More on "Creative Capitalism"

I blogged last month about a Bill Gates speech on “creative capitalism.”

Motivated by the Bill Gates speech, Michael Kinsley and Conor Clarke have undertaken an unusual web experiment in which they invited a number of prominent economists to react to the Gates speech and posted them online.

My colleague Gary Becker is skeptical of Gates’s concept. I love this excerpt from Becker’s post, arguing that Gates misrepresents Adam Smith‘s views on altruism:

[Adam] Smith was skeptical not about the strength of altruism, but about its scope or reach. For example, he uses an example in this book that is highly relevant to the present and to Gates’s quest. He asks “how a man of humanity in Europe” … would respond to hearing “that the great empire of China … was suddenly swallowed up by an earthquake …” His answer was that “if he [this man] was to lose his little finger tomorrow, he would not sleep tonight; but, provided he never saw them [i.e, the people of China], he would snore with the most profound security over the ruin of a hundred million of his brethren, and the destruction of that immense multitude seems plainly an object less interesting to him than this paltry misfortune of his own.” (Part III, Chapter 3)

Just as long as the earthquake doesn’t hit during the Summer Olympics.

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  1. Kent says:

    Becker is right to be skeptical. History alone is reason enough to be skeptical.

    I’m not sure. Gates seems to be arguing that the goal in capitalism shouldn’t be about making more money, but rather making money and gaining positive recognition.

    By doing this, we can help others for fun and profit! Yay!

    Except as long as someone else’s goal is just to make more money, they will likely win in competition against you since you’ll be less effecient with the liability of getting postiive recognition.

    It’s the classic comic book hero conundrum. Do I capture the bad guy or save the girl? I can’t do both, so ultimately the bad guy gets away (pure capitalism wins) and the girl gets rescued (poor person gets help) but I run out of super hero juice (go bankrupt).

    It seems like basically he’s just extending the theorem of we should want to help each other.

    Instead he’s saying we should all want recognition so that we all want to help each other.

    The world’s problems aren’t caused by a poor market system, it’s caused by human nature. Fix human nature and you might stop hunger, war, etc.

    Until then you’re just pissing in the wind with billions of dollars.

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  2. frankenduf says:

    I utterly agree with Kent- the problem with capitalism is that it’s essentially resource driven, rather than socially driven- any ‘kinder gentler’ form will be trampled on by the more aggressive state- this is the problem with free markets that even Smith warned about- this is why we need the rule of law and regulations, not to be lectured to buy a guy who made his fortune with one of the more ruthless corporations in violating anti-trust law

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  3. Colin says:

    Yes, capitalism is resource-driven — which is a great thing. The most efficient — i.e. those who can produce more for less — win. This makes the world a better place, giving people things for cheap and ensuring that there are more resources to be consumed for others. The need for anti-trust law is debatable, especially in a truly global marketplace that allows for an increased number of competitors.

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  4. Mickey says:

    I’m glad that the global marketplace argument has been brought forth. I think that, as the marketplace is getting more global, the sense of our altruism will extend beyond the scope to which it was limited during Smith’s time. Studies suggest that altruism applies strongly to the “us” and not so strongly to “them.”

    As we cooperate more with people around the globe, we come to feel more altruistically towards them. No, we may never feel as strongly about the inhabitants of China as we do about losing our little fingers; however, I think if we were told that the entirety of a nation were to be destroyed, most of us would have a hard time sleeping peacefully.

    A popular theory suggests that altruism evolved in order to help maintain tribal structures. It’s interesting to note that even chimps and gorillas display altruism (sometimes even for human caretakers). Now, in modern times, the size of our “tribes” have increased towards becoming an interconnected global “tribe” of humanity. I know it sounds quaint, but if you look at how people interact, it’s not an unsupported notion. Therefore, as we continue to redefine the “us” category and the “them” category keeps shrinking, it isn’t so far-fetched to imagine extending altruistic help towards the underprivileged on a global scale.

    The incentive, of course, is that ignoring or maltreating the underprivileged will lead to a social stigma which, in turn, will drive business away towards more ethical competitors. The brilliance of capitalism, I believe, lies not only in its harnessing of human selfishness, but also in the importance of fair, market-driven services. Eventually, business that does not maintain an ethical standard will have no one to do business with(at least in the long term).

    Cheers,

    -Mickey

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  5. LL says:

    I ABSOLUTELY disagree with the first two posters. This kind of false binary thinking simply rationalizes lazy, cruel behavior.

    Business theories such as the Triple-Bottom-Line integrate social and ecological elements into the usual economic blinkered vision. When a company takes a wider view–and yes, that includes the consequences of its production and downstream effects–new possibilities and efficiencies are revealed.

    Is reduce/re-use/recycle a pain in the ass, or a chance to save money and retain employees? Different thinking, different application of the same idea, vastly different result.

    The binary of ‘nice guys finish last’ is poisonous. False dichotomies are easy to understand, but not particularly useful for business.

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  6. Stephan Schwartz says:

    Once again, another thought-provoking post. Thanks!

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  7. Kent says:

    LL,

    You’re shifting the goal to equally include two other options other than making money (social and ecological goals).

    I have no moral objection with this, in fact I find it admirable.

    But it doesn’t mean that you’ve designed an economic system where making money and helping others become the same goal.

    Gates is sort of proposing that this is possible. I’m saying he’s basically just saying we should all shift our goals to help each other more. Great, but nothing new there.

    I’m also throwing in some cynicism where I indicate that it doesn’t matter in general because human nature tends to be the problem, not poorly designed economic systems.

    What’s funny is if what I say is true about Gates then he essentially agrees with me and is saying we should change our nature to help more people. Again nothing new, people have been preaching that for years.

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  8. twicker says:

    Market forces do not require the most efficient company to win. Market forces do not mean that greed will win out over altruism. Market forces say that, if you’re better at presenting a product people want, then people will buy your product.

    The iPod isn’t the cheapest choice, nor the most versatile choice – it’s the most desired choice, so it wins. If Apple goes even more green, and markets that well, they’ll probably capture an even larger market share – because people with disposable income tend to care more about supporting green efforts. BMW is now touting the “fuel efficiency” of some of its cars, and has long been talking about its efforts at building hydrogen-powered cars – not because they’re cheap, but because their buyers want to feel as though they’re doing something good for themselves and the environment.

    Coffee shops trumpet their “fair trade” coffee, and certain brands at the store exist *solely because* they’re fair trade and/or organic. It’s human nature to want the things that help you feel good – and “cheap” is not always the most important factor in that equation.

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