When people try to think of ways to ease global poverty, they seldom mention migration. They tend to instead think of things like microcredit. There is nothing wrong with microcredit (the lending of small sums of money to poor entrepreneurs). It has lifted many people out of poverty, which is why Mohammed Yunus, whose Grameen Bank pioneered this approach in Bangladesh, won the Nobel Peace Prize in 2006. Yet, as Mr. Pritchett points out, the average gain from a lifetime of microcredit in Bangladesh is about the same as the gain from eight weeks working in the United States. After doing a quick calculation of the total benefit that Grameen Bank confers on its clients, he asks, mischievously: “If I get 3,000 Bangladeshi workers into the US, do I get the Nobel Peace Prize?”
This is from Robert Guest, Borderless Economics, 2011. Guest is the business editor of The Economist. I’m reviewing the book for Regulation. I’m about 60% through it and so far the book is fantastic.
READER COMMENTS
Vipul Naik
Feb 25 2012 at 9:08pm
Indeed. I think there’s a similar relationship between advocating “wars of liberation” to save an oppressed populace from a bad ruler versus allowing all people from that oppressed populace to immigrate.
Or, advocating for more post-earthquake foreign aid for Haiti versus a visa for the impoverished earthquake-hit Haitians, as your colleague Bryan pointed out.
Bryan Willman
Feb 25 2012 at 9:24pm
Indeed, consider this:
a. Greece is still in the EU, and so at least in theory Greeks can up and leave and go work in, say, Germany. (Yes?)
b. If only they spoke German…
But any traveler in Europe will find French people in the UK and Brits in France.
Point – the de-facto lack of “exit” for Greeks versus the relatively effective right of “exit” or “wander for success” for others seems a natural demonstration of this rule.
And while immigration rules are big deal, language is also a really big deal.
Glen Smith
Feb 25 2012 at 9:57pm
Is that 8 weeks net all costs? Psychic ones as well as monetized ones.
Mark Brady
Feb 25 2012 at 10:08pm
Well said, Vipul Naik, with the proviso that a bad ruler may deny his oppressed populace the right of exit.
Mark Plus
Feb 26 2012 at 9:43am
I don’t understand why free market advocates love microcredit, a scheme invented by educated urban elites. Traditional societies already have village moneylenders who decide, based on their local and dispersed knowledge, which members in their communities seem credit-worthy and which don’t. If these moneylenders don’t want to lend money to the women in their villages, I wouldn’t attribute this necessarily to an irrational prejudice, but to a prudent assessment of risk.
Methinks
Feb 26 2012 at 12:38pm
Glen Smith,
As an immigrant to this country from a country with a lot more poverty and a lot less opportunity, I can tell you that the psychic benefits of immigration to the United States are enormous!
Mark Plus,
First of all, micro credit brings economies of scale. The village money lender is only lending to his local villagers and if a flood wipes out the village, he’s ruined. The Grameen bank (for example) is diversified across a lot of villages. Which, of course, means that it is also diversified across more industries. One village may specialize in on type of crop, another in another crop or craft.
Second, the Grameen Bank competes with local small money lenders, dramatically reducing the cost of borrowing, which in turn, dramatically reduces the hurdle for investment and makes more projects profitable for the villagers to undertake.
At the time the Grameen Bank began operations, the local money lenders were charging 100% interest. Sometimes even higher. And that was the villagers’ only access to credit. The Grameen Bank charged 25%. That’s a big difference and part of the reason for the much lower rate is the diversification the bank was able to achieve relative to the local money lenders.
The Grameen bank always charged less. The very first loan was extended by Yunus himself to a village woman who constructed chairs. He was able to lend to her at a lower rate than the local money lender because he was an economics professor, his income was already diversified and the loan represented a small portion of his wealth.
Over time, the Grameen Bank made local money lenders obsolete. Now, there are competing micro lenders driving interest rates lower and increasing the number of investments worth undertaking.
It doesn’t matter if the scheme was invented by an urban elite. It was a free market development that replaced an older, more expense and inefficient system and allowed people who lived in abject poverty to become more productive and wealthier. That’s why this lover of free markets loves micro credit.
Glen Smith
Feb 26 2012 at 2:45pm
Methinks,
But you can only judge the psychic benefits to you and only in hindsight but we are talking about psychic costs not benefits. I know many immigrants (including myself) who moved from one place to another and faced heavy upfront psychic costs (such as loss of family, friends and culture issues). Yes, in many of these cases, the physic benefits exceeded the physic costs in time.
Methinks
Feb 26 2012 at 3:09pm
well, Glen, I guess those are costs and benefits too individual for a third party to accurately assess.
Ken B
Feb 27 2012 at 10:14am
Yes, that whole Cold War thing could have been averted had the Swiss merely allowed all the Russians to immigrate.
Ken B
Feb 27 2012 at 12:09pm
@Mark Plus: Market advocates like it because we like people trying things that might work, because when they work people are better off. In jargon, this is entrepeneurship, and market advocates like that. They are NOT as you seem to assume STATUS QUO advocates.
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