Turning the poor to capitalism

The Economy

May 30, 1999|By Jay Hancock

CAPITALISM'S PR problem is that its main goal -- making money and minding Numero Uno -- disappoints the philosophers. Its impressive humanitarian feats -- raising living standards, financing culture, prolonging life span -- are just side effects.

There must be a better way, people have said for two centuries. Surely capital aimed with benevolent intent does more good than capital aimed at profits alone. Karl Marx thought so. So did Eugene Debs.

And so, in its way, does Bethesda's Calvert Group.

Dedicated to "socially responsible investing," Calvert's mutual funds avoid all the stocks unfashionable in Greenwich Village. Cigarette and gun makers. Nuclear-powered utilities. Gambling companies. "Major polluters."

If nothing else, it's a great marketing riff. Conflicted about your trust fund? Put it in Calvert and don't give those baby seals another thought. And of course the ski vacation in Gstaad this year won't be a problem.

This is not to say Calvert doesn't make some interesting investments that are more philanthropic than most.

Besides splitting hairs about whether Pfizer shows more "positive corporate citizenship" than, say, Lockheed Martin, Calvert ventures into the wild, nonsecuritized world of community housing funds and Third World micro-lenders.

Perhaps the most accomplished of these is Somerville, Mass.-based Accion International, which has brought lasting succor to more than a million poor people on two continents.

Accion's vigorously effective do-gooding depends on a simple, maybe ironic, strategy. It turns the poor into capitalists.

In seven years it has lent $2 billion, a few hundred dollars at a time, to carpenters, cobblers, weavers, cooks and other impoverished entrepreneurs in places such as Bolivia, Brazil, Argentina and Chicago. It might lend a grocer $200 for a refrigerator, a crafter $500 for supplies, a cabbie $1,000 for a car.

By letting micro-businesses go from no-tech to low-tech and by boosting economies of scale, this banker to the barrio helps them profit and, not incidentally, generate cash to pay back borrowings.

More than 98 percent of Accion's loans get reimbursed, said President Michael Chu. In Bolivia, Accion's bank achieved an eye-goggling 4.2 percent return on assets and 29 percent return on equity. Mercantile Bankshares, eat your heart out.

If raising productivity is the key to wealth and if capital ought to be deployed where productivity gains beckon loudest, Chu said, then the slums of the world offer an investment to rival any Internet stock.

"Let's say a carpenter works with a hammer and nails, and you introduce an electric saw. His productivity goes up 500 percent," said Chu, who sits on Calvert's social investment board.

"We as a nonprofit believe that, in the field, what we do must have economic rationality, and therefore profit, for it to be permanent and grow."

Productivity promise notwithstanding, America's money managers are not exactly rushing to airports to finance fabric dyers in Caracas.

The loans are small and unsecured. The clients are legion and insubstantial. The culture -- traipsing through muddy ghettoes with small bills -- isn't what MBAs want for a career.

Even the Calvert Group's most socially sensitive funds devote only 1 percent of assets to these types of investments.

But groups like Accion are helping the hungry, spreading seductive propaganda about the world's best-proven economic system and sometimes making a peso in the bargain.

Micro-lending "was the first thing that I had come across that was providing an effective response to poverty that could really, seriously pretend to reach the millions of people that are represented by poverty," said Chu, who, as a former executive with leveraged buyout firm KKR & Co. knows something about capital. "I think capital markets are the only place that are large enough to make a dent in poverty."

Now that's socially responsible.

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