Turning Tragedy into Synergy: Achieving Universal Financial Access

April 16, 2015

It is now 47 years since Garrett Hardin first formulated the economic argument of the “tragedy of the commons”, which has since caught the public imagination and been applied to the analysis of a wide range of phenomena from the environment to social welfare. At its core is the insight that rational individuals acting on self-interests could end up depleting certain “common” resources that are supposedly available to all such as air, ocean, the wilderness, and so on.

However, I would argue that if all stakeholders can see beyond their narrow short-term self-interests and work together to enhance and expand the common resources, then we can have the flip side of the “tragedy”, which I would call the “synergy of the commons”. Instead of depleting the resources in question, the synergy of the commons would enrich the resources and in turn benefits all stakeholders.

From the perspective of economic development, we can argue that the concept of the “commons” would include indispensable services that allow all members of a society to function at a level of productivity commensurate with their capability. Such a list would include education, health care, supply of water and energy, personal safety, and, last but not least, access to financial services. Lacking access to these services trap segments of the society in low productivity activities in spite of their ability to do better, resulting in entrenched poverty and underdevelopment.

Take financial services as an example. Households that lack access to financial services find it harder to save, more costly to conduct routine transactions, and impossible to obtain credit (or forced to borrow from money lenders at exorbitant interest rates). For a migrant worker, the simple but necessary task of remitting funds to the home village is an expensive and often complicated proposition. Aspiring young entrepreneurs from such poor households face great difficulty in setting up their businesses, regardless of what brilliant ideas they may have. More damaging still, households that cannot access financial services are much more risk-adverse as a matter of sheer necessity, which then see their socioeconomic potential further reduced. The “tragedy” of such a situation is that, with large segments of the population excluded, the financial sector itself is made weaker, with limited potential for expansion; which consigns the sector to stagnation.

However, making the break through from the tragedy of the commons to the synergy of the commons is not easy. When all stakeholders are locked into their narrow self-interests, first movers attempting to enrich the commons face very high risks, including the so called free-rider problem. For the synergy of the commons to be possible, strong and decisive leadership is needed. And in the new initiative to achieve universal financial inclusion launched jointly by the World Bank Group, the United Nations Secretary General’s Special Advocate for Inclusive Finance for Development, and MasterCard; with a participants list of global leaders in the public and private sector, we are finally seeing strong leadership in action. In the struggle for financial inclusion, we are at the cusp of turning tragedy into synergy.

Hardin, G. 1968. “The Tragedy of the Commons”, Science 162 (3859): 1243-1248.

Being taken advantage of by others who are not making the same move; the “free-riders”.

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