Corporate
In an interview with Spiegel Online, 2006 Nobel laureate Muhammad Yunus states that the current financial crisis is proof that capitalism has gone wild: “Adam Smith’s invisible hand, which supposedly solves all the market’s problems doesn’t exist. What we are experiencing is a dramatic failure of the markets. … Today’s capitalism has degenerated into a casino. The financial markets are propelled by greed. Speculation has reached catastrophic proportions.”

Mr Yunus’ endorsement of this widely held position is worth mentioning because unlike many other commentators, Mr Yunus does so without any hint of schadenfreude. He does not call for increased government power, but for an expansion of “social businesses” like the Grameen Bank. This, he argues, would result in a more “balanced” type of economy.

Mr Yunus’ point is not simply that there was a lack of philanthropy. Instead, he implies that most philanthropists see profit-making as their primary occupation and charity as a leisure activity, instead of integrating both into a one-stop enterprise with multiple objectives.

While the enormous merits of the Grameen Bank model are beyond doubt, Mr Yunus’ point that the credit crunch would have been prevented by establishing more Grameen-Bank-style enterprises is not convincing. US mortgage lenders were actually obliged to behave like social businesses by lending money to people with high default risks. This was a key ingredient of the crisis.

What is more, when criticising a disconnect between finance and the “real economy”, it is surprising that Mr Yunus does not mention the one disconnect that probably triggered all others: when interest rates are artificially lowered, the signal that is sent out to market participants is that funds for investment are overabundant. This encourages investment projects which otherwise would not be viable. Mr Yunus criticises “castles built in the sky”, but astonishingly he makes no reference to monetary policy at all. By ignoring this point, Mr Yunus is doing a disservice to the very market order he claims to defend.

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Head of Health and Welfare

Dr Kristian Niemietz joined the IEA in 2008 as Poverty Research Fellow, becoming its Senior Research Fellow in 2013 and Head of Health and Welfare in 2015. Kristian is also a Fellow of the Age Endeavour Fellowship. He studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). In 2013, he completed a PhD in Political Economy at King’s College London. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and at King's College London, where he taught Economics throughout his postgraduate studies. He is a regular contributor to various journals in the UK, Germany and Switzerland.

16 thoughts on “Muhammad Yunus joins the “crisis of capitalism” choir”

  1. Posted 15/10/2008 at 04:44 | Permalink

    Concentration of economic powers in few hands is the basic problem of capitalism. Marx also did the state mistake by giving economic powers in the hands of state. This cannot work for ever. Decebtralisation of economic powers in the hands of people is the solution. For this we need to repeal all the monopoly laws from the economy. Yunus has tried to build powers from the bottom. This is prerequisite of eternal economic system. Stock exchange cannot make capitalism survive. It has to collapse.

  2. Posted 15/10/2008 at 04:44 | Permalink

    Concentration of economic powers in few hands is the basic problem of capitalism. Marx also did the state mistake by giving economic powers in the hands of state. This cannot work for ever. Decebtralisation of economic powers in the hands of people is the solution. For this we need to repeal all the monopoly laws from the economy. Yunus has tried to build powers from the bottom. This is prerequisite of eternal economic system. Stock exchange cannot make capitalism survive. It has to collapse.

  3. Posted 16/10/2008 at 10:10 | Permalink

    Dear DG Bokare,

    by discouraging saving, it is the welfare state which hinders the acquisition of property in the hands of many. Allow people to accumulate capital instead of “entitlements”, and you will get, as a side-effect, what you call a “decentralisation of economic power”. (I would disagree with the use of the term “power” in this context, but that’s a different issue.)

    Please take a look at these materials: http://www.iea.org.uk/savings.jsp

  4. Posted 16/10/2008 at 10:10 | Permalink

    Dear DG Bokare,

    by discouraging saving, it is the welfare state which hinders the acquisition of property in the hands of many. Allow people to accumulate capital instead of “entitlements”, and you will get, as a side-effect, what you call a “decentralisation of economic power”. (I would disagree with the use of the term “power” in this context, but that’s a different issue.)

