January 24, 2008
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Bill Gates Issues Call
|Outgoing Microsoft Chairman Bill Gates talks to The Journal's Rob Guth about his concept of creative capitalism. (Jan. 23, 2008)|
"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."
Three weeks ago, on a flight home from a New Zealand vacation, Mr. Gates took out a yellow pad of paper and listed ideas about why capitalism, while so good for so many, is failing much of the world. He refined those thoughts into the speech he will give today at the annual Davos conference of world leaders in business, politics and nonprofit organizations.
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.
Mr. Gates's Davos speech offers some insight into his goals as he prepares to retire in June from full-time work at Microsoft -- where he will remain chairman -- and focus on his philanthropy, the Bill & Melinda Gates Foundation.
Mr. Gates sees a role for himself spurring companies into action, he said in the interview. "The idea that you encourage companies to take their innovative thinkers and think about the most needy -- even beyond the market opportunities -- that's something that appropriately ought to be done," he said.
His thoughts on philanthropy are closely heeded because of the business success that made Mr. Gates one of the world's richest men. His eight-year-old charity is expanding rapidly following the 2006 decision by Warren Buffett to leave his fortune to the foundation. That donation, at the time valued at about $31 billion, increases to some $70 billion the hoard Mr. Gates says will be given away within 50 years of the deaths of him and his wife.
Serving the Poor
But Mr. Gates's argument for the potential profitability of serving the poor is certain to raise skepticism. "There's a lot of people at the bottom of the pyramid but the size of the transactions is so small it is not worth it for private business most of the time," says William Easterly, a New York University professor and former World Bank economist.
Others may point out that poverty became a priority for Mr. Gates only after he'd earned billions building Microsoft into a global giant.
Mr. Gates acknowledges that Microsoft early on was hardly a charity. "We weren't focused on the needs of the neediest," he said, "although low-cost personal computing certainly is a tool for drug discovery and things that have had this very pervasive effect, including the rise of the Internet," he said.
Although Microsoft has had an active philanthropic arm for two decades, only in 2006 did it start seriously experimenting with software in poorer counties in ways that would fit Mr. Gates's creative capitalism idea. Under that 2006 program, handled by about 180 Microsoft employees, the company offers stripped-down software and alternative ways of paying for PCs to poorer countries.
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.
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.
In the interview, Mr. Gates was emphatic that he's not calling for a fundamental change in how capitalism works. He cited Adam Smith, whose treatise, "The Wealth of Nations," lays out the rationale for the self-interest that drives capitalism and companies like Microsoft. That shouldn't change, "one iota," Mr. Gates said.
But there's more to Adam Smith, he added. "This was written before 'Wealth of Nations,'" Mr. Gates said, flipping through a copy of Adam Smith's 1759 book, "The Theory of Moral Sentiments." It argues that humans gain pleasure from taking an interest in the "fortunes of others." Mr. Gates will quote from that book in his speech today.
Talk of "moral sentiments" may seem surprising from a man whose competitive drive is so fierce that it drew legal challenges from antitrust authorities. But Mr. Gates said his thinking about capitalism has been evolving for years. He outlined part of his evolution from software titan to philanthropist in a speech last June to Harvard's graduating class, recounting how when he left Harvard in 1975 he knew little of the inequities in the world. A range of experiences including trips to Africa and India have helped raise that awareness.
In the Harvard speech, Mr. Gates floated the idea of "creative capitalism." But at the time he had only a "fuzzy" sense of what he meant. To clarify his thinking, he decided to prepare the Davos speech.
On Jan. 1, following a family vacation, Mr. Gates boarded a commercial flight in Auckland, New Zealand, and during the 21-hour, two-layover journey back to Seattle he started writing his speech.
The Sword Swallower
He drew from influences ranging from the leading thinkers on capitalism and a sword-swallowing Swedish health expert to Norman Borlaug, the plant pathologist who won the 1970 Nobel Peace Prize for his role in the Green Revolution that boosted food production. A long talk with his wife, Melinda, in the first week of January also helped shape the speech, said Mr. Gates.
In setting up his foundation in 2000, Mr. Gates understood that widespread criticism existed of programs to help the poor. U.S. aid had often been motivated by broader Cold War goals and often had failed to advance living conditions for the world's poor. Successful programs, such as the Green Revolution, were overshadowed by growing awareness of their negative side effects on the environment and local cultures.
