Other countries and communities have tackled their financial problems locally. Why can’t Pakistan?
6 November, 2013
– By Najma Sadeque
Imagine a village or even a small town, not necessarily physically isolated but otherwise cut off from the country’s economic mainstream because they are among the poorest of the poor. Infrastructural development runs through their area it but hasn’t benefited them. – A familiar state of affairs in much of Pakistan.
Idle lands and idle hands aren’t at work for lack of money. There are countless skilled people who can’t afford to buy the tools of their trade or set up a base. Many self-employed and small enterprises never get off the ground or are quickly thwarted because they run out of cash for routine but essential expenses. There are also not enough big enterprises to advance funding towards purchase, nor does a supportive and affordable credit system exist to help them grow.
Is lack of money an acceptable stumbling block? How did people cope through history when they’ve been short of money?
One of the hardest things to convince most people about, educated or not, is that money isn’t wealth in itself, merely a measure and store, with banks as facilitators. When you have a 10 rupee or 1000-rupee note, the government is entitling you to obtain that much worth of goods or work in exchange, or pay your bills with. But if tomorrow the government suddenly declares it’s no longer legal tender, unless allowed to exchange it for some other legal instrument of value, you could be pauperized overnight.
It was the genius of the human mind that created an easy way to exchange goods and services otherwise difficult to compare in value because they differ greatly in variety, quality and quantity.
Common-sense barter quickly evolved into objects being used to represent values of goods and services. For example, an accepted token such as a shell could equal a kilo of potatoes. Say, 20 shells for a laying hen; 50 shells for a day’s labour. Maybe 300 shells for a goat or sheep, depending on the values accorded in their time. Beads, pebbles, gems, pearls, notched woodstrips, etc. have served as money, calculating the way we still calculate today. Pooling tokens paved the way for capital formation.
The credit for this does not go to any one person or group. For untold centuries people in numerous societies the world over have arrived at similar mechanisms. All this evolved into banking, small-scale needs first developing into small-scale solutions. As Swiss economist and diplomat Francois de Siebenthal, describes Switzerland’s remarkably varied banking system that reaches out to the smallest possible customer:-
“In past history, small local banks were established by farmers. The banker is a farmer, the bank is a farm house, the customers are farmers, and the owners of banks were and are farmers. These little banks make up the third largest Swiss bank actually in operation with the best ratio and the best management because the costs are very low. Since they are very small and you don’t need big armoured cars and security personnel, these banks are very efficient. They’ve also come up in some other countries.”
In the late 18th century, well-to-do merchants, functionaries and academics in Germany sought a way to help low-income people in entrepreneurial startups. Consequently, the first savings bank with a municipal guarantor to specifically fight poverty was founded in 1801. Since then, the number of savings banks in the public interest, (known as Sparkassen) soared. Each is independent, locally managed, focuses only on customers in its own city or administrative district. Although they provide full services like commercial banks, they are not profit-oriented, which makes all the difference. Their 15,000-plus branches today boast 50 million customers and assets of a trillion Euros! According to OECD, German public banks own 40% of total banking assets. Germany is the world’s strongest economy today.
Commercial banking is a specialized service for dealing with vast numbers of transactions over larger geographical areas that small groups cannot manage. But while it provides an indispensable service, it does not serve the needs of the majority. For one thing, it is only accessible to those who have enough money to merit a bank account.
This is outright unfair when domestic banking only involves servicing transactions mostly comprising paper and intangible numbers – in other words, tokens — fed into computers: nothing of value, let alone gold.
Why should financing be a privilege only for those who already have some, and not for all citizens? – which leads to unwarranted monopoly over the public resource base? How can even Islamic redistribution of wealth be achieved without credit and an accessible financial system for all as a right?
Even the best of private sectors in the world cannot create jobs for all. Governments are supposed to create economic environments that catalyze job-creation and self-employment. A major gap lies in localized finance. Instead, the limiting of finance has become an instrument maintaining deprivation while monopolizing common wealth. Microcredit here doesn’t reach far enough, and the non-philanthopic ones exact interest.
In hard times, communities created their own ‘tokens’ or alternative currencies when governments turned their backs on them or didn’t know what to do. They’ve been created by individuals, groups or organizations, or by national, state, or local governments. All are not alike as they are adapted to local needs. Some phase out when the community becomes economically strong to no longer need them. Parallel currencies surfaced recently in Spain, Cyprus, Greece, Brazil and elsewhere. Some 2500 alternative or complementary or community currencies exist today all over the world, including Europe and America, all originating in hard times.
Why haven’t our bankers and economists learnt yet from other countries’ experiments and successes? When domestic money creation doesn’t even need foreign loans but are backed by our own natural wealth. Is it a class issue? Have feudalistic attitudes rubbed off?
Because commercial banks do not cater to the smallest customer, it makes public banking an essential public good, a necessity and priority — like education or health, extending credit where needed to enable people to become part of the economic mainstream. But even our government banks discriminate against the poorest citizens. – Not very democratic.
With no answers except predatory ones such as sell-off of state enterprises and sovereignty, one fails to see how our government can resolve our frightening financial problems, arrest mass closure of once-productive enterprises, and recreate economic activity without initiating a relevant financial mechanism to match. The problem is now. If too late, there may be nothing left to rescue.
This article was published in The Nation on 6 November 2013