The managing director of the International Monetary Fund, Christine Lagarde, is currently in South Africa to meet with President Cyril Ramaphosa and his deputies, as well as the Governor of the Reserve Bank (South Africa’s equivalent to the Fed).
While in the car this morning, I listened to pundits on the radio bemoan the presence of the IMF, amid speculation — that Lagarde explicitly struck down — that the trip means a loan to South Africa is forthcoming.
South Africans, and perhaps others in the developing world, have disdain for the IMF, and the World Bank, because of their stringent loan terms, which outline, effectively, how the government can spend the money in their own country to solve economic problems.
I believe recently independent nations like South Africa, certainly don’t want to feel perpetually beholden to other countries — particularly western countries, given the history of colonization — and have chosen not to work with the IMF and World Bank, in spite of the international organizations’ purported benevolence and shared objectives.
Is contempt for the IMF, and a denial of the support they are offering, rational?
Another vocal critic of the IMF and international development organizations is Muhammad Yunus.
Yunus certainly has the credibility to comment on the topic, as a 2006 Nobel Peace Prize Recipient, and founder of Grameen Bank, a microfinance organization in Bangladesh.
Grameen Bank offers credit to the extreme impoverished without collateral, and currently has almost 9 million borrowers (of whom 97% are women).
Importantly, the act of accepting the impoverished in the financial system, and offering microcredit loans has empowered the Bangladeshi borrowers, through encouragement and significant increases to their self-esteem and self worth.
When we want to help the poor, we usually offer them charity. Most often we use charity to avoid recognizing the problem and finding the solution for it. Charity becomes a way to shrug off our responsibility. But charity is no solution to poverty. Charity only perpetuates poverty by taking the initiative away from the poor. Charity allows us to go ahead with our own lives without worrying about the lives of the poor. Charity appeases our consciences.
His book, Banker to the Poor, tells of the World Bank and IMF’s constant financial offers to fund and support Grameen’s social development projects.
Yunus is critical of international aid organizations because of how they operate.
When Yunus was addressing the issues of poverty in the 1970s, he quickly learned that he did not know enough about the issues at play, and he needed to leave his office of the economics department of Chittagong University, to have an impact.
Yunus and Grameen take a “worm’s eye view”, immersing themselves in the poor villages to better address the needs of the poor that they seek to serve.
However, the World Bank sends in their economists and analysts from Washington, DC, who take a bird’s eye view, and consequently cannot serve the poor as well as those immersed on the ground.
Can a country’s problems only be solved by those who known them best?
As an American living in South Africa, it’s not appropriate for me to say whether or not South Africa’s contempt for the IMF is rational.
I choose, however, to view the scenario through a philosophical and behavioral lens — though one that I need to acknowledge is certainly western in its make up.
From a western point of view, “we” certainly feel — given our experience in the developed world — that we know how to take countries from developing to developed, and that “our” policies — which work for the west, and are grounded in sound economic principle — will unquestionably help the developing world.
This worldview should be subject to a tremendous amount of criticism.
Firstly, the idea that “we know better” is a fallacy. There are several cognitive biases at play —
We tend to be influenced by the opinions of those who are viewed as authority figures.
Certainly, leaders of western countries and/or organizations are viewed with authority — and more authority, by virtue of them leading developed nations, than the leaders of developing nations — and therefore the world is more so influenced by their opinions.
However, we are biased to believe that the managing director of the IMF has better solutions for South Africa than South Africans.
Fundamental Attribution Error
Yunus writes —
Even today we don’t pay serious attention to the issue of poverty, because the powerful remain relatively untouched by it. Most people distance themselves from the issue by saying that if the poor worked harder, they wouldn’t be poor.
When we succeed, we attribute success to ourselves, and the decisions we made. When we fail, we attribute failure to outside circumstances.
The west’s success is therefore due to their “good” decisions, whereas poor countries poverty is due to their “bad” decisions.
This view obviously does not take into consideration why African countries are poor — colonization, systematic oppression, pillaging of resources, and so on.
Additionally, as the entire discipline of behavioral economics has shown, human beings are not rational actors. Economics models the world as rational, and often, the models cannot or should not apply to the scenario that is being forecasted.
In this environment, it’s impossible to separate rationality from emotion, and models assuming decision makers are rational constants cannot apply.
Lastly, and most importantly, this worldview lacks empathy.
As humans, we — westerners and Africans alike — are subject to needs on Maslow’s Hierarchy.
The IMF is trying to solve bottom of the pyramid issues, perhaps with less regard for middle of the pyramid issues.
Meanwhile, the leaders of the countries with whom the IMF is offering loans have their basic needs met, and are concerned about their psychological needs, particularly their esteem needs.
I suppose a better question to ask is — for those at the bottom of the pyramid, and with whom the IMF, and local governments, are trying to serve — what to they want?
Do they care about the IMF’s stringent loan terms, if the terms will help the poor? If they’re escaping poverty, do they care about their country’s free agency?
Muhammad Yunus and Grameen Bank understands the important psychological value of empowering their borrowers — of simultaneously catering to their needs at bottom of the pyramid and the middle of the pyramid.
I think that South Africans, meanwhile, feel like the IMF, in negotiating their deal terms, does so without regard for their middle of the pyramid needs.
While we’d like to keep the conversation to impact of development programs, sovereign nations are proud of their sovereignty, and their free agency is a vital consideration.
I am sure the IMF knows this, but South Africans certainly don’t feel like it’s of much regard to the IMF.
The western world strongly believes in progressive, liberal ideals, and self-determination. It is the emerging countries’ self-determination that must be recognized and respected, when it comes to international development.
Most importantly, western liberalism support the ideal of free agency. To push one’s worldview on an other — particularly an other who we consider “lesser than” — does not treat them as a free agent.
The sooner and better that we — the west — understand this, the quicker and better we may be able to “help”.