?CAPITALISM HAS DEGENERATED INTO A CASINO?
COMMENTARY ARCHIVES, 16 Oct 2008
Nobel Peace Prize laureate Muhammad Yunus says that greed has destroyed the world’s financial system. SPIEGEL Online spoke with him about the profit motive, social consciousness and what should be done to end the financial crisis.
SPIEGEL ONLINE: Mr. Yunus, for years you have been preaching a more socially conscious way of doing business and have denounced the narrow focus on maximizing
profit as harmful. Now, the entire financial system is wobbling …
Yunus: The current turn of events makes me sad. It is certainly not something I am happy about. The collapse has hurt so many people and has suddenly made the entire world unstable. We should now be concentrating on making sure that such a financial crisis does not happen again.
SPIEGEL ONLINE: What should be done?
Yunus: There are huge holes in the current financial system that need to be plugged. The market is clearly not able to solve these problems itself, and now people are having to run to the governments to ask for emergency assistance. That is not a good sign because it shows that trust in the markets has evaporated. At the moment, there is unfortunately no other option than for government takeovers and government support. That is currently the method being used to combat the crisis — a method kicked off with the $700 billion bailout package passed in the US. In Germany, the government has likewise jumped into the fray.
SPIEGEL ONLINE: Where exactly do you see the problem with such a strategy?
Yunus: The point is that we have to return as soon as possible to market mechanisms that can ameliorate the crisis and solve problems. Solutions should come out of the market and not from governments.
SPIEGEL ONLINE: But you just said yourself that the market is not capable of doing so.
Yunus: That is exactly what we need to work on. For a long time, the main priorities have been the maximization of profits and rapid growth — but that focus has led to the current situation. Each day, we have to look to see if there is potentially harmful growth somewhere. If we find there is, then we need to react immediately. If something grows unnaturally quickly, then we have to stop it. Why don’t companies all pay into a fund that buys up securities that have become too risky? I can even imagine a business model for such a program.
SPIEGEL ONLINE: On the one hand, you say that the market has to solve the problem itself, on the other hand, though, you criticize overly quick growth. That sounds like you think that profit-oriented capitalism has failed.
Yunus: Not at all. Capitalism, with all its market mechanisms, has to survive — there is no question. What I excoriate is that today there is only one incentive for doing business, and that is the maximization of profits. But the incentive of doing social good must be included. There need to be many more companies whose primary aim is not that of earning the highest profits possible, but that of providing the greatest benefit possible for human kind.
SPIEGEL ONLINE: And you think that those two incentives are mutually exclusive? The bank you founded, Grameen Bank — which led to your receiving the Nobel Peace Prize in 2006 — both helps people and earns healthy profits.
Yunus: It is a company which is focused on the social good and which makes a profit, but it is not focused on maximizing its profits. I am not interested in turning all profit-oriented companies into socially conscious operations. They are two different categories of companies — there will always be businesses whose primary goal is that of earning as much money as possible. That is okay. But earning as much money as possible can only be a means to an end, not an end in itself. One has to invest money in something meaningful — and I would make a case for it being something that improves the quality of life for all people.
SPIEGEL ONLINE: What, though, does an increase in the number of socially minded companies have to do with the financial crisis?
Yunus: Were there more socially minded companies, people would have more opportunities to shape their own lives. The markets would be more balanced than they are today.
SPIEGEL ONLINE: You are talking about saving the world with altruism …
Yunus: There are many philanthropists in this world, people who help people by providing them with homes, education, etc. But that is a one-way street. The money is spent and never comes back. Were one to invest that money in a socially minded company, it would stay in the economy and would be much more effective because it would be used according to the criteria of the market and would thus develop a certain amount of market leverage.
SPIEGEL ONLINE: Who do you think is guilty for the current financial meltdown?
Yunus: The market itself with its lack of adequate regulation. Today’s capitalism has degenerated into a casino. The financial markets are propelled by greed. Speculation has reached catastrophic proportions. These are all things that have to end.
SPIEGEL ONLINE: The current financial crisis began as a credit crisis — homeowners in the US could no longer pay down their mortgages. At Grameen Bank, which provides microloans, the repayment rate is close to 100 percent. Do you think your bank could be a model for the entire finance world?
Yunus: The fundamental difference is that our business is very connected to the real economy. When we provide a loan of $200, that money will go to buy a cow somewhere. If we lend $100, someone will maybe buy some chickens. In other words, the money goes to something with concrete value. Finance and the real economy have to be connected. In the US, the financial system has completely split off from the real economy. Castles were built in the sky, and suddenly people realized that these castles don’t exist at all. That was the point at which the financial system collapsed.
SPIEGEL ONLINE: Is it now time for governments to intervene in the market economy and strengthen regulation?
Yunus: There has to be regulation, but governments should not be allowed to steer the market. On the other hand, it has become clear that Adam Smith’s "invisible hand" which supposedly solves all the market’s problems doesn’t exist. This "invisible hand" has completely disappeared in the last few days. What we are experiencing is a dramatic failure of the markets.
Interview conducted by Hasnain Kazim. Translated from the German by Charles Hawley.
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