Dominic Cummings

How to solve our welfare problem

Dominic Cummings meets Muhammad Yunus, the Nobel Prize-winner who has the answer to some of the West’s intractable problems. So why won’t politicians listen to him?

How to solve our welfare problem
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Dominic Cummings meets Muhammad Yunus, the Nobel Prize-winner who has the answer to some of the West’s intractable problems. So why won’t politicians listen to him?

One day in 1974, at the height of the famine in Bangladesh, an economics teacher from a nearby university wandered into a village called Jobra. There he found the ladies of Jobra struggling to survive. No proper bank would deign to lend to them, so in order to finance their tiny basket-making businesses the ladies were forced to borrow from loan-sharks and pay punitive interest rates.

‘This is absurd,’ thought the teacher, Muhammad Yunus. ‘There’s enough misery around without these women being burdened by debt’ — so he lent them the money himself: $27 in total to a group of 42 women. They made a small profit, repaid Yunus promptly, and sowed in his mind a great idea.

Two years later Muhammad Yunus founded his ‘microfinance’ bank, the Grameen Bank, which specialised in making more of these tiny loans to groups of very poor women. From that first $27 sprung a vast enterprise that now lends about $100 million per month in small loans. Yunus doesn’t own the bank, Grameen’s depositors own it themselves. Ninety-seven per cent of them are women and 98 per cent repay their debts. Millions have escaped poverty and in 2006 Yunus and Grameen were jointly awarded the Nobel Peace Prize.

Now Professor Yunus has another idea — a development of the Grameen model. It’s about what he calls ‘social business’, the subject of his latest book. Sipping tea in a London hotel, he explains: ‘We need two kinds of business: one for personal gain, another dedicated to helping others.’ A social business is not a charity. ‘Many charities spend 80 per cent of their time raising money and 20 per cent doing the job,’ he says. A social business has owners and becomes financially self-reliant. It is a ‘non-loss, non-dividend’ company. ‘The company makes a profit but no one takes the profit,’ explains Yunus. ‘Investors can only withdraw their original investment and profits are reinvested.’

The professor has great faith in his investors — who are still mostly women. Grameen Telecom provides communication to over 25 million poor via ‘telephone ladies’, who buy a phone then rent it out per call in their village. He has built a joint venture with Danone to sell yogurt fortified with nutrients, with Intel to provide IT, and with Veolia to provide safe water. Grameen Wellbeing provides clinics and cheap health insurance. ‘We’ve been attacked by men and religious people. But the women see the benefit and shout back, “If you don’t want us to take money from the bank, you give us the money.” And if the men won’t, the ladies say, “Then keep your mouth shut, because we need to make money to look after our children.” If you’re looking for hard-working women in the world, they’re in Africa. If you go to a village market place you hardly see any men.’ If we give African women a chance, he says, they will change the entire social structure.

How far can his model spread? ‘Everywhere, there are no limits.’ In fact, his latest crusade is to persuade Western governments to use social businesses to end the welfare traps that blight rich societies. Africa can show the West the way, he says. ‘There are many British families in third- or fourth-generation unemployment. In some places,’ says Yunus, ‘we’ve created a human zoo. You give people food, keep them healthy, but they are not self-reliant, dignified human beings. Welfare has dehumanised them.

‘We must try to help people to be independent, not keep them needy forever. And since governments cannot do it,’ he says, ‘citizens must do it. Let’s start by taking ten people out of welfare. If it works, then you’ve opened up a whole new way and it’s a question of repetition.’ People will learn far more doing real jobs, he says, than in useless government-run training schemes, because then they will become self-reliant. ‘Instead of depending on taxpayers’ money they become taxpayers themselves and contribute their share.’

Professor Yunus fizzes with optimism. He is reluctant to criticise, but I know that although governments are willing to hear him out, they rarely act on his ideas. I badger him. ‘You’ve proved that your ideas work. So why don’t politicians listen to you?’ The Nobel Prize makes it easy to get meetings, he says, but as T.S. Eliot put it, ‘Between the idea/ And the reality... Falls the shadow’, and the shadow is entrenched bureaucracy. What do politicians say about his welfare ideas? Yunus looks sad. ‘They say, “It can’t be done or it would have been done.” They have disbelief because their minds are completely blocked. They want to hold on to the power.’ Some academics even complain that reducing the responsibility of government is a bad thing. ‘Yesterday I had a meeting with academics and they complained, “You’re taking away the responsibility from the government.”’ Yunus replies, ‘You’re always promising the government will do it but every day lives finish while nothing happens. People’s lives are precious. I’ll do it myself.’

What happened when he spoke to the World Bank? ‘I said, “why don’t you just create a tiny little window for a social business fund, ten million out of 20 billion dollars each year? You spend this much on consultants and advertising. Why not try something different?”’ What do they say? ‘They ask questions but... no.’

What about Britain? David Cameron has ring-fenced our aid budget — he must be interested in getting value for all our money? He must be concerned that the usual aid model keeps a country dependent? ‘I said to DFID [Department for International Development], “You give money to Bangladesh every year. Instead why not take just 5 per cent and put it in a social business fund?” Gordon Brown was very interested, he instructed DFID right in front of me. He picked up the phone, “you must do this, speak to Professor Yunus for clarification.”’ And? This sounds hopeful. ‘We had a discussion, everyone said, “we’re following it up, let’s talk,” but they’ve never done anything,’ says Yunus. ‘This happens all over the world. It’s very easy to go to the top, to be in the newspapers, and the presidents are interested, but down the line it gets stuck, they do nothing and the president doesn’t have the patience to go back six months later.’

To escape from the need to deal with politicians and bureaucracies directly, Yunus is now developing social business versions of stock markets, credit-rating agencies, venture capital and ‘angel’ funds. From Glasgow to California, he is starting new MBA courses to teach how to run social businesses.

Hayek argued that adding the word ‘social’ to a phrase deprives it of clear meaning, but I think he would approve of Professor Yunus. Social businesses can harness our instinct for altruism and the learning process of markets while reducing bureaucrats’ malign power. If we learn the lessons of Yunus’s success, we can tackle big problems in welfare and education, and exploit the collapsing faith in state institutions. ‘Little platoons’ run as social businesses — Michael Gove’s new schools for instance — could be icebreakers for a revolution. As Professor Yunus heads for the airport clutching a suitcase as big as himself, he implores us to try, ‘Banking can be done with street beggars, no problem. So we can solve welfare too.’

Professor Yunus’s book is called Building Social Business. Dominic Cummings was director of the ‘No’ campaign against the euro.