Thursday, January 24, 2008

Bill Gates - Apologist for the Welfare State

Ah, there are days when I pick up (or click into) the Wall Street Journal and just get infuriated by the first article I read. Today we have the richest man in the world arguing for something called "Creative Capitalism" to help the worlds poor. Bill Gates, Microsoft Founder and Chairman, gave a speech today at the World Economic Forum in Davos Switzerland that is anything but a defense of capitalism.

"We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well," Mr. Gates will tell world leaders at the forum, according to a copy of the speech seen by The Wall Street Journal.

Mr. Gates isn't abandoning his belief in capitalism as the best economic system. But in an interview with the Journal last week at his Microsoft office in Redmond, Wash., Mr. Gates said that he has grown impatient with the shortcomings of capitalism. He said he has seen those failings first-hand on trips for Microsoft to places like the South African slum of Soweto, and discussed them with dozens of experts on disease and poverty. He has voraciously read about those failings in books that propose new approaches to narrowing the gap between rich and poor.

In particular, he said, he's troubled that advances in technology, health care and education tend to help the rich and bypass the poor. "The rate of improvement for the third that is better off is pretty rapid," he said. "The part that's unsatisfactory is for the bottom third -- two billion of six billion."

Gates' first fundamental mistake is mistaking capitalism as purely an economic system. Proper laissez faire capitalism is first a political system, one based on individual rights. When viewed in that light the claim that capitalism has failed the poor seems tinny. Look at the world's poor in China, India, Southeast Asia, the Middle East and the entire African continent. Capitalism as a political system could hardly be said to exist here. Capitalism hasn't failed these people, but rather Communism, Islamofascism, and plain barbaric tyranny have. To lay that guilt at capitalism's feet is poorly placed blame, and this coming from one of the world's great capitalists.

As I've previously blogged, in pockets where enough basic individual rights exists, beginning with such things as private property rights, then the profit motive serves even the poorest of the poor effectively.The answer then is not to cast a new form of capitalism

With today's speech, Mr. Gates adds his high-profile name to the ranks of those who argue that unfettered capitalism can't solve broad social problems. Muhammad Yunus, the Bangladeshi economist who won the 2006 Nobel Peace Prize for his work providing small loans to the poor, is traversing the U.S. this month promoting a new book that calls capitalism "half developed" because it focuses only on the profit-oriented side of human nature, not on the satisfaction derived from helping others.

Here is Gates' other fundamental error, altruism. He plans to quote from Adam Smith's The Theory of Moral Sentiments on the pleasure man derives from taking an interest in the fortunes of others. What's Gates solution? It's nothing new, just the good old mixed economy of course.

Key to Mr. Gates's plan will be for businesses to dedicate their top people to poor issues -- an approach he feels is more powerful than traditional corporate donations and volunteer work. Governments should set policies and disburse funds to create financial incentives for businesses to improve the lives of the poor, he plans to say today. "If we can spend the early decades of the 21st century finding approaches that meet the needs of the poor in ways that generate profits for business, we will have found a sustainable way to reduce poverty in the world," Mr. Gates plans to say.

No, Mr. Gates, instead of calling capitalism a partial solution, and calling for a new kind of capitalism based on altruistic sentiments, you should be calling for the establishment of capitalism in the first place, where none exists.


evanescent said...

Well said, spot on.

softwareNerd said...

Men like Gates are movers and shakers, so capable of acting -- but, the fundamental direction of one's actions depends on one's basic premises. It really is sad to see such horsepower being wasted.

I think Gate's leaving MSFT, and seeking a purpose in philanthrophy was a selfless act, and a turning point for him. In comparison, I think Buffet's notion of donating billions, but keeping his day job is much more rationally selfish.

The thing about Africa is that it so simple to change "in theory". Like Nike's ad, Africa should "just change". Gates is smart enough to ask himself: what did China do so differently in the 1980's; what did India do so differently in the 2000's? Was there some new effort to educate their millions? Was there some new vast health-care initiative? What about the huge government-funded programs to bring water and electricity to their villages? Did any of those programs change China or India? No... in the end, it was just the changing of "a few words on paper"... i.e. a changing of laws.

Of course those words on paper will not change unless the right people in a country decide to change them. "All" that matters is their basic premises! Gates can innoculate millions of African kids, set up schools for them, pump water to their homes, string cables to their villages, ... and in the end they might be a little bit better off; nothing radical.

I can somewhat understand people before the 1980's not getting a grip on the key issue of the third-world. Today, I wonder how someone so smart cannot see it as clear as day.

Burgess Laughlin said...

