Creative Capitalism

People who make millions of dollars doing one thing often come to view themselves as being experts in subjects far afield from those in which they made their wealth. Because they have so much money, others tend to humor them and tell them they are brilliant in the hopes of currying favor, so they don’t get realistic feedback. (The same is true of best-selling authors.)

Thus, I was not optimistic when I received a link to a speech given by Bill Gates at Davos on “Creative Capitalism.”

I have to say I was extremely impressed by Gates’s speech. Not only do I think he is probably right, but it is also beautifully argued.


nancy

I just really don't understand the concept, the reasoning. Course, I majored in business but practiced in small welfare, then quit after 25 years. To me Bill was someone who took creativity from the lesser people and is giving it to the controllers of other large masses. Maybe this is my tiny myopic compounded with presbyopic view of corporate capitalism today as corporations are legal entities the same as a person is a legal entitiy. However, much of the public is coming to realize that the legal entity can appear in a court room next to you, but it has no heart and soul the same as you, no emotionality.

To me it's a type of reverse robinhood role with the booty of creativity mind power. Rich creative entity gives to poor creative entity > makes more rich creative entities. Something is not right.

IMportant notice : Men behind the curtains at those rich corporate entities should keep repeating to yourself.

Eventhough the phrase, "that's your baby" probably originated around some business meeting table

entity=?person in the eyes of living breathing things.

persons have more IDentity.

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Check the Facts!

I shouldn't really comment on this since I don't know much about economics. Don't get me wrong, I am all for not commenting if you don't know much about that area of knowledge. There is no substitute for knowing your stuff. Anyway, I remember that "the employees buy more Ford cars" is a myth. A little bit of googling gave me an article here in The New York Times. I quote:

The mythology around this story holds that Mr. Ford wanted to pay his workers enough so they could afford the products they were making.

In fact, that wasn't his original reasoning.

dani

I believe George Soros falls into your category Steven.

Salty

Smart people like Gates who create huge amount of wealth also create substantial amount of employment for the society. It makes sense for re-distributing wealth among needy causes after the amassment of wealth than not to create wealth in the first place and subsequently redistribute misery ,disease & poverty among the populace.
Smart people also do not squander away money easily. Hence money, spent by them for charitable causes, tends to be effective in outreaching the targeted beneficiaries.

student

I know it satisfies our populist feelings to believe that expertise in one topic does not imply greater knowledge in another, because it limits the demigod status of extraordinarily wealthy people.

However....on average, for a given problem (how to deal with a heart attack on a plane, how to fix a crashed hard drive, how to make a rudimentary airplane, how to divide an assymetrical pie equitably, how to pay my taxes, how to survive in a flood), I would choose the wealthy, educated person over the "Average Joe" to help me, if I were given no other information, and had to choose one. It's probable that educated people have better tools for problem-solving (whether the increased skill led to the increased education, or the other way around, I wouldn't know).
It's true that my plumber could probably fix tons of non-plumbing problems that others couldn't, but all, things being the same, an extremely educated person who has proven a fierce intelligence in one aspect of life, is likely better equipped to solve other problems.

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John Dixon

It is fascinating what a gap there is between Gates's understanding of capitalism and the reality of capitalism as exemplified by the rise of Microsoft itself. Gates claims innovations have resulted from the free market and self-interested pursuit of profit:

The genius of capitalism lies in its ability to
make self-interest serve the wider interest. The
potential of a big financial return for innovation
unleashes a broad set of talented people in pursuit
of many different discoveries. This system driven by
self-interest is responsible for the great innovations
that have improved the lives of billions.

What Gates identifies here as the strength of capitalism is actually its weakness. Initially, there was NO "potential of a big financial return" in computer technology during its long development phase, which is why, contrary to Gates, free market capitalism alone would never have produced the computer revolution. Only after a long period of public investment by the US Government, mainly through the Pentagon; only after US taxpayers through military spending had made all the initial investments over decades and taken all the initial risks, did computer technology finally reach a point where it could be profitably marketed. Then public spending could be transformed into private gain. Yet Gates implies that it was the free market alone that gave birth to innovations like the personal computer. How convenient for his self-image. Then he becomes an entrepreneurial hero, instead of a late comer who benefited from being at the right place and the right time as public investment suddenly became ready for private exploitation.

