Some Thoughts on Bill Gates' "Creative Capitalism"

♠ Posted by Emmanuel in ,, at 8/02/2008 01:30:00 AM
My first reaction to Bill Gates' new article on the idea of creative capitalism in TIME Magazine was, "uh-oh, here we go again." There has been a continuing battle between the erstwhile Microsoft founder and development scholar William Easterly which has been caricatured as pro-aid versus anti-aid (see Easterly's site for a record of their media skirmishes). In an earlier Wall Street Journal feature, Bill Gates called for a creative capitalism that could use market forces to address the problems of the world's poor. It was not long before Easterly came out pooh-poohing the whole idea of creative capitalism. Actually, I believe that Easterly mischaracterizes Gates' idea as yet another twist on corporate philanthropy, which Easterly says isn't enough to improve the plight of the poor on an appreciable scale.

The new TIME article should make it abundantly clear that Gates is keen on avoiding yet another Easterly critique by firmly stating that for-profit efforts need to be highlighted before non-profit efforts:
The amazing innovations that have made many lives so much better — like vaccines and microchips — have largely passed them by. This is where governments and nonprofits come in. As I see it, there are two great forces of human nature: self-interest and caring for others. Capitalism harnesses self-interest in a helpful and sustainable way but only on behalf of those who can pay. Government aid and philanthropy channel our caring for those who can't pay. And the world will make lasting progress on the big inequities that remain — problems like AIDS, poverty and education — only if governments and nonprofits do their part by giving more aid and more effective aid. But the improvements will happen faster and last longer if we can channel market forces, including innovation that's tailored to the needs of the poorest, to complement what governments and nonprofits do. We need a system that draws in innovators and businesses in a far better way than we do today [my emphasis].

Naturally, if companies are going to get more involved, they need to earn some kind of return. This is the heart of creative capitalism. It's not just about doing more corporate philanthropy or asking companies to be more virtuous. It's about giving them a real incentive to apply their expertise in new ways, making it possible to earn a return while serving the people who have been left out. This can happen in two ways: companies can find these opportunities on their own, or governments and nonprofits can help create such opportunities where they presently don't exist.
Despite lauding philanthropic efforts to a lesser extent, there isn't really that much for Easterly to nitpick here. If someone told me it was written by Easterly and not Gates, I wouldn't have second-guessed the author's identity.

Do read the entire article as the Bill & Melinda Gates Foundation, with the ear of many government and business leaders as well as over $40 billion in funding is a major player in the development sphere. Like Easterly, though, I have nits to pick despite the streamlined for-profit approach which should please the ears of Gates, Easterly, and last but not least--myself [!]:

(1) "Creative capitalism" is not a very good descriptor. Joseph Schumpeter long ago popularized the term "creative destruction" to denote how capitalism continuously reinvented itself by destroying older industries that lost their economic relevance. That is, capitalism has always had the capacity to reward creativity. Take, for instance, the Walt Disney media empire. It is a measure of Walt Disney's enduring genius that he made a loathsome household pest a corporate mascot loved by children the world over. If that isn't creative, then I don't know what is. The UNDP uses a more apt term, "inclusive markets."

(2) Gates should quit invoking Microsoft as a paragon of virtue. Given its chequered history in monopoly/antitrust legislation, I would be naturally wary of this association. Instead, there is a long history of American "robber barons" who have amassed fortunes in ways not entirely approved by John Q. Public that subsequently engaged in well-meaning and well-respected activities. Think Rockefeller or Carnegie. Since he is so fond of innovation, Gates should emphasize a new wrinkle in his foundation's activities by emphasizing the sustainable, for-profit nature of its undertakings;

(3) Hang our less with Bono and the rest of the celebrity activist crowd and more with serious-minded development scholars. Gates mentions how Bono started the RED initiative by calling his bigwig CEO pals. Again, this puts him in Easterly's firing line: the do-gooding activities of some companies which do not achieve appreciable scale are not likely to make much of an impact on improving the lives of those Gates wants to help. Really, unfairly casting rapidly growing Africa as a hopeless basket case is all you can leave behind.