Business

Saturday September 26, 2009

Desirable incentives to harness change

Review by AHMAD CENDANA


Creative Capitalism: A conversation with Bill Gates, Warren Buffett and other economic leaders
Edited by Michael Kinsley
Publisher: Simon & Schuster

BILLIONAIRE Bill Gates, the biggest beneficiary of the free market economic system, espouses change in fundamental thinking and business practise to help the billions of people worldwide trapped in poverty.

However, the change that Gates has in mind isn’t something revolutionary – it certainly is not in dumping capitalism and going back to the drawing board to devise a totally new economic system.

Instead, Gates wants to harness the powerful motivational force called incentive that is a natural feature of capitalism to bring about meaningful change for the poor.

The key lies in adding an altruistic element to the selfish but compelling desire for profit that is at the heart of every business endeavour. Gates believes that promoting recognition as a desirable incentive will be beneficial for everyone ... and a new capitalistic system is set into motion.

“I like to call this new system creative capitalism,” Gates said in his famous speech at the World Economic Forum in Davos early last year. And this is the concept that forms the main theme in Michael Kinsley’s Creative Capitalism, which is mostly a selection of posts and comments that came in after he had set up a weblog specifically for discussing Gates’ speech.

In a nutshell, the creative capitalism which Gates advocates is in finding answers to how corporations could most effectively spread the benefits of capitalism to make improvements in the quality of life of people who have been left out.

Kinsley takes the reader along a meandering road to explore the merits of what Gates advocates. Most of the contributors here are economics professors and those in the academic world, with a few being Nobel Prize laureates. And they certainly have a lot to say about Gates’ idea, with most having reservations.

All acknowledge and are respectful of Gates’ philanthropic work – the latter has ‘retired’ from Microsoft since May last year to fully concentrate on the Bill and Melinda Gates Foundation. He has pumped in US$30bil of his personal wealth into this, which centres on solving health problems that affect only the poor and improving educational systems.

However, many of the contributors feel that corporations should be left alone and not be distracted from doing what they know best – maximising returns for the shareholders. Charity, they say, should be decided by the individuals upon receiving their share of the profits.

Judge and senior law lecturer Richard Posner is especially harsh with Gates’ idea: “A business that fails to maximise profits places itself at a competitive disadvantage relative to businesses that do maximise profits. Only if charity contributes to profits is it a plausible investment for an investor-owned firm,” Posner writes.

The critics say the development of human capital and good governance will do more in helping the poor than creative capitalism. Posner defines good governance as one that prevents violence, enforces property rights, provides a minimum level of public goods and minimises interference in the economy.

However, there are others who feel Gates’ idea should be given serious thought by the corporations. They include economics professor Edmund Phelps, who was awarded the Nobel Prize in economics in 2006. Phelps argues that capitalism, while being better than the rest, certainly isn’t perfect. He wonders whether altruism might be the right element in correcting a variety of market imperfections.

MIT economics professor Abhijit Banerjee is another supporter of creative capitalism. He says people like Gates and the big corporations have the clout to make things happen: “We could see a sea change in how social policy gets carried out. We might be on the brink of a revolution in how social services get delivered,” Banerjee writes.

Credit should be given to Kinsley in his selection of the material. Despite his close ties with Microsoft, Kinsley has allowed the strident critics of Gates’ idea to be included in the book.

Creative Capitalism is a demanding read in that it requires the reader’s full attention from start to finish. However, it is also satisfying and rewarding to follow the thoughts and arguments of outstanding intellectuals as they try to support or demolish the concept that Gates promotes for the corporations to assimilate.

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