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n

This all makes me wonder if I want B&MGF to be the Benevolent Dictator of charitable organization, especially when they team up with other foundatins like Rockerfeller and other huge capitalist in American (and world) history. I have my questions because of things they have funded in the past that I do not agree with at all. However, they are so huge now that it does not matter if I support their business or not.

denis bider

Bill Gates's reasoning is thoroughly and completely wrong. Not only that, but it is wrong in very dangerous ways.

If Bill Gates's argument were true - that a system innovation is necessary to harness people's creativity to serve the needy - then hundreds of millions of people in China would not currently be climbing the economic ladder in a capitalist environment.

The fact is, all those people are climbing the economic ladder, while billions of people in Africa are not.

In order to understand why capitalism does not appear to be improving the lives of people in Africa, Bill Gates ought to read Richard Lynn's book "IQ and Global Inequality".

However, I'm afraid that reading that book, and accepting it, would require him to perform a 180-degree turn on the values and principles that his work at the Bill & Melinda Gates Foundation shows he has completely embraced.

Unfortunately, such an about-face, on such an important issue, by such a prominent person, is near infeasible, which is a pity, because Bill will continue to squander billions in futile ways - and worse, he might influence millions of other people, possibly to actually come up with "system innovations" such as he described, and turn the whole world for the worse.

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MSA

This is simply top-down economics. Once you make the money, you can share a little with the others, whether it empowers them or not. That system makes it possible for the wealthy to control which causes make it and which don't. And are they really the people who we want making our decisions for us?

I live in a small town, with just a couple of money-making industries. They get asked to contribute to local causes all the time, and they're basically the ones who decide if a cause succeeds or doesn't get off the ground. They'll fund the beauty pageant, but not the ecology fair. Which one of those events will empower the people? Which one will ensure that the industry continues to dictate the power structure in the town?

True creative capitalism would find ways to fund the most worthy projects, not just the most popular.

Harrkar

Thanks for the post. Its a great speech. I would never regret that, i subscribed to freaknomics feed.Keep up the good work.

Jason Connor

I was once working with a company that was trying to gather venture capital.
Once such guy was giving money with strings and trying to influence the path our science took.

As we were trying to do the right thing, but making it look like we were doing what the rich investor wanted, the CEO there told me something that sticks in my mind: "Some men are rich because they're smart. Some men are rich because they're lucky. But all rich men think they got rich because they're smart."

the Gooch

"Under a law signed by President Bush last year, any drug company that develops a new treatment for a neglected disease like malaria or TB can get priority review from the Food and Drug Administration for another product they've made. If you develop a new drug for malaria, your profitable cholesterol-lowering drug could go on the market a year earlier. This priority review could be worth hundreds of millions of dollars."

Who gets to decide which drugs qualify as 'a new treatment for a neglected disease'? Who gets to decide what the 'neglected diseases' are?

Sounds to me like creating a bureaucratic committee in charge of doling out political favors.

Maybe I don't have adequately rigid economics training, so someone will have to set me straight.

Smart

piggy backing off of #11, some of you seem a little confused. What Gates is talking about is different from charity, altruism. Rather, it seems the idea is to adjust incentives (through various means) in order to align societal interests with self interests.

orphancow

#5, my point is that "social welfare agendas" are profitable from a business perspective, there is no need to call it creative capitalism... it's just plain jane capitalism.

Balint

I know quite little about economics so sorry for the wrong/misused phrases below.

