A quarterly magazine of urban affairs, published by the Manhattan Institute, edited by Brian C. Anderson.
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Bill Gatess vision of creative capitalism
20 February 2009
Creative Capitalism: A Conversation with Bill Gates, Warren Buffett, and Other Economic Leaders, edited by Michael Kinsley (Simon & Schuster, 336 pp., $26)
Bill Gates is frustrated. After decades of debate over international economic developmentforeign aid or market reforms?1 to 2 billion people remain in extreme poverty. And despite ostensibly new approaches such as social entrepreneurship, corporate social responsibility (CSR), and social business (proposed by Mohammed Yunus), there is little agreement over what to do next. Seeing oppressive injustice in extreme poverty (defined as living on less than $1.25 a day), one can overlook the astounding progress the world has made in the last two centuries, much of it thanks to capitalism. Suggestions to keep hewing to the market trajectory, however, invite accusations of indifference. Enter Gates.
About a year ago, the billionaire entrepreneur-cum-philanthropist told the World Economic Forum in Davos, Switzerland, of his vision for creative capitalism. Soon after, journalist Michael Kinsley helped establish a website for a dialogue on the merits of Gatess idea. The Davos speech, a conversation between Gates and Warren Buffett, and contributions from over 40 leading economic thinkers have now been collected into one engrossing volume, Creative Capitalism, edited by Kinsley.
So what is creative capitalism? Gates, in his Davos speech, offered few details, but he was clearly frustrated with what he saw as the markets limits in improving the lives of the extremely poor. He wanted a new system that ties together capitalisms profit motive with the power of recognition. If we find approaches that meet the needs of the poor in ways that generate profits and recognition for business, said Gates, we will have found a sustainable way to reduce poverty in the world. He provided five examples of what creative capitalism could look like: corporate philanthropy; businesses focusing on what C. K. Prahalad calls the bottom of the pyramid; tiered pricing, wherein a drug company, for example, uses profits from the developed world to subsidize free or lower-priced drugs in the developing world; government creations of market incentives for helping the poor; and something like rock star Bonos (RED) campaign, in which a portion of consumer purchases gets earmarked for poverty-fighting organizations.
Does Gatess idea have any substance? One could quickly note that plain old capitalism is unmatched in channeling humans natural creative impulseand we might even say that overly creative capitalism (credit-default swaps, collateralized debt obligations) helped get us into our current mess. At least two of Gatess examples, moreover, used to be known as enlightened self-interest on the part of companies. Nonetheless, Gates has directed attention to a serious problem: how best to reduce poverty?
Over the past 30 years, global poverty has actually declined, according to the World Bank, by roughly a fifth, mostly because of the rise of China. This isnt a prima facie argument for poor countries to imitate China in every way, but it shows, precisely as did prior episodes of remarkable growth and poverty reduction, the incredible power of openness and exchangehallmarks of capitalismto better peoples lives. In this sense, Gatess advocacy for connecting people to the world economy through technology is right on the mark. Capitalism, in other words, has already been doing a fantastic number on poverty; billions of people remain poor for reasons less to do with shortcomings of free markets than with the thorny barriers to growth identified by Paul Collier in his book The Bottom Billionincluding war, poor governance, and landlocked geography.
These issues and others are covered in the dialogue among contributors that constitutes the bulk of this book (its essentially a blog in hardcover). While the books first 40 pages (Gatess speech and the conversation between Gates and Buffett) are rather lackluster, the all-star cast of writers makes up for it in the short essays that follow. I have a policy of reading everything Judge Richard Posner writes because of the sheer force of intellect he brings to any topiceven if one disagrees with himand he doesnt disappoint here. To put it mildly, Posner shreds Gatess idea many times over.
Several contributors, pushing back on Gates as well, underscore the strength of capitalisms fundamentals. At some points, in fact, the book feels as though it should be titled Gates Versus the Economists. Columnist Clive Crook, among the most critical, makes the now-commonplace observation that companies pursuing their purposes can benefit society more than philanthropy does. As for there being no market incentives to serve the poor, writes Crook, tell it to Sam Walton. Larry Summers, now an influential economic adviser to President Obama, offers a bitingly sarcastic entry on what used to be a really good creative capitalism idea: Fannie Mae and Freddie Mac. Steven Landsburg, famous for The Armchair Economist (and recently, More Sex Is Safer Sex), argues that making large corporations accept elimination of subsidies and tariff protections would do wonders for the poor everywherebecause freer trade will make more goods available to more people at cheaper prices. In the same vein, economist Gregory Clark condemns condescension: the poor want to consume cars and cell phones just as people in rich countries do. Companies offering products at fair prices can meet this demand without any new type of capitalism.
More sympathetically with Gates, Clark joins Michael Kremer in reminding us of the power of status recognition in human affairs, including innovation. Other contributors, such as economists Abhijit Banerjee and City Journals Edward Glaeser, see in creative capitalism a way to fill the holes left by incompetent governmentsa revolution, says Banerjee, in how social policy gets carried out. Matt Miller offers a wonderfully counterintuitive entry on the relationship between American domestic policy and the fate of poor countries, while economist Paul Ormerod argues, uniquely, that creative capitalism will help buttress the legitimacy of democratic capitalism against the authoritarian alternative in China.
The back-and-forth between some contributors, such as Glaeser and Posner, makes for delightful intellectual jousting. Other exchanges get old rather quickly, however, devolving into arguments over tiny points; Kinsley might have applied a heavier editing hand in these spots. An essay by Gates reacting to the dialogue inspired by his speech would have made a nice addition, too: has he learned anything from the contributors? Where does he disagree? Instead, the books structure feels rather imperiousrich philanthropist proposes idea, others dutifully discuss. A long memo from three Gates Foundation employees adds little to the discussion.
When all is said and done, then, were back where we started: eradicating poverty is difficult. You dont solve war; you do not fix disease, at least in general terms (obviously, we can defeat specific diseases, but microbes have not yet called a truce in their evolutionary struggle against humans). What we can do for people stuck in war-torn and disease-ridden regions of the world is begin to help them imagine and construct a better future. Marketsfree not in an anarchic sense, but allowing individuals full scope to pursue their ambitionsare the best known way to do this. Maybe creative capitalism, whatever it means, exactly, will help move us in this promising direction.
Dane Stangler is a senior analyst at the Ewing Marion Kauffman Foundation.