Meanwhile, companies including Microsoft had donated huge amounts of cash and products to developing countries without seeking to create sustainable growth. Free Microsoft software in some countries spawned broad usage of computers, while in "other places you announce a big free software grant, come back a few years later, nothing," Mr. Gates said.
His growing awareness of such limits sparked new ideas on how businesses could approach poor countries. At a dinner near Seattle in 2004, Mr. Gates met one of the leading thinkers on that front, C.K. Prahalad, a University of Michigan professor who had written "The Fortune at the Bottom of the Pyramid." In that article and a subsequent book by the same title, Mr. Prahalad proposed that the world's four billion poorest people represented a huge market for companies willing to try.
Other books influencing Mr. Gates included "The Mystery of Capital" and "Good Capitalism, Bad Capitalism and the Economics of Growth and Prosperity" and "The Bottom Billion." This reading helped inform Mr. Gates's belief that leading companies should find ways to sell to and work with the poorest. "You have people who are inciting companies to say, 'Look, this is a lot of people,'" Mr. Gates said.
Mr. Gates in his speech will note several programs that "stretch the reach of market forces," including a World Health Organization venture with an Indian vaccine maker to sell a meningitis vaccine in Africa for far less than existing vaccines. He will also highlight a new program designed to give African coffee farmers better access to coffee buyers in rich counties. "We don't need some dramatic big new tax or requirement," Mr. Gates said in the interview. "What we need is the recognition of the creativity here that some of the leaders are exercising."
To a degree, Mr. Gates's speech is an answer to critics of rich-country efforts to help the poor. One perennial critic is Mr. Easterly, the New York University professor, whose 2006 book, "The White Man's Burden," found little evidence of benefit from the $2.3 trillion given in foreign aid over the past five decades.
Mr. Gates said he hated the book. His feelings surfaced in January 2007 during a Davos panel discussion with Mr. Easterly, Liberian President Ellen Johnson Sirleaf and then-World Bank chief Paul Wolfowitz. To a packed room of Davos attendees, Mr. Easterly noted that all the aid given to Africa over the years has failed to stimulate economic growth on the continent. Mr. Gates, his voice rising, snapped back that there are measures of success other than economic growth -- such as rising literacy rates or lives saved through smallpox vaccines. "I don't promise that when a kid lives it will cause a GNP increase," he quipped. "I think life has value."
Brushing off Mr. Gates's comments, Mr. Easterly responds, "The vested interests in aid are so powerful they resist change and they ignore criticism. It is so good to try to help the poor but there is this feeling that [philanthropists] should be immune from criticism."
Belief in Technology
A core belief of Mr. Gates is that technology can erase problems that seem intractable. That belief was deepened, Mr. Gates says, by his study of Julian Simon, a now-deceased business professor who argued that increases in wealth and technology would offset shortages in energy, food and other global resources.
Pacing in his office last week, Mr. Gates retold the story of a famous $10,000 wager between Mr. Simon and Paul Ehrlich, a Stanford University professor who predicted that human population growth would outstrip the earth's resources. Mr. Simon bet that even as a growing population increased demand for metals such as tin and copper, the price of those metals would fall within the decade ending in 1990. Mr. Simon won the bet. "He cremated the guy," says Mr. Gates. Mr. Ehrlich's administrator at Stanford University said he was out of the country and couldn't comment on the wager.
In early 2006, Mr. Gates found further evidence of an improving world in the online video of Hans Rosling, a Swedish professor of international health. In the video, Prof. Rosling used an enormous animated graph to show that in the previous four decades life expectancy and family size in developing countries had come to approach the levels of developed countries.
The video so inspired Mr. Gates that he bought dozens of copies of Prof. Rosling's textbook on global health. Watching Prof. Rosling's most recent video last year, Mr. Gates saw the professor end his talk about improving global health by swallowing a Swedish army bayonet, "to prove that the seemingly impossible is possible," the professor said.
The influence of such optimists will be woven into Mr. Gates's comments today. "In the coming decades we will have astonishing new abilities to diagnose illness, heal disease, educate the world's children, create opportunities for the poor and harness the world's brightest minds to solve our most difficult problems," he will say.
Describing himself as an "impatient optimist," Mr. Gates said he will ask each of his Davos listeners to take up a "creative capitalism" project in the coming year.
And he vows to keep prodding them. "I definitely see, once I'm full time at the foundation, reaching out to various industries -- going to cellphone companies, banks and more pharma companies -- and talking about how...they can do these things," he said.
Write to Robert A. Guth at email@example.com
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