    Please take a look at these materials: http://www.iea.org.uk/savings.jsp

  5. Posted 17/10/2008 at 04:08 | Permalink

    Decentralisation of economic activities would offer everyone to have one’s own production activity and start earning amounts for one’s family. Decetralisation will create free competition among all players. This will create abundance of goods and services which in turn reduce prices over time. This will postpone consumption and savings will increase from the income earned. Unemployment will be zero. Inflation will also disappear over time. Interest charges too will reduce due to falling prices.

  6. Posted 17/10/2008 at 04:08 | Permalink

    Decentralisation of economic activities would offer everyone to have one’s own production activity and start earning amounts for one’s family. Decetralisation will create free competition among all players. This will create abundance of goods and services which in turn reduce prices over time. This will postpone consumption and savings will increase from the income earned. Unemployment will be zero. Inflation will also disappear over time. Interest charges too will reduce due to falling prices.

  7. Posted 17/10/2008 at 21:41 | Permalink

    Whenever someone says “This” – meaning the economic plan they are proposing – “will create abundance of goods and services”, thus solving the fundamental problems of economics, one should always reach for the panic button.

  8. Posted 17/10/2008 at 21:41 | Permalink

    Whenever someone says “This” – meaning the economic plan they are proposing – “will create abundance of goods and services”, thus solving the fundamental problems of economics, one should always reach for the panic button.

  9. Posted 21/10/2008 at 14:47 | Permalink

    D G Bokare:
    How does your “decentralisation of economic activities” work in practice? What is that – upper limits on how big a company may be? Maximum market shares? Trust-busting?

  10. Posted 21/10/2008 at 14:47 | Permalink

    D G Bokare:
    How does your “decentralisation of economic activities” work in practice? What is that – upper limits on how big a company may be? Maximum market shares? Trust-busting?

  11. Posted 22/10/2008 at 10:58 | Permalink

    Capitalism is good if it won’t forget workers. Today’s capitalism
    needs global regulation as it was in 1900-30s when governments introduced pension systems, the US has created Federal Reserve System etc. To have it on a global basis the states have to economically integrate and create a global central bank. But to have it done they and us (!) need to rethink very fundamental ideas: can Iran and Israel, North Korea and Japan, US and Russia live together. They will: how soon is a question.

  12. Posted 22/10/2008 at 10:58 | Permalink

    Capitalism is good if it won’t forget workers. Today’s capitalism
    needs global regulation as it was in 1900-30s when governments introduced pension systems, the US has created Federal Reserve System etc. To have it on a global basis the states have to economically integrate and create a global central bank. But to have it done they and us (!) need to rethink very fundamental ideas: can Iran and Israel, North Korea and Japan, US and Russia live together. They will: how soon is a question.

  13. Posted 22/10/2008 at 17:26 | Permalink

    Hi Ravshanbek,

    not so sure whether Switzerland and Liechtenstein would be too keen on a common economic policy with North Korea and Iran, but go on anyway.

  14. Posted 22/10/2008 at 17:26 | Permalink

    Hi Ravshanbek,

    not so sure whether Switzerland and Liechtenstein would be too keen on a common economic policy with North Korea and Iran, but go on anyway.

  15. Posted 23/10/2008 at 11:22 | Permalink

    It is due to competition and global economic integration – pure economic matter, while politics has always been following an economic pattern:
    If the state won’t integrate it may lose competitiveness of its products, and forced to integrate.
    Global integration is on the way witnessed by cross-sections of free trade areas all over the world(in Latin America at most). I estimate it as 10-15 years, especially since it is also pushed by multilatteral decrease of tariffs’ level.

  16. Posted 23/10/2008 at 11:22 | Permalink

    It is due to competition and global economic integration – pure economic matter, while politics has always been following an economic pattern:
    If the state won’t integrate it may lose competitiveness of its products, and forced to integrate.
    Global integration is on the way witnessed by cross-sections of free trade areas all over the world(in Latin America at most). I estimate it as 10-15 years, especially since it is also pushed by multilatteral decrease of tariffs’ level.

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