Monday, January 20, 2014

François Brugère, Microfinance, the Capabilities Approach to the human doing: will the middle class benefit? Lecture notes on the first few chapters of "La Politique de l'individu".

Microfinance started with providing credit to enable poor people to start their own enterprises. The experience with microcredit shows that it may lead to empowerment, but that it's difficult to prove impact. Different studies do claim positive impact, but consistent results across studies are difficult to find. Researchers are usually cautious in their interpretations and do not find significant impact.

If microcredit does not create positive impact, it does create temporary palliatives and provide an opportunity. However, the poor may not be in a position to make use of these opportunities since they lack complementary resources such as human and social capital. Moreover, short-term palliatives may lead to long-term stress as the poor get over-indebted easily: their debt servicing capacity being limited by their poverty.

One approach to make up for the deficiency of microcredit has been to offer other financial products such as savings, insurance and transfers. Elsewhere, I have often argued that the poor entrepreneurs need equity capital more than anything else.

Another approach has been the capabilities approach. This approach says that the poor need capacity-building services. These take the form of mentoring and guiding entrepreneurs. The French word "accompaniement" is far richer as it includes providing company to end the entrepreneur's isolation. All in all, these approaches require the mentor to share his human capital and social capital to help the poor entrepreneur succeed, without taking over the agency. The responsibility for action should remain with the individual, so that he can appreciate his own success.

If this kind of coaching can help the poor entrepreneur, can it not help everyone? Why should coaching be the privilege of the poor? We know that in the private sector, many managers have mentors and coaches. These mentors and coaches help keep the individual on the path to his goals. Fabienne Brugère, a French philosopher is now asking for the right to coaching (she calls it "soutien" or support) as a third basic right. The first basic right, for her, is property rights. The second basic right is social security rights. She now wants to include individualized mentoring as the third right.

The problem with a purely economic approach, neoliberalism, is that mounting inequalities lead to the collapse of the system: once someone has all the property it is evident that no one else will have buying power. Therefore, property sharing is required. Similarly, social security certainly helps to break the fall, but it may keep people in poverty traps. I have argued (probably orally, but check my "microfinance and suicides" paper) that financial mechanisms of social security coming through the State are not sufficient because they lack a human element. In the older systems still prevalent in poorer countries, social security is provided by the family. As the State takes over this function, people certainly become more independent and confident, but they also become more isolated. This is explicitly recognized by Fabienne Brugère, as she argues for a personalized human aid. This would have the benefit of placing humanity back in the system and provided recognition as people perform better.

This individualized attention is not to be reserved for the poor, but should be available to anyone who needs it; including those who may fear losing their jobs.  She even hints it would go further: it should be made available to anyone who feels he is underperforming and feels that he needs guidance to go further. I agree that asking for help requires a lot of humility, but it may be easier to ask for this if it is given as a right.
Undoubtedly, this will mean a bigger role for the State which serves the socialist cause and her desire to bring the individual back into the political system. The question is who pays? Certainly, the middle classes will benefit if it is a universal right. However, if they are the ones who are going to pay, and if only the "winners" are going to win more as a result, the back of the camel may break from this fresh set of rights.

The question then is whether the rights have to be provided within the market? Or should it be the responsibility of each person to provide such a service to his neighbor? Again, some people undoubtedly do this better than others, enjoy providing guidance more than others, and perhaps some do not have the time to do this. Therefore, we would come back to providing social mentoring as a paid public service.
If free treatment through psychiatrists and psychology can be provided to those who are suffering from mental ills, the provision of coaching can be considered one step away: it will be provided so that we function better mentally, physically, and professionally. For the moment, it may be useful if it is labor intensive. But it is possible that people will soon write software which may become more expert than many human coaches. The humanity would then again have to be found elsewhere.

Perhaps the main criticism of this capabilities approach is that it is centered on welfare being a function of doing rather than being. This is strange for the French translation of welfare is "bien-être". Thus welfare requires being well.

Of course, the spiritually advanced "being" may not need social recognition and may be able to differentiate from action rightly performed and action rightly renounced.

Undoubtedly, this blog would have been better if I had the time to read the rest of her short book, but the weekend is over….

Arvind Ashta

Thursday, January 2, 2014

The caste system and the middle classes

The caste system already existed in India before the Bhagawad Gita, the celestial song, was sung by Lord Krishna.
"The fourfold caste has been created by Me according to the differentiation of Guna and Karma; though I am the author thereof, know Me as the non-doer and immutable."

As we can see, it was not meant to lead to inequalities, but to a differentiation of work (karma) according to nature (Guna). This equality between castes and even with those who are outcastes or other living creatures comes out in another verse.

