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MAY 6, 2010 8:57AM

A Compassionate Capitalism (book review)

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In spite of great economic reforms and advances in India, the divide between rich and poor seems to be increasing and it’s uncertain that progress is always trickling down to the poor. A 2007 study by the Asian Development Bank showed the gap in standard of living increasing between the haves and have-nots in India, China, and several other countries in the region. The OECD found the same result in 2008 among many of its member countries, including the US. Into this scene comes a timely book that acknowledges this growing divide, and urges big corporations to play a hand in solving the problem: Creative Capitalism, edited by Michael Kinsley.

Bill Gates gave a speech at the World Economic Forum in Davos in 2008 proposing a new and somewhat revised system of capitalism, what he called Creative Capitalism, “where governments, businesses, and non-profits work together to stretch the reach of market forces so that more people can make a profit, or gain recognition, doing work that eases the world’s inequities.” Some approaches he suggested to achieving this were: matching business expertise with need in the developing world; governments setting policy and disbursing funds so as to promote business activity that improves the lives of the poor; helping business in the poor world access markets in the rich world; and companies donating a percentage of their sales. The gains and incentives for businesses would be not only profits but also being recognized for having done good.

In keeping with the modern times, this is a book that arose from a blog where economists were invited to comment on Bill Gates’ proposal of Creative Capitalism. The editor Michael Kinsley is a very experienced and well-known journalist: he has been editor of The New Republic and Harper’s, the American editor of The Economist, and the founding editor of Slate, and has contributed to many publications including The New Yorker and The Washington Post. Kinsley is uniquely positioned to get close to the topic of Creative Capitalism (CC) and its author Bill Gates: Kinsley’s wife Patty Stonesifer was the CEO of the Bill & Melinda Gates Foundation and continues as a senior advisor.

The book begins with Gates’ speech and then goes on to give comments on the speech from some 40 renowned economists. The comments and reviews are mixed and the debate is lively. Of those that support Gates’ proposal of CC are:

·         Ed Glaser (professor of economics at Harvard University), who argues that two great failures have spurred on the case for CC: laissez-faire capitalism’s failure to right social inequities, and government’s failure to provide proper education and healthcare.

·         Mathew Bishop (business writer/editor of The Economist, and co-author of Philanthrocapitalism), who says that big business has the capabilities – “global supply chains, distribution networks, and an abundance of high quality human capital” – to produce social change on a large scale.

·         Abhijit Banerjee ( professor of economics at MIT ), who sees CC bringing in much needed money and talent into the social sector.

Those that question Gates’ proposal are also present in equal measure, such as:

·         William Easterly (professor of economics at New York University and senior fellow at the Brookings Institution), who argues that traditional capitalism has and does help the poor, and that corporate philanthropy is not an effective vehicle for helping the poor.

·         Richard Posner (a judge and senior lecturer at the University of Chicago Law School), who says the term CC itself is vague and there is no evidence that it works.

·         Clive Crook (Financial Times columnist), who warns that CC will distract businesses from their primary business of making profits.

·         Gary Becker (Nobel laureate and professor of economics and sociology at the University of Chicago), who wonders whether CC will be viable in an environment alongside traditional capitalism.

CC is different from the stand-alone CSR (corporate social responsibility) divisions currently present in many MNCs. What Gates is proposing is a system that integrates philanthropy into the heart of the business such that profit can be made while also meeting the needs of the poor. But he’s not the first to do so. Nobel laureate Mohammed Yunus has long advocated a similar concept called Humanistic Capitalism, and implemented it in the microfinancing offered by Grameen Bank. Management guru C.K. Prahalad calls it “democratizing commerce” and explains it in detail in his 2004 book The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits.  Marc Benioff’s 2007 book The Business of Changing the World proposes a model of corporate philanthropy that his own company Salesforce.com uses effectively. Several other companies such as Google and Whole Foods also merge business and philanthropy. And earlier this year GlaxoSmithKline CEO Andrew Witty said that GSK will substantially cut prices on its medicines in some 50 of the world’s least developed countries, along with re-investing a percentage of its profits in healthcare, and facilitating expert knowledge exchange. However, it may take someone as high profile as Bill Gates to really bring this compassionate capitalism to the fore and get the discussions, debates, and the movement going.

Gates calls for an innovation of our free-market capitalist system and urges the business sector to focus some attention on the poor in order to narrow the widening gap. Otherwise, as C.K. Prahalad said recently, “...we will lose the social legitimacy of the institution called the private sector.”

(C.K. Prahalad passed away last week, but leaves behind a perspective encouraging focus on the bottomof the pyramid)

(An edited version of this article was first publishd in the The Mint newspaper in India, and later in the magazine CTO Forum)

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