Tuesday, February 21, 2012

Author Guest Blog Post - Milford Bateman’s Excellent Adventure – reflections on a lecture tour of the USA and Canada

I have just returned from a six-week lecture tour of the USA and Canada, and, for so many reasons, what a fantastic experience it was! The idea for me to come to North America was first raised in late 2010 following the publication of my book, Why Doesn’t Microfinance Work? The Destructive Rise of Local Neoliberalism.

Many of us were surprised – no more so than the publisher, Zed Books! - when it went on to become something of an economics and development studies best-seller in North America, the UK and Europe (as well as on the Indian Sub-continent through a licensed local edition).

At the time, I received a lot of emails from academics and others in North America congratulating me on the book, and for finally exposing what one memorably called ‘the microfinance delusion’. Quite a few US and Canadian University faculties also made my book a recommended text for business, economics and political science students. And then in 2011 we released a long-delayed edited book with Kumarian Press looking at the role and impact of the microfinance model in the Western Balkans, Confronting Microfinance: Undermining Sustainable Development.

Written in collaboration with many of my oldest friends and colleagues living and working in the Western Balkans, several of whom were/are government Ministers (of Finance, of Development, of Tourism), and almost all of whom have worked with me on local development policy projects at various times since the early 1990s, this book also began to generate a lot of interest in North American economics/business and European/Balkans Studies University departments.

And so with a little help from both Kumarian Press and Zed Books, and with a lot of help from a dedicated group of old and new academic friends, I knitted together a tour of a number of U.S. and Canadian academic institutions. I formally started my tour in early January at the American Economics Association (AEA) annual conference in Chicago. My Croatian colleague from the University of Juraj Dobrila Pula, Dr Dean Sinkovic, and I presented our paper on Bosnia’s Microfinance Meltdown (also co-authored with Professor Marinko Skare) examining the negative long-term impact of microfinance in Bosnia.

The paper was very well received by an audience made all too familiar, unfortunately, with similar sub-prime-style disasters and financial shenanigans in various parts of North and South America. I had first met the official host of our panel, Professor James K Galbraith, back in Croatia at an economics conference in June 2011. This was a real honour for me, since Galbraith is one of the economists I most admire.

So I was delighted when a little later Professor Galbraith extended an invitation for me to come to the Chicago AEA conference to present a paper on the Evolutionary Economics panel (Even better, Professor Galbraith has now kindly accepted a formal invitation to be the keynote speaker at a major conference to be held in May 2013 at the University of Juraj Dobrila Pula, tentatively titled ‘Poverty, Development and Debt’). I was even more thrilled when Professor Galbraith invited Dean and I to a private dinner afterwards organised by Economists for Peace and Security,and he deliberately placed me at a seat next to another economics hero of mine – Professor William K Black. Professor Galbraith said Professor Black and I would have much to talk about. We did! Professor Black’s interest is in financial crime and the ‘criminogenic environment’ that is almost always created by the twin scissor blades of excessive deregulation and Wall Street-style incentive structures. His exploration of the Savings and Loans crisis in the mid-1980s is a brilliantly forensic exploration of the biggest and most expensive financial scandal to hit the US economy prior to 2008 (the US taxpayer was eventually hit with a bail-out bill of $124 billion).

To me Professor Black’s work provides an almost perfect explanatory framework for the financial and economic chaos that has descended on many developing and transition countries of late, and specifically those countries where the international donor community ensured that commercialised microfinance would become a major part of the local financial system. In our paper, we found that Professor Black’s work explains very well the microfinance meltdown in Bosnia that took place in 2009, and also the catastrophic over-indebtedness situation that finally and quite spectacularly burst in Andhra Pradesh state in India in 2010.

I also have to say that Professor Black’s ongoing work is of huge importance for those who will have to explain and deal with microfinance crises coming soon to Mexico, Peru, Cambodia, Azerbaijan and elsewhere. Many of us have also been aware for some time that the situation in Bangladesh - the home of microfinance – very much remains on a knife-edge, with many iconic microfinance institutions now openly admitting to having massively over-expanded in search of volume and profit, and so increasingly having to resort to ‘pushing’ microfinance on to an increasingly resistant poor community.

Indeed, both Professor Black and I have been hearing similar things out of Bangladesh about a growing number of microfinance institutions, notably the iconic Grameen Bank, that are wilfully engaging in what is called ‘extend and pretend’ – the pushing of new loans on to potentially defaulting clients which are then used to repay part or all of existing microloans in order to maintain an artificially high repayment rate (often around the 98% mark). A high repayment rate is seen as an operational necessity in order to flag up to clients and others that the microfinance institution is ‘sound’. However, deploying such risky techniques almost always ends up blowing apart the individual financial institution, and often the entire financial system along with it too. Ominously, as I was finalizing this blog posting, I was pointed to an article in the Huffington Post in which one of the earliest and most aggressive proponents of commercialised microfinance, Elisabeth Rhyne, appears to be signalling that some sort of retrenchment - or worse - of Bangladesh’s microfinance sector is imminent.