I probably understand and agree with Bill Gates on his main point, to improve the system by introducing new developed incentives. My small problem is much more theoretical: isn't it much easier not to gain the profits so "redistributed" to the poor and underdeveloped at the first place, than switching into "god mode" and decide about the fate of the same amount of money by himself. My point is that if I buy a product that is sold by a company with high recognition (obviously, on a forgiving market that allows for such recognition to be built into the price) I basically spend part of my money for these "constructive items". Otherwise, if I happen to buy a product from a company (which may be acting on a ruthless market), I spend less money on a comparable product leaving the company with a lower level of profit which may not even be enough for doing those smart things (even if they are not against such initiatives at all). On the other side of this latter coin, I have saved part of my money and which at the end of the day increased the amount of investment of any kind.

The issue is rather how a large number of self interest (money left at the customers) would measure against MS philantrophy. Or more probably, is it MS or the banking system that has more sense to spend money on smart things?

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Thwim

orphancow: Gates doesn't contradict anything you say, but clarifies within his own speech that the problem is that it's not happening fast enough.

Something to remember is that while Gates chose to give back, there are others that don't. In a system which relies on personal character to provide charity, and where a person who is charitable places themselves at a material disadvantage to one who is not charitable, eventually we end up with a society where those who are charitable do not have the resources to enact their character, while those with the resources do not have the character that causes them to be charitable.

Right now, while oil is still relatively plentiful, we have a huge opportunity to pull the majority of the world out of desparate poverty. This does nothing but benefit us as it creates greater markets and pools of healthy labour. At the same time, it reduces incentives for crime and violence.

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jcadmus

The reality is that the market -- specifically consumers who buy the end products and services -- are demanding this of companies.

It is no longer sufficient to simply provide good deliverables and keep your nose clean -- people expect companies to contribute to the greater societal good in a much larger way, from how they care for the environment to how they treat employees to how they engage in global trade.

Companies that want to remain competitive have to demonstrate they are doing those things -- and doing them better than the competition -- if they want to keep their current customers and add new ones.

My company released a study on this from a business perspective a few months ago, available here: www.ibm.com/gbs/csrstudy

Most of the C-level executives we talked to get this and actually see it as an opportunity to grow -- to the point where they are increasing their investments in so-called corporate social responsbility.

In that context, they believe doing good is not just being good -- it's also good for business.

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frankenduf

it is kind of funny hearing Gates lecture others on a 'kinder, gentler' capitalism, when Microsoft was one of the more ruthless corporations in violating anti-trust law- and his explanation that software can be shared in third world markets is strikingly different from the 'black market' propaganda of software protectionism by companies such as Microsoft- he is clearly getting wiser with age, and while he is leaving Microsoft, he hasn't yet broken the apron strings with capitalism- I would say what he hasn't explicated is that it's not capitalism that has caused such a vast majority of the world's population to be poor, but rather the expropriation of resources by powerful corporations- it's oxymoronic to suggest that corporations which steal a country's resources will be considered generous by giving some of them back

Rick

#3, Gates fundamental point is that the vast majority of Capitalisms social benefits are reaped by those who comprise the market. Gates' is arguing that large swaths of the worlds population exist outside of the sphere of influence of capitalist systems. They don't have enough money to participate as producers nor consumers. They simply cannot get a foot in the door.

Where I think you are missing the point is that he's not just making a moral argument for "social welfare agendas", but rather a business argument. For example, if Microsoft spends some of its capital and intellectual resources on developing a market in 3rd world countries, it expands its consumer base and provides a broader market in to which it can sell its goods.

We need to look no further than Henry Ford to see how this works. Ford didn't pay a good wage because he was a nice guy and was being philanthropic. He did it so that his employees could afford to buy his cars, creating a massive market which did not previously exist. Technological advance simply made this system economically feasible. Gates is arguing that more businesses need to think like Ford.

It's not about business versus society, it's about recognizing that the health of business is inextricably tied to the health of society and that investments in the welfare of people currently outside of the capitalist sphere will grow the pie in the long term -- moral imperative aside.

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Allan

Should the director or directors of publicly owned corporations have the right to impose charity upon their individual stockholders? I think not even though I believe his point to be well taken that specific abilities of companies may be more important than money. In any event I would think the best way to elevate the lives of the poorest people would be to bring them jobs which is a more permanent solution.