Monday, November 21, 2011

When Small Isn't Beautiful

Bill Mitchell has a very good critique of microfinance and other alternatives to direct job creation via state action, here.

2 comments:

  1. Hi John!

    I've found that the major problem with the major theory behind microfinance is that it assumes that the entire economy behaves the way the neoliberals want to present it: open to all 'enterprising' individuals with few if any structural barriers to upward mobility; all they need is improved access to credit.

    In places like China, where credit controls are quite stringent, introducing microfinancial practices will get you some leverage - but the best targets for these practices are not necessarily the streetside vendors and cab drivers, per se, but the 'small businesses' in China which actually do employ people outside their own families. Also (ironically) the programmes which met with the most success were the ones organised under directives of China's national bank (such as the HuiNongKa - aimed at migrant labourers) or the Postal Savings Bank.

    So I broadly agree with Mr Mitchell: 'While individual community endeavour might produce 100 jobs here and there via microcredit schemes – all of which are good and necessary – the reality is that millions of jobs are needed. Small-scale entrepreneurial ventures cannot ease a macroeconomic constraint on aggregate demand coming from an inadequate sized budget deficit.'

    Thanks for the link!

    All the best,
    M

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  2. Hello Matthew,

    Thanks for the comment! I think microfinance is an example of attempting "individual solutions for social problems." It might work for some people here and there, but I doubt it will really make the sizeable changes that are needed to fix the problems that face the poor both in the Third World and elsewhere.

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