Ryan C Briggs

I have been meaning to post on this for a while, but I haven’t had the time to sit down and figure out exactly what creative capitalism is. Now I am pretty sure I understand what Gates is going for, but I am also pretty underwhelmed. In case this is new to any readers, here is the gist of it: Markets are amazing. They make our selfish interests serve a wider community. The problem with markets is that they direct resources to the need with the most money, not with the largest “real” need, so we end up having drug companies focus more on impotence than malaria. This is all true.

Gates’ solution to this is to have “creative capitalism.” There are two parts to this.

1. We encourage companies to take risks in poorer markets and show them that they can make a profit doing it.
2. We encourage companies to respond to the needs of the poor in a way that is greater than their ability to pay. One way that this can be done is to encourage corporations to serve the needs of the poor and to reward them with higher sales in rich markets. This can partially be done through good PR.
   

Gates sums it up like this:

I like to call this new system creative capitalism – an approach where governments, businesses, and nonprofits work together to stretch the reach of market forces so that more people can make a profit, or gain recognition, doing work that eases the world’s inequities.

Bill Gates is far smarter than I am, but I just don’t see how his idea is new. On point 1 and 2 the final goal is profit, point 2 just achieves profit indirectly through recognition. A good existing example of #1, is Nokia and cell phone use in the global south. Nokia, and many other companies are investing in poorer parts of the world and doing incredibly well. The Body Shop is a good example of #2. They have mastered the technique of giving to good causes and then harnessing that recognition to sell stuff. Both of these things already exist in normal capitalism.

I am deeply sympathetic to Gates’ efforts, but it seems like either his solution is already in existence, or it misses major problems. Even if his efforts to harness market forces to help the poor are workable (and Bill Easterly, naturally, does a good job challenging them), he is still missing underlying structural problems that render points 1 and 2 moot. I am still working through these ideas, but it seems to me that capitalism is not the problem or solution. States are.

The clearest example of this is the problem of weak states. These states cannot police their borders, maintain internal sovereignty, run the machine of government adequately or provide basic services for their citizens. I don’t see how any kind of capitalism will address these problems. Capitalism is wonderful, but it can only work if it operates in a safe space carved out by governments. Capitalism needs the state to uphold property laws and prevent winner-takes-all monopolies from forming (among many other things). Weak states are in no position to provide this, so markets function poorly. There goes point #1.

Corporate giving (#2) really doesn’t seem like a workable solution either. First, if we are giving money to weak states then there are a whole host of problems that can lead to further degradations in governance. If we are working around states and funding alternative systems of health or education or whatever else then we are actively eroding the capacity of the state. Foreign aid agencies run into these problems all of the time. Even if somehow corporate giving could improve governance and create strong states—and that is conceding a lot—it still hinges on us (rich westerners) buying something that is less economically rational (say, more expensive) because that company does nice things overseas. Sometimes that strategy works, but only in safe niches. Even where it does work, it only promotes token giving. What matters to The Body Shop and others is that you think they are generous, not that their aid actually has an effect.

So where does that leave us? Well Gates has an excellent idea of what is needed. He says the most important thing to development is “really good government plus normal capitalism.” He is dead right. I think we disagree mostly on where to place the emphasis. I would say that focusing our effort on helping and encouraging good governments is the best use of money and effort (along with meeting basic needs). This is something apart from capitalism. Once you have good government, capitalism can come later (or even at the same time). With even modestly good government, capitalism can work wonders, without being “creative.”