Commentary: For and against Gate's 'creative capitalism'

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

Editor's note: Two writers from ZDnet.com.au's sister site CNET News.com, Michael Kanellos and Declan McCullagh, debate Bill Gates' call for businesses to allocate resources that could alleviate problems in the developing world.

Declan McCullagh:

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 centre 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 US government coughed up $900 million in taxpayer-funded relief. But private individuals donated around US$2 billion. Overall, Americans give a staggering US$260 billion to 1.4 million charities a year. (By comparison, NASA's entire budget for 2007 is around US$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 CEO's can claim special competence in deciding how charity should be dispensed. If anything, the individual shareholders who participate and research non-profit groups and churches (and know firsthand which are most deserving) are in a better position. Not all decisions benefit from centralisation; there is wisdom in distributed decision-making.

Michael Kanellos:

If you want to meet someone who's enthusiastic about his job, talk to Don O'Neal.

An engineer, O'Neal is the vice president of Helps International, which has devised an inexpensive, highly efficient wood-burning stove that's distributed to poor people in Latin America.

A ceramic layer inside the cinderblock stove raises the temperature in the combustion chamber to 1,400 degrees Fahrenheit. At this temperature, nearly all of the wood -- and oil from the wood -- burns. As a result, the amount of firewood a family needs to survive drops by 70 percent, says O'Neal.

With it, families spend less time foraging for firewood and regional deforestation is slowed. Perhaps more importantly, fewer kids suffer debilitating burns (from traditional floor fire pits) or carbon monoxide poisoning.

And at $120, "it pays for itself in six months," he said. It was one of the best sales pitches I'd heard in years.

The Tech Museum of Innovation recognised Helps, among others, in 2007 for devising interesting, sustainable solutions for the developing world. Proctor Gamble was recognized for its PUR water purification powder: a 3.5-cent packet of the material can disinfect 10 litres of water. D.R. Mehta showed off a prosthetic foot made out of high-density polyethylene which, at US$35, is one-tenth of the cost of ordinary ones. Cambridge University's Helen Lee, meanwhile, exhibited the FirstBurst, an inexpensive urine tester.

When Bill Gates talked about fostering "creative capitalism" at the World Economic Forum in Davos, Switzerland, these are the kind of projects he had in mind. In Gates' vision, private companies should be encouraged to tweak their structure slightly to free up their innovative thinkers to work on solutions to problems in the developing world. It's gung-ho, rather than hairshirt, philanthropy.

"This kind of creative capitalism matches business expertise with needs in the developing world to find markets that are already there, but are untapped," Gates said. "Sometimes market forces fail to make an impact in developing countries not because there's no demand, or even because money is lacking, but because we don't spend enough time studying the needs and requirements of that market."

Read more of the debate over the page.

Declan McCullagh:

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 maximisation 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."

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 favourable 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.

But an article last month in Newsweek makes clear that the ice cream maker's "social responsibility" includes hardball tactics and disgruntled franchisees that accuse the company of not being nearly as sweet as its image. And Ben & Jerry cashed out long ago by selling the company to Unilever, maker of non-crunchy products like Axe body spray, Vaseline, and Lux hairspray.

Social responsibility, in other words, only goes so far.

Gates also warned that profits may not be enough of an incentive by themselves to feed the world's poor, clothe the needy, and feed the hungry. Gates said recognition should be a kind of alternate currency: "In markets where profits are not possible, recognition is a proxy; where profits are possible, recognition is an added incentive."

That's probably a great deal for executives who can be feted at gala dinners. But it's hardly clear that rank-and-file shareholders and 401K plan holders who individually own a tiny share of, say, a spoon-making company (and collectively own the vast majority of it), will value the "recognition" they receive for owning a sliver of a "socially conscious" spoon maker rather than one that isn't.

Michael Kanellos:

While companies or individuals may ultimately profit from this work in developing nations, the reward primarily comes in the form recognition and enjoyment.

So what are the benefits? First and foremost, directing collective talents of North America, Europe, and parts of Asia toward the emerging world could help improve the lives of billions of people mired in dire poverty. It's sounds a bit redundant to mention, but there it is.

But there's also a personal benefit, too. Working on ways to alleviate problems -- if the dozens of people I've met who've worked in Africa or Latin America are any indication -- is far more rewarding and interesting than six months trying to refresh the marketing campaign for a handheld. Look back at your own life. Chances are, some of your most vivid memories come from brief periods where you found yourself in unusual circumstances tackling something monumental.

And if you want to be completely mercenary, the West isn't going to have a lot of choice. The birthrate in established nations is slowing while it's still rising in the emerging world. Food shortages, global warming, prolonged drought, and economic opportunity are already boosting immigration from North Africa to Europe and Latin America to the U.S. Epidemics, social unrest, and other problems often associated with other parts of the world will come home unless conditions change.

Critics argue that donating funds or freeing up employees to work on charitable projects, even if they one day actually turn a profit, violates corporate charters. Corporations need to maximize shareholder value, which means working on high-margin projects and directing profits to dividends.

The fiduciary duty of corporate officers, however, is quite broad. It does not, and never has, dictated that every spare cent must go toward utilitarian function. (If that were the case, corporate lobbies wouldn't feature artwork and polished reception areas. They'd have orange crates and a bulb hanging from the ceiling.) Free-market absolutists on this point are simply and utterly wrong.

A corporation can give to charity, or free up its employees to work on projects with an altruistic bent, if it helps public relations. Intel gives millions in scholarships. Few of the recipients end up at the company. But by doing so, the chipmaker can foster a tight bond with a major research institution.

Creative capitalism can also boost employee morale and loyalty. One of the biggest problems oil companies have faced in recent years has been recruiting. Simply put, oil companies have bad public images and that turns away top grads.

"We will not be able to recruit and retain people if people do not see us as a high integrity industry," Raul Restucci, executive vice president of exploration and production in the Middle East at Shell, said during a conference panel in 2005.

Building leeway and creativity into a job can have huge indirect benefits. And, to focus on the mercenary again, you can't say that these projects won't ultimately prove profitable. After all, how many people 20 years ago believed that the luxury-goods market would be driven by shoppers in Shanghai and Moscow? Fostering relationships now can only help.

Perhaps the toughest roadblock toward acceptance of this kind of system is envy. Deep down, I think most everyone would probably like to work on a project that could make a difference in the lives of others. That is, until you see your college roommate drive by in a Ferrari.

On the other hand, you'll be able to tell him about constructing a subdivision of mud homes in Mali.