It’s a shame that we don’t talk about it.

Let’s move away from people and return to cows. The LA Times reported that up to $500 million worth of cows are smuggled into Bangladesh every year. One can imagine what would happen at the kitchens and dining rooms of Dhaka if this illicit trade is seriously cracked down on.

But how come no one asks why this trade needs to be illicit?

It’s not like India doesn’t export food. According to the UN trade statistics, every year India exports over $800 million worth of bovine meat. Vietnam is the largest export market. It exports about $2 billion worth of rice a year, a quarter of it to Saudi Arabia.

Why does Bangladesh’s import of food from India have to be through smuggling?

On the other hand, illicit or legal, the fact that we import so much food — not just cereals like rice and wheat, but also vegetable, meat and spices — from India presents a risk that we never talk about.

As a land-starved, densely populated country, it is difficult for Bangladesh to become fully self-sufficient in food. Raising farm productivity in Bangladesh is likely to involve a consolidation of agricultural plots, which will release surplus labour to cities that are already bursting at seams. As such, Bangladesh is likely to remain net importer of food products in the world market. And shocks emanating from across the border are an ever-present risk to our food security.

Indeed, in recent past, actions by Indian policymakers severely affected Bangladesh’s food security. In 2007 and 2008, governments around the world faced political heat from rising food prices. One way the major food producers tried to tackle it was through restricting food exports. The initial acceleration in rice prices in late 2007 began when India, the world’s second largest rice exporter, imposed export restrictions on rice. Similar restrictions were then imposed by Vietnam, China, Cambodia, Indonesia, and Egypt. This in turn, sparked fears among importers, such as the Philippines, over the reliability of their suppliers, causing countries to increase stockpiles. As a consequence, rice prices rose rapidly, reaching over $1,000 a ton in April 2008.
Remarkably, the public policy discourse in Bangladesh seems completely ambivalent to the risk of a repeat of this episode. Rice wasn’t even mentioned in the joint communique issued by the prime ministers of the two countries in January 2010.

We do, of course, hear a lot of hypes about the benefit of allowing India (and other countries) transit facilities through Bangladesh. Or rather, we used to.

Not so much these days.

The opponents of any transit deal with India have traditionally resorted to arguments based on non-economic factors such as geo-strategic issues or nationalism. The proponents of transit had, on the other hand, presented the issue in economic terms, arguing that transit should be allowed because of the economic benefits it delivers.

As the government has taken the political decision to accord India (and other countries) transit facilities, something curious has happened to the supporters of the policy — they have grown an antipathy towards numbers, preferring the language of confidence and trust. Thus, Dr Gowhar Rizvi, another prime ministerial advisor, has been pontificating for the past few months that we have wasted 40 years, and must start with transit immediately.

The point is not that transit is harmful. It may well be beneficial. It may well boost jobs and income. But that needs to be modelled and analysed, not assumed. But who needs analysis when the government has made a political decision?

Transit facilities can assist the Bangladeshi economy directly through transit fees. However, international trade rules limit how much Bangladesh can charge in transit fees. According to the World Trade Organisation rules, to which Bangladesh is a signatory, there are only two kinds of charges that can be imposed on traffic in transit, charges for: transportation, and administrative expenses caused by transit or services rendered. Further, the charges are supposed to be ‘reasonable, having regard to the conditions of the traffic.’

Media reports suggest that the boon to the public revenue from transit fees could be anywhere between 6 to 18 billion taka a year. Even the high end of that estimate appears rather paltry compared with the size of the country’s economy (around 7.3 trillion taka in 2010). That is, the transit fees are not even likely to dent the 4-5 per cent of GDP budget deficit Bangladesh government runs every year.

In addition to this dollop to the government coffer, transit facilities could boost the country’s economy indirectly, by spurring trade, investment, and employment. For example, the Indian trucks travelling through Bangladesh will need to be serviced, and the drivers of those trucks will need a place to rest. Both could boost our service sectors.

The question is, by how much?

If the Prime Minister’s economic advisor is typical of the policymakers, it seems that no one is interested in any modelling or estimates. Consider what Dr Mashiur Rahman told the Daily Star last November.

‘You can earn an enormous amount. I cannot accept any of the calculations done on so many assumptions. My accepting or rejecting does not reflect on the quality. But these are all based on assumptions. For instance, if the assumption is that all import to the north-eastern states will be through Bangladesh, it will be a wrong one. These are wrong assumptions because if you want north-eastern states to import everything through Chittagong port then you have to build up a relationship of trust, which is not there. Uninterrupted and increased cooperation, let us say for 10 years, would build up the trust. Then India can start importing all the goods for its north-eastern states through Chittagong and Mongla ports.’

It’s not like there is no analysis whatsoever on transit. KAS Murshid, the research director of the Bangladesh Institute of Development Studies, has written a comprehensive survey of the issue. Given the government’s political decision to accord India transit facilities, he matter-of-factly states that the debate is no longer whether but how. He makes a strong case for rail transit, pointing out serious capacity constraints in the road services. Anyone driving on any road in Bangladesh will know what Murshid is talking about.

But here is the rub. Murshid also acknowledges:

If rail-based transit services are to be put into action the railway system of the two countries will need to be synchronised, requiring significant investment.

In fact, according to the vernacular daily Prothom Alo, the government is well aware of the fact that Bangladesh lacks the infrastructure to provide transit facilities to anyone. That report by Jahangir Shah explicitly mentions Mujibur Rahman of the Tariff Commission, transit specialist Rahmatullah, Mustafizur Rahman of the Centre for Policy Dialogue, and Sadiq Ahmed of the Policy Research Institute.

These are all people whose qualifications and expertise on the subject matter is beyond reproach. They were all part of a ‘Core Group’ advising the government on the issue. One assumes that they had approached the task with analytical rigour, and not political bias.

According to the Prothom Alo, the report produced by the core group stated that 500 billion taka worth of investment, with 300 billion taka in railways, is needed if complete transit facility is to be utilised. To put that number in context, total public investment in 2010-11 was around 400 billion taka. That is, for transit to work, even if the government spends nothing on our schools and hospitals and power plants, and every paisa of investment is put into transit-related investment, public investment will need to more than double.

Wait, why does this investment have to be public? What about the Public Private Partnership that we hear every June from the Finance Minister?

What about it? When did you last hear about successful PPP projects?

On the other hand, it may well be that transit will not require investment of this magnitude. It may be that transit simply will not matter one way or other. To quote Murshid:

Much more analysis is needed in one key area: to what extent is Assam likely to participate in this new/emerging economy? The deep-rooted obsession and anxiety with foreigners in Assam and the rest of the NES is the most potent threat on this journey.

There is a real risk that Bangladesh will not manufacture or industrialise beyond ready-made garments, instead exporting manpower to the Gulf, to the West, and indeed to India, where potential engineers, doctors, accountants, entrepreneurs hold down menial jobs and remit every last paisa back home, where the vast foreign reserves thus generated are used to import every possible good, thus turning our country only into a vast potential market to be flooded and controlled.

The clear risk is that Bangladesh will only exist as a vast pool of unskilled labourers, the world’s largest slum, adding no value to any production chains, only serving as a transit point between South and East Asia, leasing out deep-seaport to ship oil and gas all over the world. Dear reader, these are the risks you will not hear much about it when connectivity is discussed.