Sunday, March 27, 2011

Jagdish Bhagwati: Misplaced Criticism Of Yunus

Jagdish Bhagwati - World Economic Forum Annual...Image by World Economic Forum via FlickrThere is no doubt that Yunus has done pioneering work in the field of microfinance. It is not that others have not, but I do think he deserved the Nobel Peace Prize he was awarded. Not only did he do pioneering work, he scaled it. The Grameen Bank is huge in size.

But if Jagdish Bhagwati gives Yunus less credit than I would like to, I don't have issues with that. That is a matter of difference in opinion.

What I do have issues with is where Bhagwati pours down a dozen paragraphs siding with Sheikh Hasina in her crusade against Yunus, and then concludes in the final paragraph by saying good governance plays a more central role in poverty alleviation than does microfinance, something I agree with. I'd put good governance, education, health, infrastructure, job creation, and microcredit, in that order.

Bhagwati's motivations are suspect here. Maybe he is simply jealous. Third World origin armchair academics occupying seats of power at big name universities in the west sometimes have a tendency to trivialize the works of those who actually spend time on the ground doing actual work, meeting actual people, putting up with all that is wrong, inefficient, sluggish on a near daily basis.

Bhagwati is lacking perspective here.

Microfinance Alone Can't Cure Poverty
Yunus Should Launch A Political Party
Microfinance: No Substitute For Good Governance

I do have my issues with Yunus: he seems to be irrationally opposed to for profit microfinance. But then Einstein also was opposed to Quantum Mechanics.

The Times Of India: The ‘real’ truth behind Yunus’ Grameen story

The feud in Bangladesh between Prime Minister Sheikh Hasina and Mohammed Yunus, the founder of the microloan-making Grameen Bank and a winner of the Nobel Peace Prize, is being portrayed as a modern-day replay of the famous battle between the wicked Kauravas and the virtuous Pandavas in the "Mahabharata".

The suggestion is that a vindictive prime minister is playing politics in punishing the saintly Yunus, the man who pioneered microfinance, for having threatened to enter politics. Sheikh Hasina is even being compared to Russia's Vladimir Putin in his campaign against the oligarch Mikhail Khodorkovsky.

But the Grameen case is more complicated, and carries a moral contrary to what Yunus' wellmanaged public-relations campaign suggests.

First, Sheikh Hasina is no ordinary politician. She is the daughter of the first president of Bangladesh , Sheikh Mujibur Rahman, a charismatic leader often described as the Father of the Nation, who was assassinated in August 1975 by the army.

Hasina won office in 2009 after a landslide victory in an election that was free from fraud. She is also one of the few women to have gained the premiership not by inheriting it, but in her own right, long after her parents and some of her siblings were murdered. Sheikh Hasina escaped the massacre of her family only because she was in Germany at the time. Over many years, she patiently worked her way back into, and to the top of, Bangladeshi politics.

Moreover, Sheikh Hasina has gained political power at the polls in an Islamic country, which is no mean feat for a woman. By getting the US to side with Yunus against the Bangladeshi prime minister, secretary of state Hillary Clinton seems guilty of arrogantly intervening in the domestic affairs of a friendly, democratic government —in direct contradiction of President Barack Obama's preferred modus operandi.

Second, many of those now discounting Sheikh Hasina's credentials are guilty of inflating those of Yunus. Consider the frequent refrain that Yunus is the "pioneer" of the microfinance movement. In fact, the true pioneer of microfinance is a remarkable woman from Ahmedabad , Ela Bhatt, a follower of Gandhi who established SEWA (Self-Employed Women's Association ) as a bank in April 1974, two years before Yunus founded his Grameen Bank Project in Jobra, Bangladesh.

Throughout its existence, SEWA has been regulated by the Reserve Bank of India, staying strictly within the law and seeking no special dispensations. Unlike the Grameen Bank, it has received no foreign money (such as the grant of $100 million from Norway, the handling of which led to the initial charges of malfeasance against Yunus), and it has distributed dividends of 9-12 % annually each year since its founding. Yunus is suspected of covering up losses at Grameen with huge sums of money from abroad, whereas SEWA has demonstrated that poor, self-employed women can own and run a financial body in a self-sustained fashion without external largesse.

Third, many Bangladeshis, jealous of the independence they secured in the crucible of the Pakistani army's genocide in East Pakistan 40 years ago, resent the vast influx of foreign money , which has turned Grameen and Yunus almost into a rival to the democratically elected government, a phenomenon that no government would tolerate. Indeed, Clinton's intervention in the feud between Yunus and Sheikh Hasina highlights the danger of foreign influence in Bangladesh's internal affairs.

Finally, there is the issue of microfinance itself . Microlending is certainly a useful supplement to tested anti-poverty policy instruments —and one that pays an extra dividend insofar as it aids women. But the fact is that India's massive economic reforms, which began in earnest in 1991, have had a far greater impact on poverty , and indeed on the incomes of several disadvantaged groups, including women. This has been amply documented by recent empirical studies, which have shown that earlier assertions to the contrary were wrong.

By contrast, Bangladesh has not experienced anything like India's acceleration in economic growth. As Sheikh Hasina has seemed to appreciate since returning to office two years ago, Bangladesh has for decades been handicapped by doctrines that undermine growth. Unfortunately, Bangladesh's most influential economists, and hence the country's policies, remain mired in the growth-killing socialist economics that they learned at Cambridge and the London School of Economics a half-century ago.

Ela Bhatt's SEWA adds to the huge benefits to the poor and underprivileged that a reformed macroeconomic policy framework has brought to India. By contrast, Yunus's Grameen Bank puts at best a microeconomic finger in the leaky dyke of Bangladesh's largely unreformed macroeconomic policies. Can we hope that the Grameen affair will be a prelude to the fight for the liberal reforms that will transform the Bangladeshi economy?

(The writer is professor of economics and law at Columbia University and senior fellow in international economics at the Council on Foreign Relations)
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