Grand Delusions: The Regressive

Results of Progressive Markets

by Chris Floyd

There are a number of basic facts that are largely ignored in today's world, at a great cost to a great many people. Here's one: Military forces are designed to carry out military operations. You cannot use them for nation-building or constructing a civic society; if you do, you will fail.

 

This fact is so evident, so banal, that one is almost embarrassed to point it out. Yet apparently it remains a wonderment, an unfathomable conception, to the makers of state policy -- even those reportedly intelligent enough to play 11-dimensional chess.

Now here is another blatantly obvious, common-as-dirt fact: The market is designed to make money. If you rely on the market to achieve social goals -- such as the allieviation of poverty, or the provision of public services necessary for the common good -- then you will fail.

 

And these failures, as with the military, will generally be catastrophic, exacerbating the problems they are intended (or purporting) to address.
 
A recent story in the New York Times about the crisis in the Indian microfinance industry is a case in point.

 

[For complete article features, please see original at Empire Burlesque here.]

 

Microcredit -- giving small loans to those in dire poverty to help them establish businesses, build homes, sustain farms, etc. -- has been much touted in recent years as a win-win situation: the poor get much-needed cash, while investors in micofinance reap socially acceptable profits. As the Times puts it:
 

In recent years, foundations, venture capitalists and the World Bank have used India as a petri dish for similar for-profit “social enterprises” that seek to make money while filling a social need. Like-minded industries have sprung up in Africa, Latin America and other parts of Asia.

 

 

But microfinance in pursuit of profits has led some microcredit companies around the world to extend loans to poor villagers at exorbitant interest rates and without enough regard for their ability to repay. Some companies have more than doubled their revenues annually.
 
“These institutions are using quite coercive methods to collect,” said V. Vasant Kumar, the state’s minister for rural development. “They aren’t looking at sustainability or ensuring the money is going to income-generating activities. They are just making money.”
 
Reddy Subrahmanyam, a senior official who helped write the Andhra Pradesh legislation, accuses microfinance companies of making “hyperprofits off the poor,” and said the industry had become no better than the widely despised village loan sharks it was intended to replace.
 
“The money lender lives in the community,” he said. “At least you can burn down his house. With these companies, it is loot and scoot.”
 
...Vijay Mahajan, the chairman of Basix, an organization that provides loans and other services to the poor, acknowledged that many lenders grew too fast and lent too aggressively. Investments by private equity firms and the prospect of a stock market listing drove firms to increase lending as fast as they could, he said.
 
“In their quest to grow,” he said, “they kept piling on more loans in the same geographies.” He added, “That led to more indebtedness, and in some cases it led to suicides.”