Developing and implementing systems in LEDCs to enable people with low income to receive access to financial services

Transcription

1 Forum: ECOFIN Issue: Developing and implementing systems in LEDCs to enable people with low income to receive access to financial services Student Officer: Position Mail: Giuseppe De Ruvo Main Chair Description of the issue: In our world the 20% of the population has access to the 95,5% of the bank credit, while the remaining 80% has access only to the 4,5% of it. Why do we have this discrepancy? It would be quite useful to quote Steve Jobs who once said : brand, in the end, is trust. Obviously we are not talking about brands, but the concept is the same: credit is totally based on trust. When someone needs a loan from a bank, the first thing the bank does is to check out the applicant solvency, that is his or her ability to give the money back in the prefixed time. Because of the fact that many people, especially in the southern part of the world, do not have any assurance to exhibit at banks to receive credit, they are cut out of the global financial market. It looks like this people and LEDC s are in a vicious circle: liberal economics is based on the free action of the individual, and the state economy improves when everyone is able to invest. If the free action of the individual is limited because of his/her impossibility to receive credit, also state economy will be damaged. Background information: It is impossible to understand this problem without some background information, that are the reasons why this issue spread out. This issue is basically an issue of money. Money is, for definition, something that is used to buy something else; this is the basic idea that we all have about money. However, if we make a deeper analysis, we will understand that money is not only something used to get goods, but it is a good itself. This is the hearth of our issue: money has its

2 price and, as any other goods in the world, has to be paid. This is not only an economic problem, it has a deep impact also on the social sphere. Money, having the ability to buy every object, is the eminent object. [ ] my strength is the strength of my money. The properties of my money, are my properties, what I am and what I can do is not determined by my individuality, but by my money. [ ] money, an abstraction, was made lord of the world. Ma stopped being slave of man, and became slave of money. ( Karl Marx, author of economic and philosophic manuscripts in 1844) Money has to be considered in the modern world as the regulator of human actions. It is clear that nowadays the human essence is linked to his possibility to use or to possess money. However, it is also clear that inequality in the world is considered almost normal and LEDCs seem to be not ready to face the competition of western countries. As we said before, credit, in the end, is trust. And as people need to assure to the banks that they will be able to pay back for their loans, in the same way states need to have guarantees if they have to receive loans from funds. This map shows quite well how the southern part of the world has a lower GDP. European countries and the United states of America in 2015 gave $ to LEDCs, but the GDP did not grow as expected, especially in African countries. The fact is that GDP cannot be considered the

3 one and only tool to describe the wealth of a nation: GDP just describes the production of services and capital in the country. GDP would be an effective tool of analysis only if the means of production are internal to the country. In our globalized economy, especially in the LEDCs, multinationals play a crucial role. The first consequence is that, even if they provide jobs, these jobs are so underpaid that people cannot live a decent life and therefore they have not enough money to spend to activate the real economy of the countries. The second consequence is maybe more important than the first. Multinationals not only exploit workers in LEDCs, but they also exploit resources. The richness of a country is based especially on his natural resources, they can satisfy the needs of the inhabitants and they can be traded in the global economy. In the globalized world, as Max Weber had expected in the XX century, the politic power is strictly linked to the economic one, and it is effective only if the economic power works as it must. The population of LEDCs can survive day by day only by the incomes they receive from multinationals, but this will never allow a consistent and important growth of the GDP. This is the main reasons why LEDCs are not able to receive credit from international funds and consequently the reason why states cannot give loans to people. LEDCs are not economically reliable because they do not own their economy that is totally based on investments coming from richer countries. Historical background: This issue has its roots in the historical background that led to this situation. LEDCs are mostly those country that were colonized by occidental countries: the inference of western countries caused many problems. Colonialism didn t allow LEDCs to find economic models that reflected better their possibilities and damaged LEDCs economy development in many ways. First of all, western states gave to LEDCs the model of the centralized state that was in contradiction with the socio-economic structures of those countries. The idea of a strong centralized state destroyed the previous society of LEDCs: they had to move from a dislocated subsistence economy to a capitalistic and world-open economy. Those countries, however could not face western countries in the free trade economy and therefore western countries could easily invest in LEDCs. This inference was facilitated by inflation, that allowed rich countries to invest in LEDCs spending a low amount of money, becoming, de facto, owners of the economy of those countries.

4 Colonialism caused also an increase of the populations, because western countries introduced new cures for illnesses that the local population couldn t cure. They also reclaimed some zones. This fact had two effects. First of all, the increase of the population and, therefore, of workforce caused a drastic lowering of wages. People couldn t invest in real economy and all their money had to be used to sustain their family. People had no savings or assurance and therefore they couldn t receive any loan or credit. The second effect is linked to the new economy brought by western countries: We said that the traditional economy of LEDCs was based on agriculture and was aimed at satisfying the needs of local groups. With the inference of richer countries and multinationals, people don t work to provide the means of sustenance for themselves, but they work to produce something that will be sold in another part of the world. The consequence is that local population has to buy those things that they used to produce and in this way they spend all the money that they earn. Glossary: LEDCs: less economically developed countries MEDCs: More Economically Developed Countries Colonialism: specially in the 19 th century, European countries wanted other countries to be dependent from the, so they invaded those countries or they invested in those countries in order to control their economy. GDP: is the monetary value of all the finished goods and services produced within a country's borders in a specific time period Credit: the provision of money, goods, or services with the expectation of future payment How to prepare as a delegate: We are aware of the difficulty of the issue. It is clear that we do not want an economic theory able to overcome globalization. The advice is to try to think out of the box, trying to find solutions based on solidarity between countries. It could be interesting to understand how countries like Bangladesh tried to solve or to limit the damages of this issue. It is evident that it is not possible to solve this issue with a general theory, however there are some means like microcredit and group lending that

5 have been effective in many countries. Remember that the main problem of credit is that many people cannot assure that they will payback, so it could be important to focus on this. The fundamental question is: are those assurances necessary? Could new technologies help in solving this issue? UN resolutions: Useful links: Sources: