Perspective: Gates misses the point on 'creative capitalism'

Editor's note: CNET News.com editor at large Michael Kanellos and chief political correspondent Declan McCullagh are facing off over Bill Gates' call for businesses to allocate resources that could alleviate problems in the developing world. Click here for Kanellos' take.

perspective Bill Gates wants the world's businesses leaders to embrace what he calls "creative capitalism." But would that really be wise?

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.

But what his Davos speech didn't acknowledge is that corporations already provide money to communities and charitable causes. They pay employees and managers, who are able to write checks to charities as they see fit. They pay suppliers, which do the same. Perhaps most importantly, they return profits to shareholders, who have the choice of what charitable projects to support.

And Americans tend to be incredibly generous, even after the government mandates forced giving through taxes. After the Asian tsunami, the U.S. government coughed up $900 million in taxpayer-funded relief. But private individuals donated around $2 billion. Overall, Americans give a staggering $260 billion to 1.4 million charities a year. (By comparison, NASA's entire budget for 2007 is around $16 billion.)

Would the world be well-served if this ecosystem became subject to the whims of managers writing checks to charities they personally prefer? There's no reason to believe CEOs can claim special competence in deciding how charity should be dispensed. If anything, the individual shareholders who participate and research nonprofit groups and churches (and know firsthand which are most deserving) are in a better position. Not all decisions benefit from centralization; there is wisdom in distributed decision-making.

Although it may not be politically correct to say in some circles, there is a stronger argument to be made against "creative capitalism," and it is that profits come from serving society. The larger the profits, the better job the company tends to have done. Profit maximization is a worthy goal by itself.

This is what the late Nobel laureate Milton Friedman wrote in his famous 1970 essay for the The New York Times Magazine titled "The Social Responsibility of Business Is to Increase Its Profits." In 2005, Friedman elaborated on it, saying that the doctrine of social responsibility was a "socialist concept" and that activists are not stakeholders but "problems for running the business."

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Of course, some businesses have found that embracing "social" goals can boost profits: the list includes Ben & Jerry's, Celestial Seasonings, Patagonia, Stonyfield Farm, and Whole Foods. Cypress Semiconductor, run by the free-market capitalist T.J. Rodgers, has won trophies for the most food donated per employee in Silicon Valley for over a decade. Rodgers calls it "a big employee morale builder, a way to attract new employees, good PR for the company, and a significant benefit to the community--all of which makes Cypress a better place to work and invest in."

Rodgers is forthright enough to admit it: social responsibility tends to be savvy public relations efforts that generate favorable press coverage and save millions of dollars a year in advertising.

Ben & Jerry made themselves rich by selling the concept of "social responsibility" and the spirit of the 1960s to the aging baby-boomers who gobble up Cherry Garcia and Dave Matthews Band Magic Brownies.

Biography
Declan McCullagh is CNET News.com's chief political correspondent. He spent more than a decade in Washington, D.C., chronicling the busy intersection between technology and politics. Previously, he was the Washington bureau chief for Wired News, and a reporter for Time.com, Time magazine and HotWired. McCullagh has taught journalism at American University and been an adjunct professor at Case Western University.

More Perspectives

[hardedge]

OMG! I almost agree with Declan!!!

What the Three Stooges (Bill, Bono, and Micky D) don't seem to take into account is that some problems can't be solved by simply throwing more money at them. Those Three Amigos would do more to prevent HIV if they traveled up and down the roadways of Africa and physically put condoms on the truck drivers who refuse to use them and thus have become a major source of the infection.

As is, all they're trying to do is ease consciences, not solve problems.

[aaydogan]

At least they are trying to put their money where their mouths are

...which is more than I can say for you or the original writer.
People who covet money don't seem to have the imagination or
the vision to know that it's only worth what one can do with it.
Gates, Buffet, etc. have realized that while politicians sell their
allegiance to for a pittance and the rest of the public sit on their
collective *****, they can make things happen through the force
of their checkbooks and their places in the spotlight. Stop
criticizing, stop money grubbing and go our and actually do
something.....or shut up!!!

[Talinus]

Money, yes. Throw, no. Teach!

Education is the key to fixing poverty, disease, tyranny, and ethnic conflict. Educated people can work and innovate; they can avoid exposure to AIDS; they can struggle against oppression; and they can coexist with people of other cultures.

But education costs money. I love when people say you can't "throw money" at a problem. You have to buy books, pay teachers, and build schools. You have to treat AIDS patients so their children can stay in school. You have to teach them to use water sanitation devices, which you have to buy for them.

The point of any humanitarian venture, whether individuals writing checks or corporations practicing "creative capitalism", should be to enable people to lift themselves up by the bootstraps. It doesn't matter if it's water filters, mosquito nets, or laptops.

Still, everyone here to conflated philanthropy with good old fashioned capitalism missed the point. Google Muhammad Yunus and you'll see what Bill was saying.

[galacticcruiser]

Gates and Declan miss the point

"The reason is that governments in the poorest countries are corrupt, nondemocratic, and repressive."

How convenient to miss out the contribution to non-development by the US, EU etc in denying developing countries a means to develop (and sometimes calling it "aid" at the same time).

While some governments in poor countries are corrupt, the policies of western backed institutions have encouraged that. Aid has often been to aid the donors, not recipients. Where is any discussion of this stuff? Tech people are in the habit of seeing tech fixes (software in the case of Gates, Capitalism in the case of this article). You should add power into the equation.

[Jeff Mowatt]

Not really missed

I'd say that he hasn't quite got there yet. When he does, he may realise for all the reasons above relating to conflict, corruption and weak democracy that it may be a means to deliver these elements of civilised society, perhaps the only way.

http://www.p-ced.com/History/tabid/57/Default.aspx

These points were made in a paper delivered in 1996 describing a more inclusive capitalism and by 2000 they'd been applied to launch a microcredit bank in Russia.


The same objects, the same nil overall cost strategy comes now in a microeconomic 'Marshall Plan' aimed at reinforcing democratic transition in Eastern Europe and tackling some of the most pressing problems arising out of poverty.

http://www.p-ced.com/Projects/Ukraine/AMarshallPlanforUkraine/tabid/69/Default.aspx

Returning to the paper:

That is the core strategy P-CED has always advocated. Substitute personal greed with compassion, and the balance sheets will still work out just fine. Profit/loss statements take on a whole new dimension and meaning. Greed and capitalism are not one and the same thing. "Social" capitalism, social enterprise, is perfectly doable. This is the most effective sustainable strategy available for alleviating widespread human suffering stemming from poverty and all that comes with it -- up to and including terrorism.

Jeff Mowatt

[A_Houstonian]

I think you've missed the point

A corporation is an artificial person under the law. Therefore there is no difference between a hope that individuals give for the better good and a hope that corporations do. We are all citizens whether real or not and one can hope we all have a conscience whether real or not.

[hardedge]

Shirley you jest....

Forgive me, but that's a mouthful of platitudinous gobbleygook. You could have just as easily said, "A horse is a horse, of course, of course," and made as much sense.

Hope is a concept that various from person to person. What the heck is an "unreal citizen?" What the heck is an "unreal conscience?"

Did you not read your post before you hit "Submit" and wasn't there some nagging voice on the side of your brain that went, "Wha...?"

[RavenJack23]

Profit often inconsistent with public good

I think there is a good point here and that is that publicly held corporations exist only to deliver profit to the shareholders. They are contractually bound to do so. The problem of course is that profit is not always compatible with the public good. The real way that business can be a force for good in the world, besides the altruism they already engage in, is for businesses to be formed with the goal of being a force for good defined as one of their goals. This is impossible with a publicly held for-profit corporation. It is only possible with private and non-profit business (note - not charitable, non-profit) who can have the larger consequences of their actions be part of their mission. The free marketeer would have you believe that the responsibility lies entirely with consumers and tha if consumers wanted businesses with certain kinds of social, cultural, and moral impact on the world then they would only buy products from those companies. To a great extent, consumers do bear responsibility however many do not have a great deal of choice in the kinds of businesses they support. One has to achieve a certain degree of affluence to be able to afford the luxury of socially conscious consuming - much less socially conscious investing. And to place it all upon the consumer ignores the vast amounts of energy and capital businesses invest in trying to influence the public to buy their products. A publicly held business, cannot, without breaching their responsibility to their share holders, make decisions that may have more moral or social defensible results but would result in lower profits.

For instance, if your primary competitor uses sweat shop labor and you want to use labor that is treated fairly, you will sacrifice profits. Under your contract with your shareholders you can't do that. If you are private or non-profit business you can.

So in the end, my point is that one should not expect a publicly held corporation to actually act in the larger public interest. Business and consumers share more or less equally in bearing the responsibility for the consequences of the public's buying habits and choices.

All of this ignores the things that you really can't make money on - but I think that if an entrepreneur really wants to have a positive impact on the world they would be better served by paying attention to the consequences of their business than by simply donating more.

[gil1019]

Gates Misses The Point on Creative Capitalism

In as much as Gates gives a substantial amount of money to very good and worthy causes, it is a bit hard to take his leadership seriously in this area. It would not appear to be very difficult to give 1/2, 3/4, or even 9/10ths of X Billions of dollars. So this is not really leading by example. The giving would have to hurt just a little bit more to have some credibility of sacrafice.

Also, he convienently waited until his career was over, or until he 25,000 people working for him when the charity bug hit him, and by the way, Microsoft is not exactly a shining example of charity today, or when he was running it.

Bill should start another company, which is what he is good at, and then, this time, let the company give to charity. Let's see how it goes.

[mindyourbusiness]

Still Green Mr. Mcullagh

...Yea i remember economics history 101. Mr. Mcullagh is living
in the dream world that is the argument of green college
students arguing in the dorm halls. Unfortunately, in the real
world we don't have a capitalist free market system and so this
tired argument that should be buried for good is still echoing
through the dormitory halls, televison, and so called
conservative academic propagandist rags! Adam Smith would
spit in their faces if he were alive today! The reason countries
remain poor is the same reason it has always been since the
beginning of oppressive governments, industrialization,
mercantilism(financialization) and imperialism. Ordinary people
robbed of their wealth, made slave to an economic machine
whose controls are stolen from them, and ultimately driven into
submission by backward religions, nationalist paranoia, and
consumer debauchery...time to grow up!

[rdunn]

Profit can't be 'all', and corrupts business

McCullagh's missed point is that profit-only goals for business and shareholders corrupts businesses almost as much as third world govts.
In these days of obscene profits... it's time for business not only to donate to charity but to share with employees... enrich the workforce that makes the company possible... enrich the work ethic with a unified company/employee profit and giving mantra. If giving pervades the company, the company will profit, the employees will profit and others will profit. It's time to share the wealth, raise wages, and make an effort to build humanity all around. The corruption of business profits has been documented for a long time... one good example still true today is the 1954 movie "Executive Suite", where product and employees suffer for the 'profit is king' mentality. I applaud Gates well-meaning, but he also misses the point of giving from within, enriching those within by taking the top-down view of corporations giving away to only charities and not improving the lot of their own employees. It's time to bring down the obscene profit margins, the record profits, by investing in worker pay/benefits, so that the entire company, shareholders, and -employees- can give to others in the third world, etc. Heal thyself to heal others as well. There's less corruption when all share the wealth.

[twentysixacres]

Declan's view is very imcomplete

This is complex stuff. Examining the morality of business decisions can lead to answers that the business community often does not want. The result is that too often decisions are not subjected to such scrutiny, or conclusions are ignored or intentionally dimished if they are not favorable to the pursuit of maximum profit.

