More Debt is not the Answer
Perhaps the great lesson of the world debt crisis is to regain our empathy, our humanity.
After thinking deeply about current and past financial crises, and inequalities of the world in general, one notices the prime culprit is always debt. Debt creates two classes of people, the creditor and the borrower, who begin a relationship which, as the debt cycle bloats, becomes the relationship of the oppressor and the oppressed, in all realms, from personal to sovereign.
The lender operates under the illusion that he will get back the promised amount. In the beginning stages of debt expansion, he does, so he lends more and more. Then finally, at the climax, he doesn't receive the promised amount, expressed as default. Disillusioned, he realizes he was really a partner with the debtor, even though he drew up documents and extracted promises to attempt a superior status.
Lending is dehumanizing. Most lenders never meet the borrowers. That anonymity again divides humanity. Knowing who the borrower is and how he is faring is one small step toward bringing humanity together.
Is there an alternative? Perhaps lenders could start on a small scale with micro-partnerhips, rather than loans. Micro-loans have gained media attention. Micro-loans do help the impoverished and will probably always have their place. But since they are debt, they sow the seeds of the same problem again. Instead of micro lending, micro-partnerships fund these same small enterprises, but on an equal footing as a partner. On one hand, when the business succeeds, one makes more return. If the business fails, the borrower is not burdened. The capital partner assumes a business risk. Of course, the same community checks and balances which safeguard micro-loans need apply to micro-partnerships.
Most of my private placements during the 80's and 90's were equity partnerships like this. So they survived economic downturns and were all profitable. Fifteen years ago I made my first micro-partnership investment in the country of Mauiritius, giving a young man a start with a mushroom farm.
Imagine if the outstanding debt today were partnership shares. Truly everyone's interests would be more aligned. Lending won't ever totally disappear, just as there will never be total peace on earth. There are great regions of peace, and in the same way a people who mutually invest as partners rather than lender/creditor could create regions of financial stability. I believe micro-partnerships, larger business partnerships, even national partners, are ways toward more humanitarian relations and greater unleveraged equilibrium in the world economy.