“Economics is a meaningless subject,” Muhammad Yunus, the Nobel Peace Prize winner, microfinance pioneer, and rogue economist told Time magazine a few months ago. Little did he realise that he would soon have an opportunity to demonstrate what he meant. Following the ouster of Bangladesh’s authoritarian Prime Minister, Sheikh Hasina, earlier this month, Mr Yunus was chosen to lead the country’s caretaker government.
Founded in 1971 after a bloody war of independence, Bangladesh is an unlikely candidate to be a poster child for development, given its exploding population and acute vulnerability to natural disasters. Yet by the 1990s, it had a credible claim to this title. When many other developing countries were being suffocated by the neoliberal Washington Consensus, Bangladeshi figures like Mr Yunus (with his Grameen Bank) and Fazle Hasan Abed (the founder of the anti-poverty nonprofit BRAC) were leveraging a third tool beyond the state and the market: Civil society.
Working as a young development scholar in Bangladesh in the early 2000s, I witnessed these pioneering NGOs’ early work firsthand. They sought solutions not on the blackboard but in the field, creating a global petri dish for innovations in development. As one of my interviewees put it, Bangladesh was “the Wall Street of development.”
Like the real Wall Street, however, Bangladesh’s model ran into trouble around 15 years ago, when Ms Hasina returned to power. The leader of the secular Awami League and the daughter of Bangladesh’s “founding father,” Mujibur Rahman, Ms Hasina was originally seen as a symbol of democracy. But her tenure took an alarming turn towards authoritarianism and rampant corruption, and matters finally came to a head this summer, when she tried to order a violent crackdown against peaceful student protesters. Ms Hasina’s economic strategy was to take a page out of the conventional development-economics playbook. To harness export-led growth, she positioned Bangladesh as a low-cost manufacturing hub for garments. One consequence of this strategy was that there were very few employment opportunities for college graduates outside of government jobs, which are allocated through a corrupt, nepotistic quota system. Now that the revolutionary youth have furnished Yunus with an unprecedented degree of influence on the national and international stage, Bangladesh’s development credentials face a big test. Was the civil-society-centric “Bangladesh model” just a quirky aberration from neoclassical economics and its policy prescriptions, or does it represent a genuine challenge?
While Mr Yunus was widely recognised for his role in introducing one of the most important development interventions of the past few decades, I have long suspected that the psychological insight at the centre of the microfinance model could reshape our thinking more broadly. Rather than assuming that borrowers (mostly poor women ) were utility-maximising “rational actors” for whom repayment would be irrational in the absence of coercion, MFIs took a chance on them. And instead of targeting individuals, MFIs lent to groups of five or so women.
By taking this approach, MFIs create social cohesion within the recipient groups, which generally hold regular meetings and public repayment rituals, thereby eliciting prosocial behaviour from all participants. As I have noted in work contrasting India’s SKS Microfinance with Grameen Bank’s track record, it is these social-reinforcement mechanisms, rather than the economic incentives, that underpin the model’s success. Having been replicated in more than a hundred countries, the Bangladeshi microfinance model is distinctive for having been incubated in, rather than imported into, the Global South. This provenance makes it well suited to the cultural context in which it operates.
Mainstream economics has largely dismissed the insights from microfinance as folksy, feel-good anecdotes. But in a new project, in collaboration with a team of scientists, I explore the potentially profound significance of “social preferences” in economic arrangements.
Could an institution designed to engage individuals’ “instinctual” rather than “deliberative” system elicit systematically different behaviour? What if we start with the assumption of a prosocial economic agent, rather than a selfish, atomistic one? What if we reconfigure our networks to make them more cooperative? Perhaps we could avert economics’ self-fulfilling prophecy of a tragedy of the commons. If we stop “crowding out” our intrinsic goodness, perhaps we can build what Samuel Bowles calls a “moral economy.”
The writer is associate professor of empirical legal studies at the University of Cambridge.
©Project Syndicate, 2024
First Published: Aug 30 2024 | 11:47 PM IST