"Gates' first fundamental mistake is mistaking capitalism as purely an economic system. Proper laissez faire capitalism is first a political system, one based on individual rights."

This is a valuable insight. The political system is the cause. The nature of the economy is the effect. Capitalism is a political system that protects individual rights, especially the basic rights to life, liberty, and property. There are no capitalist countries in the world. But there are a lot of mixed cases. The ones with the most protection of individual rights flourish, all other factors being equal.

Kendall J said...

Thanks Burgess,

I actually realized this idea after a recent debate thread on The antagonist was continually demanding that the economics and the politics of capitalism be separated. Then when he pointed to "failings" of capitalism, he'd omit the fact that some political aspect was missing from the scenario. It was very enlightening concretization of the principle.

Mike N said...

congrats on the WSJ online mention.

Nate said...

Interesting post....I tend to disagree for the following reasons:

From a capitalist perspective his ideas make a ton of sense. You are empowering 1/3 of the economy to become producers and consumers, rather than them creating a downward spiral of strife. Second, if Gates had come around 10 years ago perhaps we wouldn't have had a 9/11 or the middle east instability which is driving our gas prices to 3 times what they were a decade ago and creating crushing debt for this generation and the next.

Spreading AIDS in Africa, Asia, and Russia is a prescriptions for disaster and perhaps even conflict.
The woes of terrorism are much higher in a world of unemployment and lack of hope. Those two disasters could independently bring capitalism on a global scale cowering to its knees. Ignoring it or just letting the hyper-free market just sort it out is waiting on a ticking time bomb.

Rising wealth among the poorest and the middle class will also make it less likely for nations to resort to protectionist measures that are anti-free trade.

Its time to re-define the rules of capitalism to mean more than just procedural free markets. The world that Ayn Rand, Robert Nozick, and the like addressed is radically different than the one we have today.

Allowing the free market to unleash itself--without taking into account ultimate ends--innocent kids with Aids who won't even get a chance to participate in the global economy. Allowing teen mothers to get wrapped up in dehumanizing forms of slavery, child soldiering, and sexual slavery is not a free market I want any part of.

For the record: economics 101 says that resource inequality will create inequalities in wealth. The geography and infrastructure guarantees bad economies of scale for these countries, which means that capitalism is failing them.

Philip Brookes said...

I wonder, perhaps, if some of the people critical of Gates' approach have either misunderstood his intent, or have missed some of the parts of the jigsaw puzzle.

Firstly, I don't believe Gates' is proposing that Creative Capitalism will fix all the woes of the third world. For example, I'm sure that he'd be in agreement with you on the need for legal reforms.

However, even when the regulatory environment is sufficiently open for capitalism to have a chance, there are many more requirements before a country and economy thrives.

Many people have cited China and India as examples where changes in regulation led to a sudden explosion in their economy. But how about looking at countries which, atleast on paper, have an environment receptive to business and yet haven't boomed in the same way? And in all of these countries, including China and India, consider what impact that capitalism has had in reducing the overall poverty levels of the population.

In a country like the Philippines, which has a population approaching 90 million, the legal framework is adequate (on paper) for businesses to thrive and capitalists to generate a booming economy. The Philippines is becoming a prominent player in the technology market, particularly with call centres and Internet application development, and yet somewhere between 25-50% of the population remains in "absolute poverty" (less than US$1 per day). There is no indication that the country is making significant strides in their fight against poverty.

In reality, there's a few very rich capitalists in the Philippines, but this is providing negligible flow-on benefits to the rest of the population.

In India, cities like Mumbai are experiencing an explosion of urban slums, to the point where close to 80% of Mumbai's population are now slum dwellers. (Further facilitated by grassroots capitalism, as land owners create non-approved "sub-divisions" and rent tiny tenement dwellings to the poor to build their wealth.) Bangalore is encircled by a ring of slum shanty towns housing about 2 million people.

I think one of the things we overlook when viewing things from a western perspective, is that each country's economy is not a closed system. As consumers in a Western country, our purchases consist in large part of imported products which were manufactured in developing countries at a much lower cost. We enjoy the standard of living that we currently have because we don't need to purchase anything from a country with labour costs 5, 10 or 20 times as much as our own.

By contrast, people in developing countries are exposed to a huge price differential for any products we manufacture or technology we develop, and are faced with an astronomical price tag (in relative terms) to access Western education, etc...

In short, what I'm saying is that in a global economy, developed countries hold incredible power due to our economic clout and per capita income. We have an opportunity to positively impact our fellow humans around the world because of that power. When businesses focus only on the quickest bucks and the most cash-rich marketplaces, two-thirds of the world (yes, really, 4 billion+ people) are overlooked.

