Making Capitalism More Creative

I have been meaning to comment on this piece from Bill Gates since first reading it last week. Gates is attempting to use the instincts he developed as an entrepeneur and apply them to helping to solve the problems of poverty in the world. In the view of Gates, many of the problems of poverty can be solved by simply applying capitalism more creatively.

Capitalism has improved the lives of billions of people — something that's easy to forget at a time of great economic uncertainty. But it has left out billions more. They have great needs, but they can't express those needs in ways that matter to markets. So they are stuck in poverty, suffer from preventable diseases and never have a chance to make the most of their lives. Governments and nonprofit groups have an irreplaceable role in helping them, but it will take too long if they try to do it alone. It is mainly corporations that have the skills to make technological innovations work for the poor. To make the most of those skills, we need a more creative capitalism: an attempt to stretch the reach of market forces so that more companies can benefit from doing work that makes more people better off. We need new ways to bring far more people into the system — capitalism — that has done so much good in the world.

He sees this being done in one of two ways. First, he thinks that if corporations and other capitalistic entities think with more ingenuity they will be able to tap into potential that isn't apparent. Gates believes that if capitalism is used creatively it can be tapped effectively to bring a better life to those living in poverty now. Here is an example he used.

Cell phones are another example. They're now a booming market in the developing
world, but historically, companies vastly underestimated their potential. In 2000, when Vodafone bought a large stake in a Kenyan cell-phone company, it figured that the market in Kenya would max out at 400,000 users. Today that company, Safaricom, has more than 10 million. The company has done it by finding creative ways to serve low-income Kenyans. Its customers are charged by the second rather than by the minute, for example, which keeps down the cost. Safaricom is making a profit, and it's making a difference. Farmers use their cell phones to find the best prices in nearby markets. A number of innovative uses for cell phones are emerging. Already many Kenyans use them to store cash (via a kind of electronic money) and transfer funds. If you have to carry money over long distances — say, from the market back to your home — this kind of innovation makes a huge difference. You're less tempting to rob if you're not holding any cash.

In order to see creative capitalism tapping into the power of providing to the poor, one doesn't need to go all the way to Kenya. In fact, the best exampel of what Gates is talking about is Walmart. Walmart was built on the idea that if the prices were low enough not only could Walmart cater to the poor, but rather, the business could thrive as a result of it. Walmart is not only an American success story but it has brought great savings to all sorts of Americans struggling to make ends meet.

Beyond private industry, Gates sees an obligation for government and charity to encourage business to do so, and furthermore, to reward business when they have.

That's why it's so important for governments to create more financial incentives. Under a U.S. law enacted last year, for example, any drug company that develops a new treatment for a neglected disease like malaria can get a priority review from the Food and Drug Administration (FDA) for another product it has made. If you develop a new drug for malaria, your profitable cholesterol drug could go on the market as much as a year earlier. Such a priority review could be worth hundreds of millions of dollars. It's a fantastic way for governments to go beyond the aid they already give and channel market forces so they improve even more lives.

Gates also points out that its important that charities and government recognize private industry when they have spent precious resources providing for the less fortunate. Throughout the piece it is quite remarkable how aware Gates is of the manner in which capitalism works. At all times, he is extremely aware that all actions need to be rewarded if you want them repeated. Still, it is clear that he has applied much of what he has learned intuitively to a brand new endeavor.

Not surprising, this piece is met with plenty of criticism lik this.

Consider what the Microsoft chairman said in a speech Thursday to the World Economic Forum in Davos, Switzerland. The outlines are a little hazy, but creative capitalism seems to center around companies spending money (or taking on money-losing projects) that are seen as socially desirable. To Gates, it's "market-based
social change" that amounts to "doing work that eases the world's inequities."

If this sounds familiar, it should. It's an attractively repackaged call for activism that's been kicking around for more than four decades under labels like "corporate social responsibility" and "caring capitalism." Gates' well-intentioned suggestions would shift these efforts from domestic charity to international charity aimed at poorer nations.

Ironically, enough, unlike most of his critics, Gates is committed to putting his ideas to use. To Gates, this is not merely some tangential concept to be put into an editorial or some speech in front of economic heavy weights. Gates wants to spend the rest of his life dedicated to succeeding in attacking poverty in the same way he built Microsoft. I don't know if he will be successful though I am certainly rooting for him. Furthermore, I for one will not doubt his ability to effectively carry out this plan much like he has succeeded in all his other endeavors.

To find out more and see how you can help visit the Bill and Melinda Gates Foundation.