I admire Bill Gates. He has built a huge company from scratch and in so doing has produced hundreds of thousands of jobs and paid a fortune in taxes. He has revolutionised personal computing (and don’t tell me that Microsoft is an evil monopoly – every company aspires to be a monopoly) so that now almost anyone can afford access to the internet. Also, unlike many arch-capitalists, he is clearly concerned with bettering the lot of the world’s poor.
So it was with great disappointment that i read his speech last week to the World Economic Forum assembled at Davos (in my previous life as an Emerging Markets bond trader, i’ve been to one of these and they are the ultimate taxpayer-funded boondoggle), outlining his vision for ‘creative capitalism’.
“We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well. I like to call this idea creative capitalism.”
He gave an interview to the WSJ expanding his thoughts in further detail,
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.
“The rate of improvement for the third that is better off is pretty rapid, the part that’s unsatisfactory is for the bottom third — two billion of six billion.”
Among the fixes he plans to call for: Companies should create businesses that focus on building products and services for the poor. “Such a system would have a twin mission: making profits and also improving lives for those who don’t fully benefit from market forces,” he plans to say.
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.
That such an intelligent man can utter such drivel is surprising and sad. He is hugely influential and many free-market agnostics will read his words and conclude that capitalism is a rich man’s plaything. They would be so wrong.
What is needed is not ‘creative’ capitalism but ‘more’ capitalism. The Soweto slums he identifies are poor because the free market is not being allowed to work. China, India, Vietnam, South Korea, Eastern Europe to name but a few have pulled hundreds of millions of people off the bread line simply by abandoning socialism and embracing capitalism.
A paper published by William Nordhaus in 2004 clearly demonstrated that capitalism benefits the poor not the rich as only a ‘miniscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers’.
Writing for the Globalisation Institute, Tim Worstall remarks that although Gates cites Adam Smith’s, ‘Theory of Moral Sentiments‘ as one of the great influences of his vision, he would do well to remember this passage from the follow up to that book, ‘Wealth of Nations‘,
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from a regard to their interest.”
Gates should read the Index of Economic Freedom’s latest report underlining the link between economic and business freedom and living standards.
A great man but with little vision.