If I were to re-name Gates' philosophy, I'd call it "Capitalism with a Heart". True, it won't fix the world problems. But there is no single quick-fix solution. Rather, he's addressing one area of opportunity to make a really meaningful difference to the lives and futures of entire nations. Most other strategies require immense levels of funding, but he's proposing a model that taps into the "money machine" of the most well heeled countries and encourages businesses to look in new areas for commercial opportunity which simultaneously will benefit the poor. Sounds like a great idea to me!

Burgess Laughlin said...

Mr. Brookes: "For example, I'm sure that he'd be in agreement with you on the need for legal reforms."

What proof led you to certainty in the belief that Mr. Gates wants capitalism, that is, a political system in which a written constitution guarantees individual rights, especially the basic rights of life, liberty, and property.

Specific legal reforms would include the abolition of all regulations (such as anti-trust) and taxation. I have never see any evidence that would lead me to conclude that Mr. Gates supports such reforms.

Philip Brookes said...

Mr. Laughlin, I appreciate your thoughts on this - you certainly present some stimulating food for thought.

I wouldn't for a moment suggest that Mr. Gates would be supportive of the same reforms you would support. But although the specifics might vary, I believe in principle we (you, me and Gates) all recognise the opportunity for improvements in the regulatory environments to ignite greater capitalism.

I have no proof of his position, but am rather stating my conviction based on my own assessment of him. Certainly there's no evidence that he's opposed to legal reforms, and there's clear evidence that he doesn't view Creative Capitalism as the ONLY avenue toward poverty elimination (hence his mammoth commitment to aid & development through the Gates Foundation).

Aside from my impressions of Gates, I might just throw in my personal view that I don't believe "pure capitalism" is appropriate. I believe taxation, for example, at some level is imperative because society needs to have some resources with which to care for it's most disadvantaged. I don't believe the elimination of all regulation and taxation is necessary for capitalists to thrive.

Burgess Laughlin said...

Mr. Brookes, perhaps we can shorten this conversation by going to the foundations:

What worldview underlies your position--that is, what religion or philosophy leads you to be so concerned about the economic conditions of others, but unconcerned about the absolutism of rights, especially the basic rights to life, liberty, and property?

My philosophy is Objectivism. The relevant principles which it includes are egoism, the virtue of selfishness, and the absolutism of rights (and therefore opposition to statism in all forms and degrees).

jonkichi said...

When ideas like worker safety and diversity were first introduced, some considered them antithetical to capitalism. Now many corporations are enthusiastically embracing these ideas as genuinely good for their bottom line. I don’t think that altruism is inherently harmful to capitalism. Someone just has to figure out how to make it profitable.

Kendall J said...


Well, that would depend what you meant specifically by "altruism". We'd have to be sure we were using the same concept.

But to your main point, which I believe is just because an idea "seems" antithetical to capitalism doesn't mean it is. Well, the question is not whether it seems so or not, but is it actually.

I would counter both of the two examples your give. In the case of worker safety, it was not introduced, but in fact practiced at some level by corporations, and in fact has always been increasing in the free market. It is a myth that it had to be forced from the outside (Upton Sinclair notwithstanding). As to diversity, what has been embraced is no longer anything of the original concept. That is, balancing the ethnic diversity via quotas, and hiring practices is not what is embraced today. At best it is some diluted form of basic respect (i.e. ignoring) irrelevant difference in people because the proper principle on which to judge people is their merit. As originally conceived diversity is antithetical to capitalism. It has been modified to be congruent, but at the same time, the basic meaning taken out of it. If you don't mind if that's done to altruism as well, then your assertion might stand.

Again, it would depend what you mean by altruism.

Kendall -

jonkichi said...

Kendall J,

Actually, I think we’re basically agreeing. My reference is to altruism in the abstract and specifically not to an exact implementation. I am saying that just because an idea "seems" antithetical to capitalism doesn't mean it will be in the form that it is eventually adopted and that therefore it should not be ruled out arbitrarily beforehand.

Just as ethnic quotas have morphed into the basic respect for differences, “altruism” would undoubtedly change as well if implemented by corporations. We could debate how much of the worker safety and diversity changes were externally initiated and whether the basic meaning was taken out of them, but I think you would agree that corporations recognized what was beneficial to them in these general ideas and adopted those specific parts while rejecting others. I can easily see “altruism” taking a similar route, though I cannot foresee what form it might eventually take. I do believe that corporations would embrace this corporate “altruism” once it is shown to be a profitable investment in themselves, just as they’ve embraced safety and diversity.