I call it wantful thinking. As in- I don't want to believe it so I won't acknowledge it. Another example is- I want to believe maximizing profits trumps all other business decisions. Too bad if people are hurt by my decisions. My right to profit exceeds any responsibiliy I have to your well-being.

Declan takes the strait line to greed is good (production of goods or services lifts all boats), quoting Friedman and Adam Smith as if they pegged it. The are incompletists too.

Shareholders, the board, or the executives can choose to ignore (and usually do, I believe) the role their businesses plays in in corrupting third world govermnents so that they profit, or the way they guide harmful U.S. government policy, or illicit backroom deals here and abroad. Morality dictates that if you are ignoring business practices that poison or harm people, that does not shield you from culpability.

Yes indeed, this is a very complex topic if you suspect you won't like the answers of a COMPLETE review of the issues. This is why people are uneasy with the discussion or quick to dismiss it as Declan has here.

Selectively ignoring moral implications, ala Friedman and Smith in their grand declarations is the norm, unfortunately. Willful and purposeful ignorance about the consequences of business decisions is wrong. Too bad if that makes you uncomfortable- it should.

[jbuk--2008]

Where's my motivation?

Government has a moral motive for redistributing resources but is inefficient at using them. Business is efficient at using resources but has no profit motive to redistribute them.

So get companies to use the money the government should be redistributing. The thing to do would be to allow companies to keep 1% of the corporation tax they pay as a CSR allowance. Not all companies would organise the projects themselves, but it would at least create a market for effective projects that showed outcomes that made for good publicity.

You'd get more effective less politicised international aid.

[RFMollison]

Another old tired capitalist wheeze

It is interesting to me how often Adam Smith is quoted by people who regard him as an authority in economics but have never actually read his books.
The quoted phrase about how we get our dinner from the self interest of the butcher, the baker and not from their charity is a distortion of Smith, who was concerned about the moral aspects of capitalism and not endorsing its rapacious methods at all. Smith knew that the pursuit of self interest, or profits without regard to social good, was inherently self destructive. Pursuit of self interest requires that all other interests be ignored and laid aside. So interest in your employee's welfare is contrary to business self interest. Pay them nothing if you can get away with it, ignore the dangerous working conditions and injuries suffered, because it is not in the interest of the corporation to concern itself with anything that diminishes the bottom line. If your product kills people, so long as you make a profit before they stop buying it, self-interest requires you do so. Self interest means no interest or concern in anyone or anything else.
That is not workable in any society which concerns itself with a common welfare and results at a minimum in at losses for all concerned. That is why we have government regulate business from the pursuit of its self interest by imposing costly and burdensome rules which require them to observe certain minimum standards and behavior which would deter the unfettered pursuit of profit. When Milton Friedman spoke of the social responsibility of a company to increase its profits, even he recognized that certain types of business generate no profits, such as road and bridge repair, fire and police protection, national defense.It is for that reason that we assign those businesses to government; we can not afford to do without them. Does that mean they we socially irresponsible, of course not.
Bill Gates, much to his credit,has for instance funded drug manufacture in pharmaceuticals which drug companies do not find profitable to make. A drug which extends the life of sedentary, overweight, obese individuals, or permits sexual pleasure for unhealthy individuals reaps more profit than a drug which prevents malaria or lieshmania. Primarily because the latter diseases are common in poor countries, the former in rich countries. The issue is not why are they poor, the issue is why should the rich have access to medications that essentially enhance the quality of life while the poor struggle with the question of existence.
If you believe that wealth is the privilege of certain individuals because of their beliefs, politics or whatever, there will be no problem for you to believe that the poor deserve their lot. Reverend Thomas Malthus said so 200 years ago and it is still a popularly held belief today. If you believe that wealth is a temporary condition, dependent on such things as good fortune, you may well find yourself in the ranks of the poor one day and so it is a good idea to concern oneself with charity rather than inhumanity.

