Bill Gates recently called for a revision of capitalism to make the aspects of capitalism that serve wealthier people serve poorer people as well. In his speech at The World Economic Forum in Davos, he outlined creative capitalism this way:
Such a system would have a twin mission: making profits and also improving lives for those who don't fully benefit from market forces. To make the system sustainable, we need to use profit incentives whenever we can.
At the same time, profits are not always possible when business tries to serve the very poor. In such cases, there needs to be another market-based incentive - and that incentive is recognition. Recognition enhances a company's reputation and appeals to customers; above all, it attracts good people to the organization. As such, recognition triggers a market-based reward for good behavior. In markets where profits are not possible, recognition is a proxy; where profits are possible, recognition is an added incentive.
The challenge is to design a system where market incentives, including profits and recognition, drive the change...
This kind of creative capitalism matches business expertise with needs in the developing world to find markets that are already there, but are untapped. Sometimes market forces fail to make an impact in developing countries not because there's no demand, or because money is lacking, but because we don’t spend enough time studying the needs and limits of that market.
The speech has touched off a number of conversations, including one convened last week at the Hudson Institute - Creative capitalism: Can it meet the needs of the world's poor. Ryan Baebler at NextBillion.net provides a summary of the discussion.
I was also at the meeting and here are some of my notes.
This isn't the first time self-interest and social interest have been combined in a new form of capitalism - Bill Schambra.
Bill Easterly identified two problems with this formulation of creative capitalism: (1) it provides weak incentives for the private sector to do things differently (i.e., if recognition is the goal, might corporations decide to provide goods and services that get the broadest media coverage rather than what does the most good and is responsive to the needs of the poor?), and (2) it doesn't address the question of choosing which goods to give to the poor (for example, with limited resources do you expend them on antiretrovirals for people with AIDS or a basic health package of oral rehydration therapy, antibiotics, nutrition supplements and vaccines that would save 10 million lives a year).
His position is capitalism may be one of the worst ways to reduce poverty, except for everything else that has been tried. The right answer, he states, is to enable the poor to pay for whatever goods they decide they need most and not have them continue to depend on someone to give it to them for free.
Al Hammond directed attention to the divisions at Microsoft, Intel and other companies that are devoted to identifying needs of the poorest and innovating products and services that meet those needs as examples of what Gates calls for in his speech.
He talked of the need to understand base of the pyramid (BOP) markets and referred to the recent report on The Next 4 Billion marketplace that, I believe, should be required reading for anyone working in this area. He focused on the implications of the report for health and access to essential products and services and how the proliferation of mobile phones at the BOP (something I have been talking about here as well) offers new ways to think about programs and interventions. His take on paying for products and services is that the evidence is people are willing to pay if it enhances their productivity and economic well-being. Some of his other research suggests that access is the most important issue for people at the BOP; they spend more on getting to health services and products than the actual goods themselves.
Later, in response to a question about strengthening public-private partnerships, Al made the point that the public sector often doesn't know how to harness the profit motive to achieve its goals. Indeed, the mistrust with which both the public and NGO sectors view the private sector is one of the greatest impediments to moving to action. Bill Easterly called these partnerships the latest fad in development and wondered whether the public and private sector really have the same objectives in these partnerships.
During the past week, I also had a reporter contact me asking about the implications of creative capitalism for social marketing. He sent me four questions that I have paraphrased below and include for your inspection the answers I sent back to him [note: this was prior to the Hudson meeting].
1. What does this mean for Africa?
It helps set an agenda for people to think and talk about development issues in Africa - and indeed around the world - in an innovative way. Let's move beyond partnerships to ask how the role of governments, civil society and corporations can change to expand the reach of market forces to serve all people in need. I hope it flips the conversation from asking whether the private sector should be more effectively engaged in development issues to how? How do we innovate and adapt those aspects of markets that work so well for so many of us to work as well for the next billion people on earth who live on less than a dollar a day?
2. Is it a new idea or a retread?
I believe it reinforces, among other things, the need to focus on private sector values such as speed and efficiency in more of our work. I see it as an approach that can embrace the ideas of Bill Easterly in supporting the urgency to search for new approaches to aid, and to do that we need to understand markets and the people they serve in a truly market-driven sense where the people participate in shaping their own destiny. George Ayittey talks about the 'cheetahs' - the new breed of African he describes as not wanting to wait for governments to decide on how to solve problems. These social entrepreneurs can be inspired to make change by new ways of thinking about capitalism. After all, he points out, markets existed in Africa long before the colonialists arrived.
The other trends I see this tying into are recent work on 'the next 4 billion market' and efforts to measure the business opportunities at the base of the pyramid (BOP) and the Total Market Approach that is evolving out of social marketing.
3. Will corporations listen?
I expect that when Bill Gates talks in Davos they listen. The question is whether they will act. And as Bill points out in his speech, whether they do so or not is contingent in some respects on how governments (and large donors) set policy and disburse funds to create market incentives for companies to improve the lives of the poor.
4. Does it (implicitly) endorse a social marketing approach?
The idea of creative capitalism moves in a similar direction to where some of us in social marketing are going; a total market approach where the public, NGO and private sectors work together to expand the reach of market forces to serve all people in need. TMA recognizes the power of markets to bring dignity and choice to the everyday lives of all people, regardless of their current ability to access or pay for essential health information, products and services. It is when barriers are lowered, and opportunities increased, that choosing to act in ways that lead to meaningful changes in one's own life are possible. Markets have a major role to play in making that happen.