The cynicism of publications like the New Yorker toward free markets and free enterprise never ceases to amaze me. The New Yorker published an article this month by James Surowiecki titled “What Microloans Miss” that states the following:
This vogue has translated into a flood of real dollars: institutional and individual investments in microfinance more than doubled between 2004 and 2006, to $4.4 billion, and the total volume of loans made has risen to $25 billion, according to Deutsche Bank. Unfortunately, it has also translated into a flood of hype. There’s no doubt that microfinance does a tremendous amount of good, yet there are also real limits to what it can accomplish. Microloans make poor borrowers better off. But, on their own, they often don’t do much to make poor countries richer.
Oh really?
We know that to build entrepreneurial economies we need to build a culture that supports and encourages entrepreneurs. Microloan programs are reshaping the culture of several third world countries by supporting thousands of new entrepreneurs who are building grassroot capitalism among populations who knew only desperate poverty. The only income that many in these societies ever received were handouts — be they from government agencies or NGOs. Microloans have given them a path to economic freedom.
It takes time to build wealth. And real wealth comes from free enterprise. Are microloans the answer to transform an economy? Of course not. But they are a critical step in building long term transformations. Microloan programs are not just jobs programs, or worse yet, mechanisms for the redistribution of wealth from one country to another. Instead, they are creating a cultural seedbed for economic freedom and independence.
The “richness” of a country is not just measured in GDP. Microloans are making societies richer by creating hope, independence, and pride among thousands of “micro” entrepreneurs. And over the long run this will surely create monetary wealth in the countries that benefit from these efforts.
Thanks to Andy Tabar for passing this article along.