[selfkill]

Impressive

Wow, that was refreshing. If only more people had that kind of mindset. Unfortunately, that's not the kind of perspective educated in this country.

[jawaidbazyar]

Amen!

Declan is absolutely right. In free markets, profit is the difference between the value you have provided to others, and the cost of resources needed to create that value.

The more profitable a company, the more value it is creating for its customers and its stakeholders.

Only in a system where physical force rather than market force sets prices (e.g., states where the government sets prices or enforces monopoly status for certain companies) could you say profit is bad.

If a company could sell houses for $1000 with a cost of $1, and profit by $999 - we should applaud such a company, not vilify them. The same can be said for any good or service out there.

[1Dream1]

Amen My Foot

I like it the way that my father, (1907-1988) put it. "Anything carried to its rediculous extreme, is by definition rediculous."

The thinking person can find ways to do good and justify their cost by the good will and positive PR that they generate. As was said earlier, check out some of the examples such as Ben & Jerry's.

[Oneforhope111048]

Thank you...

I wish there were more people like you who could articulate the hidden meaning of a well intentioned speech...

[peekay19]

Another privelage capitalist, making ignorant statements

Fisrtly, we've witness in the last five years that what is good for corporations are only good for CEO's.

Secondly, food aids does't depress prices for farmers.The actually do not produce enough.

[mcswell]

whims of managers

The main point seems to be encapsulated in this quote: "Would the world be well-served if this ecosystem became subject to the whims of managers writing checks to charities they personally prefer?" There's a simple solution to that. The managers in question issue to their employees (or some other group of people) chits which can be written to a charity of the employee's choice. This could be done through a third party (like United Way does now, but for international donations), or the employer could write a check to the employee's choice of charities, and let the employee mail it.

[jawaidbazyar]

Here's a totally crazy idea...

"The managers in question issue to their employees (or some other group of people) chits which can be written to a charity of the employee's choice."

Instead of this, how about.. I know, it's crazy.. how about you stop telling other people what to do, and let them use their own minds and judgement to decide what's best for them?

[saintpeterii]

creative capitalism

I agree Mr Gates misses the point but he's not alone. Most all like minded folks who would do good suffer from the illusion that the various not-for-profit bureaucracies and corporate bureaucracies have the capacity to make change. Unfortunately what ever their mission statement may be bureaucracies resist change and live within the framework so elegantly out lined in J. K. Galbraith's' The Nature of Bureaucracy. Bureaucracies have never had a new idea, never will, only individuals have ideas and the kind of individuals who have new content are not nourished in a bureaucratic setting. Such bureaucracies do produce beautiful 5 color brochures and highly polished press releases so no one can say they are doing absolutely nothing.

[benshakya]

profit tends to seek any means possible good or bad

profit tends to seek any means possible good or bad

[RichPoorGap]

The answer has been available for decades...

Mr. Gates and every other well-meaning rich person are guilty of
either profound ignorance or outright duplicity in offering their
so-called cures for the growing economic inequity in the world.

The ever-widening rich/poor gap is a glaring indication of the
economic system's failure, but news reports about it (and they
come out every year) don't address why the gap is getting worse
every year.

The reason is that the rich have two factors of wealth creation
helping them, and we the people have only one.

We have only labor - they have labor and meaningful capital
ownership.

We are allowed to buy capital - but only out of our savings, so
we never can buy enough to, say, match our salaries with an
equal amount of money generated by capital ownership.

The rich 5% can use their credit and income from massive capital
ownership to buy a lion's share of the billions of dollars worth of
new capital generated each year... and the gap grows again.

I'm no economist, but I have found out this simple fact, and
many more, thanks to some dedicated, passionate people you've
never heard of. Why people with far more resources at their
disposal remain quiet about it is something they will someday
have to answer for.

Go to www.cesj.org, the website of the Center for Economic and
Social Justice, and prepare to have your eyes opened to a world
you should have heard about at least 50 years ago. Having been
directly associated with CESJ for a time, I can vouch for their
absolute trustworthiness and credentials.

