Can Creative Capitalism Save the World?

Bill Gates thinks so.

Gates in the pages of Time magazine:

As I see it, there are two great forces of human nature: self-interest and caring for others. Capitalism harnesses self-interest in a helpful and sustainable way but only on behalf of those who can pay. Government aid and philanthropy channel our caring for those who can’t pay. And the world will make lasting progress on the big inequities that remain — problems like AIDS, poverty and education — only if governments and nonprofits do their part by giving more aid and more effective aid. But the improvements will happen faster and last longer if we can channel market forces, including innovation that’s tailored to the needs of the poorest, to complement what governments and nonprofits do. We need a system that draws in innovators and businesses in a far better way than we do today.

Naturally, if companies are going to get more involved, they need to earn some kind of return. This is the heart of creative capitalism. It’s not just about doing more corporate philanthropy or asking companies to be more virtuous. It’s about giving them a real incentive to apply their expertise in new ways, making it possible to earn a return while serving the people who have been left out.

A great place to turn for discussions about Creative Capitalism is THIS BLOG. The contributors list is basically a who’s who of authorities on economics and globalization. The posts and discussions from the blog are going to be anthologized in a book by Simon and Schuster in the fall of 2008.

In the most recent post Stephen Landsburg criticizes Gates’s example of fair trade as a form of creative capitalism:

Never mind the fact that “fair trade” seems to be a euphemism for the enforcement of monopsony power (enriching some producers by pricing others out of the marketplace); this isn’t the place to get into that debate. But this much is directly to the point: Lots of people feel a moral obligation to help poor people in general. No sane person feels a moral obligation to help poor coffee farmers in particular. So the “creative capitalism” solution serves a non-existent goal—and this was one of the best two examples the authors could come up with! (KT: the other was the (Red) program)

In fact, the whole fair trade thing is an excellent illustration of creative capitalism gone insane. You can pay an inflated price for your coffee and put a farmer out of work, or you can buy ordinary coffee, contribute to CARE, and feed a starving child. Please oh please don’t trick people into thinking the former is a good deed.

The questions at hand:

1. Is it better for a consumer to NOT pay a premium for products produced under ethical conditions and to take the money they saved and donate it to charity?

2. Is it better for a business to maximize their profits by whatever means possible and then use the maximized profits to do good?

My thoughts:

Bill Gates talking about how capitalism can cure inequities is kind of like the United States, which wasn’t hindered by environmental regulations during its own industrial expansion, telling developing nations to stop polluting. Bill gates got where he did with cutthroat capitalism, not creative capitalism and the Unites States got where it did by burning unclean fossil fuels.

Gates is more of an example of earning boatloads of cash via cutthroat capitalism and then taking all of his money and trying to change the world. And few would argue that there are any individual philanthropists doing more than Gates to help the world’s poor at this time.

Companies doing “good” would be great, but I think that’s shooting a bit high. I would settle for companies “doing no harm” – to the environment and its employees. A company that donates money to a good cause, but has its products manufactured by workers treated unfairly – unpaid overtime, working off the clock, underpaid, overworked, abused, etc – or does unnecessary harm to the environment, more than negates whatever good their philanthropy does.

Before a company tries to do right in the world, they should do right in their own house.

That said, I think marketing fair trade products is a perfectly legitimate niche. There are people that want to buy products made ethically, and they should have the option.

I find the debate very interesting, and hope to check out the Creative Capitalism blog regularly. I’ve added it to my Blogroll on the right.