Apart from the AEA conference in Chicago, I was also happy a few days later to deliver a presentation at the Centre for Global Engagement (CGE) at Northwestern University. Very kindly and ably facilitated by Nicole Patel, the Assistant Director of CGE, the event attracted more than 60-70 people to a modest wood panel-lined room probably meant to hold no more that 45. It was a tight fit. Some were forced to stand right at the back, a few sat in an adjoining administration room with the doors propped open, and there was a row of people sat on the stairs looking down at me (admiringly?) from above. With the extreme cold and snow whipping up outside, I felt a little like Bing Crosby at a traditional Xmas sing-song gathering in Vermont!

I then departed for much warmer LA to participate in a microfinance panel event at the University of Southern California in LA, organised by the redoubtable Yesim Ince. I was joined on the panel by economist-mathematician, noted industrial democracy advocate, and former World Bank staff member, David Ellerman,and by social anthropologist Lamia Karim, author of a very well-received book on the adverse gender impacts of microfinance in Bangladesh.

The panel was fun and the discussion interesting. Lamia and I have obtained funding for a 3 day workshop on microfinance to be held in Santa Fe in September, so we discussed this. It was also especially nice to catch up with David and his Croatian wife, Vlasta, who spend a month every year in Croatia at Vlasta’s tiny cottage right on the sea (guests have to sleep outside on the balcony, as I well remember!). Now retired, David was latterly based in the Chief Economist’s Office at the World Bank working as an economic advisor to the Chief Economist, Joseph Stiglitz. Together with Stiglitz, David authored many of the key papers explaining why the market fundamentalist policy framework imposed on the transition economies of Eastern Europe, especially by the World Bank in cahoots with the IMF, would be (and was) so fundamentally wrong and destructive (a position that, of course, explains why Stiglitz was sacked soon after!).

While in LA, I also managed to take advantage of my 4-day visit to LA to return to the suburb – Glendale - where I spent several memorable years of my childhood.

My next stop was in Canada, in Winnipeg, where I had the immense pleasure of meeting Professor Jerry Buckland and colleagues at the Menno Simons College, all of whom are working on various aspects of local development, including forms of microfinance and cooperatives. I held a couple of seminars with students, and also delivered a public lecture which was very well attended. One of the other highpoints of my visit was being taken by Jerry to visit a number of projects around Winnipeg, including some very interesting First Nation projects involving worker and community cooperatives just finding their feet in a difficult economic environment. Another feature of Winnipeg was the large and growing number of credit unions, which, just as in the USA appear to be taking over from the big commercial banks as the first choice savings and loan institution for many Canadians.

It was then on to Halifax, Nova Scotia, and to St Mary’s University (SMU) where the energetic Sonja Novkovic had put together a very comprehensive work and social program for my 3-day visit. A friend for some years (we both did our PhDs in the early 1990s on aspects of Yugoslavia’s labour-managed firms), Sonja is originally from Pula in Croatia, the city where I am currently a Visiting Professor at the local University. As well as teaching economics and development at SMU, Sonja is a leading researcher and activist in the field of cooperative development policy, and also teaches on SMU’s Master of Management - Cooperatives and Credit Unions (MMCCU).

For me, the lecture I gave in Halifax was one of the most fulfilling of the tour.

After having such a good time in Canada, I was a little nervous as to what would transpire in the next leg of my trip, in Washington DC, where I was scheduled to engage in a second debate with David Roodman of the Centre for Global Development (CGD). Our first debate in Groningen, Holland, in May 2011 at the European Microfinance Research Conference was rather heated. Right from the outset David began to attack me and peripheral aspects of my book, quite irrespective of the fact that the organisers had insisted upon us both formally agreeing to use our allotted time to present our own ideas from our respective books, and not to attack the other person. However, the debate in DC went OK, largely thanks to the efforts of the tireless Dasha Kuts, and the stabilizing influence of the moderator Chuck Waterfield of Microfinance Transparency. I actually ended up enjoying myself and learning a lot, both during the debate and afterwards over lunch with some of those who stayed behind for a chat.

David’s participation in the USAID debate was part of his activities promoting his new book on microfinance, which I have just finished reading and am preparing to write an invited review. David is an interesting character. Once an unabashed supporter of microfinance, he now bravely concedes that the impact of microfinance on poverty is ‘zero’.

