Thursday, January 20, 2011

Are good intentions necessary?

Over at Practical Wisdom, Kenneth Sharpe and Barry Schwartz discuss, using the example of microfinance, how bad intentions can destroy good ideas.

What could be better than the spreading of a good idea? But not so fast. What has spread to these profit-centered, public companies is the technique of microcredit, but not the intention behind it. Compelled to satisfy shareholders, these new microcredit institutions have been charging interest rates that are as usurious as the ones that Grameen Bank replaced. The form may be the same, but the underlying intention, the telos, is completely different. And the result is that individuals are being driven into bankruptcy, and villages driven back into poverty, as they try to keep up with their loan payments.

"These institutions are using quite coercive methods to collect," said V. Vasant Kumar, a minister for rural development. "They aren't looking at sustainability or ensuring the money is going to income-generating activities. They are just making money."

As Yunus himself pointed out in an op-ed in the New York Times on January 14, commercialization has been a terrible wrong turn for microcredit. The volatility of the financial markets from which the commercial companies get their funds, together with the demand from shareholders for ever-increasing profits, ends up transferring financial risks to the poor-those who can least afford to assume them.

So, is a good idea all we need for good results? What about the current Behavioural Economics trend being adopted by governments (e.g. the UK's 'Nudge Unit')? Is it enough to simply condition people to behave in a desirable way or should we be encouraging actual changes in intentions?

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