NYT on Grameen Bank

Available here:

"The elephant in the room is the question: If microfinance doesn’t accomplish anything positive, then why are 128 million poor families busy taking loans? Should we assume that poor people simply don’t know what’s in their best interest? Or do we need to look more deeply into the way poor people survive?

That’s what a number of creative researchers are doing today. One example is the collaboration between Daryl Collins, Jonathan Morduch, Stuart Rutherford and Orlanda Ruthven that culminated in the excellent book “Portfolios of the Poor: How the World’s Poor Live on $2 a Day.” The book takes a penetrating look into 300 poor families in Bangladesh, South Africa, and India, with interviews conducted every two weeks to track expenses, earnings and cash flow at a granular level. What the researchers found was striking, and it gets to the question of what it really means for most people to be poor: to live with perpetual uncertainty.

“What the research taught us is that the problem of living on $1 or $2 a day is that you don’t actually earn $1 or $2 every day,” explained Jonathan Morduch. “That’s just an average. Some days you receive $5 and then nothing for two weeks. Life is unreliable. So the challenge for the poor is that you need to put together the right sums to deal with the right challenges in life. And what we saw microfinance was doing for people was offering them a reliable source of money. With microfinance, you get a sum of money that’s promised on the day it’s promised in the amount that’s promised. It’s often the only reliable service that poor people have — and that’s incredibly powerful.”"

NYT: China's new five-year plan

NYT is reporting on China's new five-year plan, which seeks to shift the engine of economic growth from exports to domestic consumption, largely through letting incomes rise:

"The government pledged to keep prices “basically stable” through 2015, limiting inflation to 4 percent this year, and to raise household income by an annual average of 7 percent, roughly in line with economic growth. That would break from the past 20 years, in which the growth of ordinary workers’ income has regularly lagged behind the growth in gross domestic product, and consumer spending as a share of the economy has dropped to a record low. The report called expanding domestic demand “a long-term strategic principle” and pledged to increase subsidies to low-income households, extend broadband Internet to rural areas and smaller cities, and expand retail sectors like chain stores and online commerce."

In economic development terms, this is called "strategy switching," and the move China seems to be making is something commentators including David Kennedy have been talking about for some time. Get ready for one of the largest markets in the world to become even larger.