Mike Moore: Pioneer empowers poor

Three cheers for the Nobel Committee awarding its Peace Prize to Bangladeshi economist Muhammad Yunus for his pioneering, on-the-ground success by inventing the idea of micro-credit, which has helped millions.

Yunus was a pro-independence Bangladeshi student in the United States when Bangladesh became independent. He returned home flush with nationalistic patriotism and keen to contribute to the development of his homeland.

It was a time after the collapse of colonialism when it was natural for enthusiastic, nationalistic new governments to look beyond their past masters' policies and seek brave new models to emulate.

Russia had leap-frogged from a wretched, feudal society to leading the space race. That attracted many to the Russian model of development.

Yunus, working for his Government, became disgusted with economic planners and their failures, earlier than most, and left safe Government service to return to university life.

Perhaps he read about the Soviet economist visiting London in the 1970s who demanded to meet whoever was in charge of bread production, and was confused to be told, "No one."

Noticing that local fields were lying idle and unproductive for several seasons during devastating famine in the 1970s, he realised he could multiply productivity with a small water pump. But the cost was so small, no bank was interested, and the people who needed the pump had no money or assets to borrow against.

From this simple realisation he established the Grameen Bank - grameen means village or rural in Bangladesh.

His first loan was from his own pocket, US$27 ($41) shared among 42 people for weaving stools.

His bank has now lent US$5.72 billion, 98.5 per cent is repaid, 96 per cent goes to women, and most loans are under $100. The borrowers own 94 per cent of the Bank and the Government 6 per cent.

Such small sums elbow out corrupt bureaucrats and politicians are sidelined - they love to announce "think big" projects, not small stuff which is not newsworthy.

It's a big idea that works.

Another big idea that should be read by every business person, bureaucrat, and politician is explained in C.K. Prahalad's remarkable book The Fortune at the Bottom of the Pyramid, on how to eradicate poverty through profits.

He looks at purchasing power parity and finds that India, China, Brazil, Mexico, Russia, Indonesia, Turkey and South Africa combined have a GDP of more than $12 trillion, larger than Japan, Germany, Italy, Britain and France.

Then he studies companies that are tapping the bottom of this market, lifting living standards, creating jobs and providing consumers with a better deal. The poor are price-sensitive, ambitious, canny and welcome technology.

Cellphones are growing at 1.5 million a month in India, which now has more than China. Brazil already has 35 to 40 million.

New low-cost personal computer kiosks are liberating villagers in many countries.

Internet connectivity increases poor farmers' and fishermen's incomes by 5 to 10 per cent.

Big global brands which meet the needs of the very poor can make good profits. Avon has 800,000 women managing distribution in Brazil alone, Amway has 600,000 representatives in India running their own little businesses.

About four billion people who have the opportunity of becoming consumers represents a profound change in the global economy.

The third big idea in this trifecta is that Governments still matter, especially in the quality and professionalism of the civil service.

Hernando De Soto, who should get the next Nobel Prize, is a Peruvian economist whose splendid work on why capitalism works in some countries and not others offers another profound insight.

Poor countries have enormous assets but lack capital. Those assets cannot be unlocked because of poor legal titles, and assets cannot be bought, sold or borrowed against. Mexico, De Soto claims, has $300 billion of trapped resources.

And to work within the existing system in places like Egypt, where to purchase land you have to go to more than 30 agencies and navigate 70 procedures, means people are smarter to work in the black economy, which produces two-thirds of the jobs in poor countries.

Legalising people's properties which they already own, allowing them access to credit, and providing services through markets has worked for the rich countries - why not poor countries?

The legal empowerment of the poor, through democracy, property rights, access to credit, access to courts, access to information, the ability to organise in a civil society, open trade - these are the opportunities that, when available to people, take nations out of extreme poverty.

There's a United Nations commission working on this very agenda now. I am its least distinguished member.

* Mike Moore is a former Prime Minister of New Zealand and director-general of the World Trade Organisation.