Sunday, October 15, 2006

Finance, Economics, and Peace

Congratulations to the pioneering 'microfinance' practitioner, Bangladeshi Dr. Muhammad Yunus, for winning the Nobel Peace Prize on Friday. Dr. Yunus is a PhD in Economics and won the prize for his founding of Grameen Bank, which lends to small entrepreneurs at reasonable rates of interest in order to finance their small businesses.
Certainly he has taken important steps towards helping the poorest people to become self-sufficient and to prevent their being taken advantage of by unscrupulous money lenders.

But the Peace Prize?

At first glance, it is hard to equate philanthropic work or finance innovation with an award for peace. The peace prize after all has historically been awarded to international figures who try to broker peace between warring factions:
The Intl. Atomic Energy Agency last year, and previously activist for women's issues and refugees Shirin Ebadi, the United Nations and Doctors Without Borders.

To make matters more dubious in my eyes, the Nobel Committee specifically introduced the Islam motif in their award speech with the statement "Here we see a Muslim influencing the rest of the world" (presumably they also meant "in a positive way").
In my view the introduction of this religious theme into what should be a nonsectarian recognition of the greatest human effort to promote peace was quite unnecessary. More so when one realizes that Grameen Bank does not have particular claims to Islam - in fact, its basic premise, lending with interest, is completely at odds with the first principles of Islamic finance. (Islamic finance forbids lenders from charging interest).

If raising the quality of life for the poorest sections of the world is a basis for awarding the Peace Prize (and I'm not disagreeing, certainly it is a worthwhile effort that should be recognized, and certainly it does not fit into any of the other Nobel categories)- and Doctors Without Borders, an organization I have immense awe for, could certainly fit under this head - perhaps Bill and Melinda Gates should be contenders. Their Foundation, which is probably the largest of its kind in the world, especially after the recent additions by Warren Buffett, contributing the equivalent of many small countries' fortunes annually to various charitable causes.
In comparison with what they do for the world's underpriveleged, Muhammad Yunus is merely a businessman and economist who started a bank with an innovative lending policy.

1 comment:

Gerhard Schnyder said...

I agree with you that Mr. Yunus' religious beliefs have nothing to do with what he does and should definitley not be a criterion for the awarding of the peace prize. However, I disagree on the comparison with the Gates foundation.

In fact, the fundamental difference is that the Grameen bank is not a charitable institution. The interests rates are actually quite high (at least for European standards). This implies, and that's the important point, that you have to do something for your money. This creates incentives for people to engage in some sort of economic activity.
"Charity" on the other hand helps people in a different way. It does not create the same incentives than Mr. Yunu's bank. Charity helps as long as the money keeps flowing, but does not necessarily create a virtuous cricle helping people to help themselves. (of course there are examples where charity does create virtuous circles, but this is not by definition the case).

In my view this is the important difference and it is this "enabling" approach towards aid, which should be promoted and rewarded.
Therefore, I think it was a remarkable choice of the nobel prize committee to award the peace price to Mr. Yunus. Not only because it promotes the view that peace and economic development are closely linked, but because it rewards this particular approach to economic development.