"Sages look with an equal eye on a Brahmin endowed with learning and humility, on a cow, on an elephant, and even on a dog and an outcaste."

The need of a (flat) caste system probably lies in the simplicity of reproduction or replication of a social model. When the pressure on land became too much, some people had to leave a village and move on. To recreate a harmonious social model, every occupation had to be represented in the new village. Thus, a farmer's son would be the farmer, the teacher's son would be a teacher, the potter's son a potter, and so on. In short, an entire ecosystem would be transplanted into the new village and this was to ensure its survival. Of course, there was nothing stopping a potter's son from being a carpenter, but someone would have to agree to be a potter.

This notion of balanced ecosystem is essential. What would happen if all except the farmers leave? Imagine if farmland productivity went up and the old farmer could provide the food to the new village and his son did not move. Obviously, in the new village, there would be one person less to buy the potter's pots, the carpenter's cots, the tailor's togs. There would therefore be a lack of effective demand to enable all the others to live comfortably.

Not that increased productivity is bad. Evidently, if the farmer's son went to the new village and imported their pots, beds, clothes for this requirement, then the ecosystem remained balanced. But would he travel to obtain, with his father's money, what he could get in his old village if someone worked a bit more. The price mechanism and greed in the old village would therefore lead to lack of effective demand in the new village and that ecosystem would not survive.

One way to overcome the increased productivity is redistribution, implicit in the above paragraph. This redistribution is from the productive farmer to his unemployed son. But as we have seen, unless this redistribution leads to increased demand for other people's products, and not making those in the existing village work even more, the new ecosystem collapses, creating a lot of unemployment. Long term unemployment leads to becoming outcastes of a society. And this outcaste status may then be reproduced by their offsprings since their parents can guide them less.

This is the inherent basics of a community approach to economics. The community does not need to be a village: it can be a town, a region, a country or even the whole world. But unless there is a willingness to share, arising from the recognition that the people in the next ecosystem are our own children and that demand for their products will arise only if we produce less, there will be people who will be unemployed.
This sharing of work, therefore, is what is essential for the creation of effective demand. Of course, if one greedy person wants to produce all, the entire extra revenue needs to be gifted away to those who do not have work. These people can then effectively consume the greedy person's products.

This relationship between producers and consumers, between producers and producers, and between consumers and consumers, is often lost in modern day economics and politics with their "we are the best" growth based mantra.

Again, this is not to say that productivity increase is bad: it is only to say that the increased productivity should be tempered by working less so that total production does not lead to lower production by someone else. Alternatively, the revenue from increased productivity needs to be gifted away to those who could consume it.

The community model allows for new innovations making new things and meeting the unmet needs of people: thus every community may have its own webmaster or computer maker. However, the balance between what is produced and earned and what can possibly be consumed needs to be maintained for the ecosystems to survive: all the ecosystems and not that of our community alone.

The "eye that is equal" means that everyone finds an equal place in such a society, whether he be a priest or a president. To each his duty is prescribed.  

Would our middle class theory require total equality between all people in every aspect of life? Evidently, this is not possible: we are diverse by our nature. But we should all be able to think beyond our immediate enrichment to see whether we can sustain not only ourselves, but also our children and our neighbours. Sometimes, this means doing less, and not necessarily creating charities. Perhaps this is best caught in the last line of great English poet John Milton's (1608-74) poem (on his blindness): "they also serve who only stand and wait". Let me reproduce it since it is so beautiful.
When I consider how my light is spent
Ere half my days in this dark world and wide,
And that one Talent which is death to hide
Lodged with me useless, though my soul more bent
To serve therewith my Maker, and present
My true account, lest He returning chide,
"Doth God exact day-labour, light denied?"
I fondly ask. But Patience, to prevent
That murmur, soon replies, "God doth not need
Either man's work or his own gifts. Who best
Bear his mild yoke, they serve him best. His state
Is kingly: thousands at his bidding speed,
And post o'er land and ocean without rest;
They also serve who only stand and wait.

In this light, the handicapped and those less productive also serve even if they don't produce because they are able and willing to consume. Therefore, the taxes we pay, the charities we create, or the investments we make are just, because they create a balance in the ecosystem created by an inability to refrain from unnecessary action.

Once again, it is not the price mechanism which is faulty. This invisible hand is very useful to provide information on what needs to be produced and what not. It is better than any visible central planning system. 

What is missing are courses on responsibility and spirituality, even in the limited sense of recognizing our true place in the world and allowing other humans and other forms of life to exist before they have to shout for help or before we destroy ourselves by destroying them.

Certainly, with the focus on the right education at an early age, this realization will come to our children faster than to some of our peers. Perhaps they will find a middle way to accepting being middle class and enabling others to become middle class. The party will be on.

Arvind Ashta