So one of the reasons I actually enjoyed the USAID debate was to hear first hand that David has belatedly joined with me and a growing number of other analysts, most recently definitively confirmed by the Overseas Development Institute’s Dr. Maren Duvendack and colleagues, who have long held the view that the ‘evidence’ claimed as supporting a positive impact for microfinance simply does not stack up. As I explain in my 2010 book, and also in my work in collaboration with Professor Ha-Joon Chang, microfinance has had an overall negative impact in a number of ways, and it is much better ‘explained’ as a phenomenon by its political/ideological usefulness in a time of neoliberal politics and economics. Yet in spite of his Damascene conversion, David surprisingly continues to argue that microfinance is still desperately needed. Its supposed ‘power’ now, however, is not in terms of its poverty reduction potential, but because microfinance is an innovative ‘industry’ in itself and is providing very important financial services to the poor. I really do struggle to get my head around this fallback argument. If microfinance doesn’t work, you don’t just invent other things it might be able to achieve, thereby to artificially keep the whole microfinance show on the road: if you are genuinely concerned about the plight of the poor (and I have to assume this) then surely you begin to look to alternatives to contemporary microfinance, of which there are very many - credit unions, for one thing. As someone who has virtually made a career out of claiming to be passionate about only basing his conclusions on solid empirical evidence, David seems to be strangely OK with the fact that that there is no evidence whatsoever to support this new artificially constructed ‘financial inclusion’ mission.

David also made the point that he and I, and most others, value our credit cards, bank accounts and mobile phones to make payments, so why would I argue to deny these services to the poor? This is not any sort of ‘evidence’. Bringing such services to developing countries via microfinance institutions means also denying the possibility to use the same funds for alternative uses; say, to extend and improve other possibly more important services for the poor (health, education, infrastructure, etc). Only a meaningful comparison of the impact of all feasible policy options will help to answer the question of what is the best possible policy to address poverty: we cannot rely, as David does, upon mere ‘belief’.

Sadly, it seems to me that David has been far too easily seduced by the powerful microfinance advocacy institutions, notably the World Bank’s Consultative Group to Assist the Poor (CGAP) and the Boston-based microfinance advocacy group ACCION (disclosure: David’s boss at CDG is a Board member of ACCION), that are now pushing this absurd ‘financial inclusion’ strategy very hard for no other reason, I believe, than simply to save themselves and the entire microfinance edifice from impending obsolescence in the light of evidence. I’ll have much more to say about this in my review of his book.

After DC it was on to New York and to New York University where, thanks to Dr Ascension Mejorado, I was invited to give a lecture entitled ‘The Microfinance Delusion’. Again, and in spite of my by now very gravelly voice, I thoroughly enjoyed myself. The lecture was very well attended, and it ended with many stimulating questions. I then retired to have a cold soothing beer with my Haitian financial analyst friend, Joe, who is keenly interested to find out what impact microfinance has been having in his native Haiti in the aftermath of the 2010 earthquake, with a view to perhaps investing some of his own money and time into a suitable project. Unfortunately, I had to tell him that I’m hearing from my well-placed contact in Haiti that, just as some of us predicted, the impact of microfinance in Haiti has been pretty negative so far – individual indebtedness has been rising very rapidly (microloans are both expensive and are taken out for urgent consumption needs, like food, shelter, medicine, etc), far too many of the early recipients of microcredit have lost everything or went into deeper debt when their petty business went bust, most streets have been turned into vast petty retail outlets with each individual seller making just a few cents selling simple consumer items (the big profits go to the importers), and only a tiny few sustainable businesses have emerged from the post-quake chaos. For me, the parallels to what transpired in post-war Bosnia are so obvious, so painful…and so unnecessary, given what we have known about microfinance for some years now. With Joe and a few other friends, I also managed to catch some of the Manhattan nightlife at a French evening in Soho at ‘Jimmy’s’, before we proceeded on to a surreal early morning meal in a bar-cum-artists studio…only in New York!

My final event was taking part in a debate on microfinance impact at Harvard Business School in Boston. The debate was with Dr. Guy Stuart, who consults on microfinance and also teaches courses on microfinance at Harvard Business School, among other places. He brings a wealth of experience of microfinance in practise, particularly from Africa. The debate was moderated by Kim Wilson, who teaches at Tufts University in Boston, and the whole event was efficiently arranged by the Boston Microfinance Club’s Danielle Donza and Talar Sarkissian. It turned out that Guy and I agreed on many more points than I expected, notably concerning the absence of positive impact arising from microfinance. So I ended up disagreeing much more with the audience than with Guy! Furthermore, Kim also pretty much agreed with what I had to say. As one of the two referees who back in 2007 commented very favourably on my first book proposal to Zed Books, a review that ultimately proved to be decisive in me being offered a book contract for Why Doesn’t Microfinance Work?, Kim has long been critical of conventional microfinance. Indeed, as microfinance advisor to Catholic Relief Services (CRS), Kim was responsible for CRS fully divesting its microcredit portfolio and moving to focus upon micro-savings instead.

All in all, meeting so many friendly and dedicated people, catching up with some old friends and meeting some new ones, receiving such a surprisingly warm reception for my views from students, academics and practitioners alike, and not to mention having an interesting social life along the way, it was a quite unforgettable six weeks. Once again, I sincerely thank all those who helped to arrange, finance and promote my activities in the USA and Canada – I only hope I can return the favour at some stage!

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