‘Within a month and a half,’ Stack reports, ‘all of the money was gone. The money was channeled into the hands of the same individuals who ordinarily participate in daily domestic exchanges, but the premiums were temporarily higher. All of the money was quickly spent for necessary, compelling reasons.’107
Harlem, New York City, 1932
We may contrast the devastating effects of relying solely on strong ties with a solution tried at a time of even greater economic deprivation, the Great Depression. In 1932, a charismatic black preacher calling himself Father Divine (his real name was George Baker) moved to Harlem. He inspired thousands of followers to start a small business or at least work in one. There were hundreds of ventures in Father Divine’s network, funded by him with money from his adherents–cheap hotels and boarding houses (he became Harlem’s biggest landlord), budget restaurants and clothes shops, grocery stores, dry cleaners, a coal delivery business shuttling between Pennsylvania and New York, and mobile vendors of fruit, vegetables and fish.
People who needed work were sent by Father Divine to one of his ventures. His people also set up employment agencies placing black nannies and cooks–‘angels’–with white families, and ran kitchens providing free meals to near-starving blacks. Faithful Mary, one of the Divine’s lieutenants, ran a kitchen in Newark that fed 96,000 hungry people in one year alone. In the 1940s and early 1950s, Divine’s empire diversified into building and decorating firms, furriers, tailors, photographic studios and garages.
Father Divine was an odd figure–part cult guru, part community leader, part entrepreneur, and part sexual adventurer and conman. Yet he gave economic independence to thousands and a job and self-respect to many more. Anyone could become a follower or entrepreneur, and ventures were founded and run through a large variety of weak links, including volunteers and paid workers, politicians and journalists, cutting across several communities–New York, Baltimore, Bridgeport, Newark, Jersey City and Philadelphia. Most importantly, Divine was able to get capital from donors and later financiers, black and white–his micro-ventures made money and he had assets he could pledge as security.
Jobra, near Chittagong, Bangladesh, 1976
The link to capital providers outside the poor community is also a key plank of one of the most successful recent initiatives against poverty. In 1976, the head of economics at Chittagong University, Dr Muhammad Yunus, began wandering around nearby villages, observing poverty and the efforts of poor people to surmount it. Whereas Carol Stack was a professional sociologist exploring how society was oppressing the poor, which she found in the iniquities of the welfare system, Yunus was a banker and economist, looking for solutions to poverty, for hopeful signs of entrepreneurial behaviour among the poor themselves. He found them in the village of Jobra, where forty or fifty women were making furniture from bamboo. They should have been making a substantial profit on the chairs they made, but nearly all of it was disappearing in the high rates of interest they paid to money-lenders for the cash they needed to buy the bamboo. Yunus calculated that they were paying between 50 and 100 per cent interest per annum. What, he wondered, would happen if the women could ply their trade while paying a reasonable rate of interest?
He took the equivalent of twenty-seven dollars of his own cash and loaned it to forty-two village women. He returned a few weeks later to find them jubilant. They had made a new batch of furniture. After repaying him, they’d made a profit of eighty-eight cents, many times what they had ever made before. Yunus, touched by the difference his small loan had made, pondered whether his actions could be repeated on a larger scale.
With backing from the state bank, he tried to find out. He grouped his micro-entrepreneurs into ‘solidarity groups’, generally women from the same village but different families, who took individual and collective responsibility for the debt. Consequently, bad debts were rare. By 1982, the bank was making loans to 28,000 villagers–95 per cent of whom were women.
In 1983, Yunus turned his project into a proper micro-lending institution, the Grameen Bank. By 2007, it had touched the lives of more than seven million poor entrepreneurs. The bank has also developed a series of other entrepreneurial ventures, including fisheries, software and phone companies, bringing cell phones to more than a quarter of a million poor villagers through loans to people like Jamirun Nesa.
The networks formed by Muhammad Yunus comprised a few strong ties, many weak ones, and a new series of hubs–the village solidarity groups, the bank and its spin-off ventures.
Yunus is an altogether more reputable and admirable character than Father Divine–he received the Nobel Peace Prize in 2006–but there are still strong similarities between what the two men did, cutting across generations and half the globe, to rescue the poorest of the poor. Both solutions were community based, reaching well beyond families, using a series of weak ties within the locality and beyond, especially to capital providers. In both cases, poor people formed micro-ventures; and their profits lifted many of them out of poverty altogether.
It’s also telling that only a slight stimulus was needed to release the entrepreneurial abilities of mainly uneducated, wretched people. Could the bootstrapping micro-business–primed by cheap and available money, guaranteed by joint responsibility of the poor–be a more cost-effective solution to poverty than top-down education and infrastructure projects?
Pioneering research by Hernando de Soto, a Peruvian social reformer, supports the enterprise thesis.108 He reminds us that widespread prosperity did not come to Western countries until there was access to property, and therefore capital, for most of the population. To break out of poverty, the poor need to claim undisputed ownership of a substantial asset, usually their home. This process takes time–most of the Americans who ‘went west’ during the nineteenth century started out as squatters, but once they eventually acquired undisputed ownership, their homes fulfilled a double role: as somewhere to live; and as ‘capital’, collateral for a loan that would enable them to start a business.
De Soto says that the world’s poor people collectively own trillions of dollars of assets–the value of all those shacks in shanty-towns adds up. But they generally lack proper legal title to those assets; they are excluded from the magical world of capital, where assets can fulfil a dual function.
In America and other Western countries, legal property title turned some poor and often undirected people into motivated individuals. They now had a chance to generate surplus value from what they owned:
People no longer needed to rely on neighbourhood relationships…the lack of legal property thus explains why citizens in developing and former communist nations cannot make profitable contracts with strangers, cannot get credit, insurance or utility services: they have nothing to lose…trapped in the grubby basement of the pre-capitalist world…
A legal structure that prevents enterprising people from negotiating with strangers defeats the division of labour and fastens would-be entrepreneurs to small circles…and low productivity…like computer networks, which had existed for years before anyone thought to link them, property systems become tremendously powerful only when…interconnected in a larger network.