This is the 4th in a series introducing the book Redeeming Capitalism by Ken Barnes. You can pick up the start of this series here. See the chart here for the context of CAPITAL in the major historic forms of capitalism.
"Traditionally, access to capital was based upon one's own means. While there have always been moneylenders of one sort or another, people generally believed that money begets money, and entrepreneurs without their own capital had to sell shares in their businesses in order to raise it.
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During the modern era, though, as the new wealth generated by industry made capital more readily available and the banking system became more sophisticated, the use of credit became more widely accepted. With strict laws still in place against usury, access to capital was fairly limited.
Now, money is relatively easy to come by, and postmodern capitalism is built upon mountains of debt. Usury laws have been dramatically liberalized, and individuals assuming massive amounts of personal debt made conspicuous consumption itself possible. Despite an availability of credit for some, access to capital for the poor, especially people of color, and for entrepreneurs in the developing world remains highly restricted and very expensive.
Virtuous capitalism cannot be built upon irresponsible lending, profligate government spending, and the collusion of central banks. Instead, it must build on thrift and responsible monetary policies, as well as the further development of banking models designed specifically to help the poor.
Recently in the UK, community banks have been developing in a form not dissimilar from traditional models. One such bank, Swan Credit Union, exemplifies how a small institution can make a big difference in a community. Unlike most credit unions that rely on an ever-decreasing amount of support from government grants, the Swan Credit Union is run like any business in that it is self-sustaining. Its business model is similar to that of traditional savings and loan companies, with a broad base of small depositors supporting small loans to its members on a very modest loan-to-asset basis. Their business plan is as thorough as corporate entities of far greater size and is available for public scrutiny.
Even more impressive are their stated mission and ethos. They exist to provide ethical banking services and loans to people who are often left out of the traditional banking sector. They run their business according to their stated values of "openness, trust, fairness, and mutuality." How, one may ask, does this bank serve their community? The answer is simple: they treat their members as people, not numbers, and they provide an alternative to the predatory practices of payday loan companies, doorstep (home-equity) lenders, and loan sharks. While Swan is a not-for profit enterprise, it is not a charity and it proves that banking can be both virtuous and successful.
[Ken writes of Swan Credit Union (now Acorn Community Bank). Recently Tom Gryp, CEO of Notre Dame Federal Credit Union (NDFCU), spoke to Better Capitalism about the striking financial and social successes NDFCU is realizing through applying the values and ethics Ken references and are advocated for by Better Capitalism. You can read Tom's introductory post to NDFCU here.]
A similar movement is afoot in the area of microfinancing. As Chris Horst and Peter Greer note in their book Entrepreneurship for Human Flourishing, the microfinancing movement was started in the 1970s by Muhammad Yunus of the University of Chittagong in Bangladesh. The story goes like this:
He [Yunus] met poor women who were leading very small businesses. Over time he learned that if they had an initial investment in their grassroots businesses, their profits would increase dramatically. Yunus created Grameen Bank . . . to ensure access to small loans. . . . Instead of requiring physical collateral, he used a group guarantee. . . . Defying expectation, they repaid their loans on time. And the modern microfinance movement was born.
This exercise of grace and courage led to a global phenomenon that has made entrepreneurship available to poor people all over the world. Yunus was even awarded the Nobel Peace Prize for his efforts. The movement has done more than just provide capital, though. Thanks to the mutuality of the loan guarantees and the close-knit nature of the businesses themselves, it has also helped to empower women (for most of the loans go to women-run businesses) and foster a greater sense of pride and purpose in their communities. Thrift relieves the burden of debt and enhances human flourishing, something that needs to be reinforced by those of us who seek virtuous capitalism."
(Barnes, Redeeming Capitalism, p. 191-3)(Emphasis throughout is ours)
We at BetterCapitalism.org are fond of the phrase, “Questions are the engines of thought and action.” From that posture, we invite you to give thought to a few of our questions.
Even if debt is taken for granted in our postmodern capitalism, do you think debt is necessary to capitalism?
How much debt do you think is advisable for an individual? A corporation? A government entity? By what measure do you gauge that debt?
Do you know why we emphasis Ken's references to mutuality? You can read about mutuality and Adam Smith here, MLK Jr here, and Mars here.
What do you think about the role of thrift in a virtuous capitalism?
How might these questions prod you to re-think your perspective of capitalism? How might these questions prod you to make different marketplace decisions? We'd love to hear your answers and so invite you to share them with us.
Stay tuned for future excerpts of Redeeming Capitalism. Or. Why wait for us? Buy and read a copy for yourself now.
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