The Triumph of the United Order, Part II

Submitted by James Lucas, this post is a continuation of yesterday’s review of microcredit and the United Order.

Here is how microcredit works:

(1) All microcredit efforts have been initially are launched through private donations, beginning with Muhammad Yunus making $27 worth of personal loans to some poor Bangladeshi villagers so that they could buy straw to weave without paying all of their earnings to loan sharks.

(2) All microcredit participants own and run their own microenterprises. The microcredit organization never claims any ownership in the borrowers’ property, not even as collateral for the loans.

(3) The microcredit organization provides ongoing funding as the participants grow their businesses. Ideally the organization is supported by the interest paid on the microloans (an imperfect but easy to understand form of reconsecration of surplus) and is legally owned and governed by the participants as a mutual bank. Self-government also operates more locally in that lending is made to small groups who cross-guarantee each others’ loans and who determine who in the group is to receive new loans.

(4) In providing credit to poor people who would not be deemed creditworthy by regular commercial banking standards, microcredit has achieved amazing results in lifting millions out of poverty. Significantly it has done so by providing the means for them to become self-supporting through their own work and initiative.

Elder John A. Widtsoe of the Quorum of the Twelve once wrote that “the nearer any scheme for economic betterment conforms to the principles of the United Order, the more likely it will be to assist mankind.”See Question #65 here. The success of the microcredit movement, as acknowledged by last week’s Nobel Peace Prize, bears evidence that the principles of the united order are as relevant and applicable today as they were in pioneer times, or as we think they will be in a future millennial age. Indeed, as the demonstrated by the establishment of the microcredit-based Perpetual Education Fund, the principles of the united order may be most needed right now.

If you are interested in getting more involved with microcredit, Warner Woodworth has assembled some good information. You can also contact the Marriott School’s Center for Economic Self-Reliance. I would also recommend a great documentary on microcredit called Small Fortunes which was produced by LDS film makers.

Comments

  1. I’m glad to see this post is up. Thanks for the lesson in how it works. I’ve read about micro-credit before but I’ve learned a few things from this.

  2. FYI, the link to cumorah.com has a funky character on the end which prevents it from loading correctly.

  3. Until I saw the announcement for the Nobel Peace Prize I didn’t really know what microcredit was. As I learned a bit I found myself comparing it to the Consecration and the PEF. I hadn’t heard the quote by Elder Widtsoe, but I like it. Thanks!

  4. Jim, thanks for the overview. Some quibbles,

    (1) Grameen was initially private, but now recieves, I believe, substantial state subsidies.

    (2) Many microcredit groups do, in fact, require some form of collateral as a way of reducing default.

    (3) In this sense, this kind of microcredit has long existed in the form of ROSCA’s and other credit coops.

    (4) These people, in fact, probably are not creditworthy by those standards, because those banks have not been using fellow villagers as enforcers. That was where I think Grameen really brought in a useful business innovation from the informal sector.

    Also, the empirical evidence on microcredit is, I think, far less cheery than you make out. I think these programs have been a net gain, but there have been precious few well done empirical studies. Those that are well done find much more modest gains than those that are done badly. Still, the bar is pretty low when the comparison is third world development programs, so I think microcredit is still a comparative winner.

  5. Well, I never quite figured out how the United Order was supposed to work. If it’s about micro-credit then I am for it.

    Frank, what is a ROSCA, please?

  6. Hellmut, see here.

  7. Because my email address appears in the paper regularly, I hear from an assortment of peculiar characters. One of them approached me with his plan for alleviating Third World poverty, enriching himself, implementing the United Order, enriching himself, and, oh, yeah, did I say enriching himself? Because of his unusual name I was able to find enough information on the internet very quickly to know that if I participated in his scheme, I would be consecrating my funds mostly to the benefit of this man and his equally creepy wife.

    You’ve referred us to some organizations for more information on how the concept works, but can you perhaps give us some warning signs for recognizing whether an organization raising funds for microcredit projects is legitimate?

  8. Ardis —

    BYU’s Center for Economic Self-Reliance is very familiar with all of the players in the microcredit arena, and could give you helpful info on any organization you were considering supporting.

    Frank —

    Even microcredit’s most enthusiastic supporters will not deny that the reality falls short of what they hope for. I think the important point, which you appear to agree with, is that microcredit has proven more successful than a large majority of other LDC development and poverty alleviation schemes, and that at this point it has enough of a real world track record to stand as a significant alternative to and critique of those other schemes. There are many different variations on microcredit, some of which predate Grameen, and these have mixed results in the real world. I actually take encouragement from the mixed results, because it shows that microcredit can function and be tested in the real world, unlike so many development schemes which are long on theory but short on real world functionality.

    I would take a different perspective on your suggestion that the problem of less-developed economies is the lack of a proper commercial legal system. Most of these countries have the complete structures of very fine legal systems. There are courts, laws, lawyers, lawsuits — in most cases everything a developed economy has. The problem is the behavior of the people in these systems. Do your political or social connections influence the judge or don’t they? Are the regulations enforced selectively depending on those connections or aren’t they? Does the bank press for loan repayment even though the debtor is socially prominent or doesn’t it? Do you siphon off the education budget into your freind’s company or don’t you? Now I probably was misleading when I said greed causes poverty. There is plenty of greed in developed economies. However, in the end there is greater respect for the rule of law, contractual and regulatory compliance and a more equal enforcement of legal obligations in developed economies, amd these are the result of social and personal moral behaviors, not systems. Adam Smith recognized completely the importance of moral decisions in the market economy (he is a founder of sociology as well as economics) and classical economics has been much the poorer for not recognizing the voluntary behavioral component of economic activity that its founder fully appreciated. Economic progress depends as much on individual moral decisions as theoretical economic structures, and it is here that I believe the united order revelations can be valuable, for they remind us that we are moral beings when behaving in the economy as much as in any other aspect of society.

  9. I think that Small Fortunes gives a very balanced look at the nuances of micro-credit. No something I would expect from BYU. Of course, anything with Warner Woodworth in it must be good.

Trackbacks

  1. [...] Why aren’t we active enough in helping the poor to eliminate poverty in at least those countries which are reasonably democratic and lacking in corruption? It is clear that we have a gospel obligation to do so, and that there are programs available that work, at least to some extent. Why, then, are the poor still with us? [...]

  2. [...] For readers and bloggers of By Common Consent, my goal is this brief piece is to simply share a few examples of what you may consider doing, through stories and websites where more information may be accessed. I’ve been impressed by seeing the articles of my co-author and friend, Jim Lucas. Together we wrote Working Toward Zion: Principles of the United Order for the Modern World, and I continue to admire his thinking. [...]

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