For more information, research "Binary Economics," another term
for the as yet untried economic system that enables all families
to earn money using the two factors - labor and capital
ownership.

There is another way - a third way - to solve the economic
problems we face.

http://richpoorgap.blogspot.com

[jawaidbazyar]

Untried economic system?

"untried economic system that enables all families
to earn money using the two factors - labor and capital ownership."

In capitalist societies today, *everyone* is a capitalist. Anyone who works, then saves for and invests in their future, is a capitalist.

According to you, the millions of houses, tens of millions of bank accounts, and widespread ownership of stock by people of all ages and economic classes doesn't exist. Take those blinders off, man.

You may not have noticed, but the data is out there for anyone who cares to look beyond their prejudices: in the United States, the middle class owns the vast majority of all wealth in this country.

[LaJollaCat]

Cruel Colonialism & Capitalism Created & Encourages Poor Countries

Reading this defense of capitalism is sickening; it's like reading a Stepford Guy's testimony about a perfect, Disney America that never was and never will be.

We need to change the way America works. And we need to change the way the world works or nothing will get better, no matter how much phony philanthropy is pushed onto people.

But nothing will change until human nature changes. How does it change and how long does it take? Nobody knows.

So meanwhile, we need to force change by changing the rules. Right now the rules are fixed to benefit the rich, ruling classes of the world. We need to change that. Asking the rich to contribute to the poor is like a guilt tax. Ridiculous.

We need to force the rich to stop exploiting the poor, and by "we" I mean the governments of the world, who have been subsumed by corruption and need to be ousted and replaced by people whose human natures have changed and who can lead us down a better path for humanity.

[jawaidbazyar]

Cruel Colonialism & Capitalism Created & Encourages Poor Countries ??

Right, because nobody was poor until capitalism came along. Until capitalism, everyone lived in a carefree land of plenty.

A little study of history will put the lie to your claims. In fact, it was capitalism that freed the masses from the slavery of feudalism, when poor truly were "exploited" by the rich.

Capitalism (also known as individual liberty) is the only system which recognizes the right of every person to pursue their own lives for their own sake. As a byproduct, happy people frequently become wealthy people. Of course, you have to work for it, you can't just sit on your butt and expect the world to take care of you.

Even the "poor" in the US have cars, TV sets, can afford to smoke, and are the bloody fattest poor people in the history of mankind. Why? Because free and happy people (capitalism) creates and distributes vast wealth.

[Hernys]

Nothing will get better?

Hunger has been slashed to half in the past few decades. So has illness in poor countries. Slavery has been reduced an order of magnitude. And for the first time in history, the poor in the world are fewer than the rich. And this is all done in the context of capitalism and globalization, not precisely thanks to the opponents. On the other hand, when communism and isolationism were regining, poverty was at its highest.
So what's your data point to show that capitalism isn't solving the problems of people, and that it will never solve them?
I agree that America needs to be fixed, same as many other countries (too much lobbying making laws for the few, too much corruption and too little transparency) but that's not a fault of capitalism, and even if I had to choose between today's corrupt capitalism and the cleanest, most perfect alternative, I would go with the former. Capitalism has shown it can work and it makes the world a better place. The alternatives haven't even been close.

[David_888]

not even close

it is easy for Gates to have such a position, he is one of the wealthiest people in the world.
However, working for a company that is not making profits means you won't be working very long. Just ask Gates. He be sure to layoff if he was not profitable. Further, those companies that are making profits selling to developed countries, are ripping off employees by also selling to the poor countries at no profit or at a loss. This also forces customers in rich countries to subsidize those in poor countries. None of these scenarios is good for business, employees, or share holders. The author makes very good points, in conclusion, that selling into corrupt, poor countries actually does very little good.
My suggestion would be for Mr. Gates to just give his billions to these poor folks in cash handouts. It would be easier, faster, and he'd feel good about himself without having to layoff a bunch of disenfranchised capitalists.