Experiments with micro credit have shown that the recovery rate is high and debt service can be very reliable. After all, it was not the poor and destitute, but the “masters of the universe” who have burnt billions of dollars

These are truly confusing times. The richest nation on earth and the most powerful actors in the global capital markets have pushed the world economy into a deep recession. Billions and trillions of dollars are being mobilised to save the financial institutions, which once had claimed to rule the universe. What started as a financial shock in London and New York, has now spread to the whole world.
Even nations and companies that had never participated in the orgy of cheap credits and unsustainable mortgages are being dragged into the financial maelstrom. It is not only bankers, who bagged bonuses worth billions of dollars, who are losing their jobs. Unemployment is rapidly spreading to practically all sectors of the real economy. Now it is also the turn of the poor and weak to be made to suffer the disastrous effects of the rich who, for decades, had been living beyond their means.
The world will come out of this disaster and there can be no doubt about that. Mankind has come out of much worse situations. Think of the destruction that had been caused by the two world wars. However, it is important to look carefully at the measures that are being implemented to overcome the present crisis. According to a Chinese saying, every crisis provides not only risks but also new opportunities.
There is a lot of talk about new structures for the world economy. Future generations may see the recent summit of the G-20 in Washington, where China and India played an important role, as the first step towards a new global framework, towards a “new Bretton-Woods”. There is a lot of talk about new regulations for the global financial order. However, much less is heard about using this historic moment to intensify the fight against poverty.
The American consumer is mired in debt. It is very unlikely that in the foreseeable future Mr and Mrs Sixpack will be able to provide a decisive boost for the ailing global economy. Having overspent for many years, US households have to consolidate, before they can restart to live on credit.
In Japan, an ageing society and a traditionally frugal attitude to life prevent private consumption from taking off. It is unlikely that the Europeans will make up for this shortfall in demand. The European Union has taken some useful steps to tackle the credit crisis. But interests amongst the member countries are too diverse to allow the EU to become the principal driver of the global economy.
The present downturn in the global economy is not a result of oversaturated world markets. On the contrary, while the American consumer went on a shopping spree that was made possible by cheap credit and cheap Chinese goods, the vast majority of mankind continued to live a very precarious existence. If the consumers in the West don’t have enough credit on their cards to shop and keep the factories around the world humming anymore, let others step into their shoes. There are millions, even billions in Asia, Africa, West Asia and Latin America, who are all too ready to enter the consumer markets if only they had the cash.
These days the central banks and governments in the rich countries seem to have no shortage of cash when it comes to bailing out their financial institutions. Why should it then not be possible to make billions and trillions available for poverty alleviation? It is highly unlikely that the billions stored in the books of banks that distrust each other will create the necessary rise in consumer demand. On the other side, cash in the hands of the poor and the needy, will immediately provide a welcome uplift to demand for all kinds of products.
The massive government support for the big financial institutions is justified with the argument that doing nothing would cause the entire financial system to collapse. Furthermore, it is argued that many of today’s toxic assets might one day recover. In that case, governments and the national banks might even make a profit. Interestingly, the same two arguments could also be made in favour of billions and trillions being poured into poverty alleviation.
Widespread poverty and destitution are as serious a systemic risk as a financial meltdown. Of course, they do not threaten the stock markets or the capital of banks and companies. But they seriously harm the environment and undermine social peace. Not least endemic, poverty is a breeding ground for dangerous resentments against those living in comfort. To invest billions into the fight against poverty can also create valuable financial returns. Experiences with micro credit in a number of countries have shown that the recovery rate is high and debt service can be very reliable. After all, it was not the poor and destitute, but the “masters of the universe” who have burnt billions
of dollars.