Muhammad Yunus: Leading Bangladesh Towards Revolutionary Economic Change in 2024

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Nobel laureate Muhammad Yunus, the head of Bangladesh’s interim government, arrives at Hazarat Shahjalal International Airport, in Dhaka, Bangladesh on Aug 8. (Photo: Reuters)

“Economics is a meaningless subject,” claimed Muhammad Yunus, the Nobel Peace Prize winner, microfinance pioneer, and unconventional economist, in a revealing interview with Time magazine a few months ago. Little did he know that he would soon have a prime opportunity to put his words into action. Following the removal of Bangladesh’s authoritarian prime minister, Sheikh Hasina, earlier this month, Mr. Yunus was selected to lead the country’s caretaker government.

Founded in 1971 after a brutal war of independence, Bangladesh seemed an unlikely candidate to be a beacon of development, given its ballooning population and acute susceptibility to natural disasters. Yet by the 1990s, it had made a credible claim to this title. While many developing countries were being stifled by the neoliberal Washington Consensus, figures like Mr. Yunus with his Grameen Bank and Fazle Hasan Abed, the founder of the anti-poverty nonprofit BRAC, were wielding a third tool beyond the state and the market: civil society.

As a young development scholar in Bangladesh in the early 2000s, I witnessed these pioneering NGOs’ groundbreaking work firsthand. Their search for solutions was not confined to theoretical blackboards but was deeply engaged in the field, turning Bangladesh into a global hotbed for developmental innovations. As one interviewee described it, Bangladesh was “the Wall Street of development.”

However, just like the actual Wall Street, Bangladesh’s model hit rough waters around 15 years ago when Ms. Hasina reclaimed power (having previously served as prime minister from 1996 to 2001). Initially celebrated as a symbol of democracy, the leader of the secular Awami League and daughter of Bangladesh’s “founding father,” Mujibur Rahman, Ms. Hasina’s tenure took a disconcerting turn towards authoritarianism and widespread corruption. The tipping point was reached this summer when she attempted to quash peaceful student protests with violent crackdowns.

This year’s unrest was fueled not only by Ms. Hasina’s oppressive politics but also by her economic policies. Despite rapid GDP growth and infrastructural improvements earning Bangladesh a reputation as an economic “miracle,” Ms. Hasina’s clampdown on civil-society organisations, the same entities that initially put Bangladesh on the developmental map, did not go unnoticed. She particularly targeted Mr. Yunus, branding him a “bloodsucker” and forcing him out of his leadership position at Grameen Bank in 2011, followed by various baseless legal charges against him.

Ms. Hasina’s economic strategy was reminiscent of conventional development-economics playbooks. She sought to harness export-led growth by turning Bangladesh into a low-cost manufacturing hub for garments. With astonishingly low wages and minimal regulation, the country became the world’s hub for fast-fashion production.

One adverse outcome of this strategy was the severe lack of employment opportunities for college graduates, except for government jobs allocated through a corrupt, nepotistic quota system. This system, combined with high inflation and lingering effects of the pandemic, sparked the summer protests.

Now that the revolutionary youth have bestowed Mr. Yunus with unprecedented influence on the national and international stage, Bangladesh’s development credentials face a critical test. Was the civil-society-centric “Bangladesh model” merely an eccentric deviation from traditional economics, or does it represent a genuine challenge to it?

As I have documented elsewhere, microfinance’s groundbreaking innovation lay in providing loans without the economic or legal guarantees (like collateral and binding contracts) that conventional economics insists are essential. Contrary to textbook predictions, microfinance institutions (MFIs) worldwide report repayment rates exceeding 90%.

Though widely recognized for introducing one of the most crucial development interventions in recent decades, I have long believed that the psychological insights at the heart of the microfinance model could radically reshape our thinking. Instead of viewing borrowers (mostly poor women in Bangladeshi villages) as utility-maximizing “rational actors” for whom repayment would be irrational without coercion, MFIs took a leap of faith. They targeted groups rather than individuals, usually consisting of around five women. Given that individuals are almost always part of groups, the logic behind this approach is evident, yet intra-group dynamics are notoriously underexplored in economics.

MFIs foster social cohesion within these groups, who typically hold regular meetings and public repayment rituals, thereby promoting prosocial behavior from all members. As my work comparing India’s SKS Microfinance with Grameen Bank’s track record shows, these social-reinforcement mechanisms, rather than economic incentives, underpin the model’s success.

Another key takeaway from microfinance is the importance of getting group size right, which generally means keeping groups small. While thinkers like Leopold Kohr and E.F. Schumacher have emphasized this in the past, mainstream economists remain fixated on economies of scale (bigger is always better).

Having been replicated in over a hundred countries, the Bangladeshi microfinance model is notable for having been incubated within, rather than imported into, the Global South. This makes it aptly suited to its cultural context. For example, in heavily rural, agriculture-based economies, borrowers often struggle to access banking services, prompting microfinance bankers to bring their services directly to the villages.

Mainstream economics has largely dismissed insights from microfinance as feel-good anecdotes. But in a new project, in collaboration with a team of scientists, I explore the potentially profound significance of “social preferences” in economic structures.

Could an institution designed to engage individuals’ “instinctual” systems rather than “deliberative” systems elicit systematically different behavior? What if we started with the assumption of a prosocial economic agent rather than a selfish, isolated one? What if we redesigned our networks to be more cooperative? Perhaps we could avert the self-fulfilling prophecy of the tragedy of the commons. By not “crowding out” our intrinsic goodness, we might build what Samuel Bowles calls a “moral economy.”

One hopes that Mr. Yunus can guide Bangladesh away from being the world’s sweatshop and back towards being the world’s laboratory for human development and social advancement. In an era where many are questioning what comes after neoliberalism, the “banker to the poor” might inject economics with the real-world experience and innovative spirit it so desperately needs.

©2024 Project Syndicate
Antara Haldar, Associate Professor of Empirical Legal Studies at the University of Cambridge, is a visiting faculty member at Harvard University and the principal investigator on a European Research Council grant on law and cognition.