I have become convinced by several disparate factors that business will not necessarily be "as usual"going forward, and our global economy is evolving new institutions and mechanisms to compete with and perhaps replace (eventually) known agents of finance.
One of these situations our current system is handling badly is lending to the lower income people of the world. Even with risk factored in, the rates demanded strike me as, well, usurious. Could there be a better solution?
THE Archbishop of Canterbury, Justin Welby, has resolved to set up new not-for-profit credit unions to compete with pay day lenders, companies who offer short-term loans at very high levels of interest. The FT has some more detail on the proposals here. The Archbishop has a clear message for the pay day leders: “we're not in the business of trying to legislate you out of existence; we're trying to compete you out of existence." A new paper by Luigi Pascali, an economist at the Barcelona Graduate School of Economics, suggests he might have the right approach.The rest of the short post is worth reading but the spoiler is research indicates this could work.
As Ecclesiastes 1:19 tells us, there’s nothing new under the sun. 15th Century Italy had its own pay day loan problem. A doctrinal change at the end of the 14th century had prohibited the Catholic laity from lending money to make a profit. But by the late 15th century Italy was in severe recession due to constant wars and many had to resort to pawnbrokers. (My colleague wrote about how this type of short-term lending against assets is on the up in Britain a few weeks ago). The only way in which Italians could borrow money was from Italy’s Jewish population who were absolved from the ban.
Franciscan monks resolved to compete the money lenders away. The Franciscans set up new lenders, the Monti de Pieta. The name means “mount of piety”, referring to the initial capital used to set up the bank. These not-for-profit credit unions would replace the Jewish pawn shops and eventually evolved into modern banks. The monks combined this with sermons on the evils of money lending, pushing borrowers into their arms. [More]
We are allowing our global economy to pull up many of the ladders of economic progress. This is a bad idea on many levels but what I think hasn't sunk in yet is that without ways to progress (and yes, regress) by our own merits we doom all levels to just what we are seeing now: billions of people trapped in poverty and
Such ideas are alarming to many who have struggled to achieve a reasonably comfortable place in life, but I see everyday those same comfortable people grappling with the grim futures facing their children or grandchildren.
The Great Stagnation seems to be an apt label for our times, and even if we've made it safe to the finish line, the path for the same end looks much harder for those who follow.
I'll be posting more about some hopeful innovations like this that can turn our expectations from government to other agents to solve this growing dilemma.