Why does poverty exist? Very few people ask the question. A few worry about it, even feel guilty ("they are poor because we are rich") and attempt to salve their consciences by giving to an international aid charity. Most pass it off as an Act of God, a natural condition, or some obscure manifestation of international economics. And so world poverty continues to exist - indeed in many countries the problem is getting worse.
There are two causes of world poverty. The first is incompetent, dishonest government by leaders who are quite happy to run their country into the ground while enhancing their own personal wealth and lifestyle. Very little can be done about this, except for a revolution, which often tends to replace one dictatorship with another.
The second cause of poverty is a lack of understanding of credit-creation, its relative simplicity, and its powerful potential to release the creative energies of ordinary people. In this case, something definitely can be done by an honest government that wishes genuinely to raise the living standards of its people, as has been successfully proved in several practical applications.
Poverty and prosperity are not difficult to understand, nor is the connection between them. So much of what we call "economics" is simply a matter of commonsense.
Poverty is an absence in people's lives of the goods and services they needs to consume. As long as those who are poor have hands and physical strength, or brains with powers of invention, there is in theory no reason why they should not produce what they need, and thus grow in prosperity. There is a problem, but it is no secret, neither is its solution. The problem is commonly known as money or credit. Credit is necessary to facilitate the exchange of products and services, and to provide startup and working capital.
Credit in turn is an administrative facility. It is easier to set up than a postal system, and much cheaper to operate. It can be set up and applied anywhere, in any conditions, requiring only a basic knowledge of how the system works, combined with competence and honesty in its application.
Professor Muhammad Yunus founded the now highly successful Grameen Bank to supply small loans, which he terms Micro-Credit, to the poorest villages in Bangladesh. The concept of Micro-Credit loans is based on the premise that the poor have skills that remain unutilized or under-utilized. It is definitely not the lack of skills which makes poor people poor. Professor Yunus puts the situation simply and clearly: "Unleashing of energy and creativity in each human being is the answer to poverty." Through the provision of Micro-Credit, thousands of previously poor and destitute people have been able to make a start, to produce, and to grow in prosperity.
Higher up the economic scale, the equally successful Mondragon Cooperative Group in Basque Spain solves the same problem of poverty in basically the same way, by creating a new relationship between investment banking and recipient business. The Mondragon Workers' Bank serves three mutually inter-dependent functions: it provides investment as a local development bank, offers technical and financial advice for business startup, then monitors production, quality, and financial performance in a process of ongoing cooperation and partnership.
The Mondragon Bank's operation is formally divided into two halves. One deals with finance. The other half comprises specialist sections, providing skilled commercial, architectural and technical advice either to assist existing enterprises or to promote new ones. Once launched, the new enterprise manages itself but the Bank guarantees continuing support in return for a flow of data from which the new enterprise's progress can be monitored - production, sales, profits and so on. If anything begins to go wrong, the Bank can give timely help, with advice or further finance if appropriate. Another feature of this system is that the total project, from design through production and management to sales, becomes the loan collateral, rather than the personal assets of individuals.
In both cases, Grameen and Mondragon, the idea is the same. Poverty is seen as un-utilized labor and un-realized wealth. All that is required to transform potential labor and potential wealth into productive labor and real prosperity is startup capital, more specifically, capital loaned on the basis of the borrower's capacity to produce, rather than capital assets which the poor by definition do not have.
Micro- and Cooperative- Banking do of course require a formal structure with monitored administration and performance, but the computerization of banking and the possibility of linking to central offices with automated monitoring greatly facilitates this process. Also required is seed capital, startup backing until the bank becomes self-sufficient. In the case of Grameen Bank, the Central Bank of Bangladesh provided the initial guarantees. Mondragon started and indeed continues as a Cooperative Bank, into which each new member is required to deposit a capital contribution.
As long as people presently living in poverty are physically and mentally capable of producing the goods and services they need, poverty should not exist. The need to consume, and the ability to produce, are the two essential ingredients of prosperity. But credit is also needed to bring the two together, credit for trade, credit as investment. With seed capital for Micro and Cooperative Banks, the world's poor wherever they may be can begin the upward move through increasing prosperity. The growth of wealth is exponential; the more you have, the easier it gets. All that is needed is a start, the first step on the first rung of the ladder.
World poverty is not an Act of God, a natural condition, or some abstruse and unintelligible manifestation of international economics. It is a lack of credit facility through which unutilized labor can be released to produce prosperity.
