Microsoft chairman Bill Gates delivered a groundbreaking speech at the recent World Economic Forum (WEF) about “creative capitalism”. He argued that corporations have the potential to do great things for the poor, but only if they are given the incentive to do so. Here is his full speech and Q&A with Klaus Schwab, the conference organiser. Excerpts of his speech from his website are highlighted below the video.
Pure capitalism not benefiting everyone
The world is getting better, but it’s not getting better fast enough, and it’s not getting better for everyone.
The great advances in the world have often aggravated the inequities in the world. The least needy see the most improvement, and the most needy see the least—in particular the billion people who live on less than a dollar a day.
There are roughly a billion people in the world who don’t get enough food, who don’t have clean drinking water, who don’t have electricity, the things that we take for granted.
Diseases like malaria that kill over a million people a year get far less attention than drugs to help with baldness.
Climate change will have the biggest effect on people who have done the least to cause it.
Why do people benefit in inverse proportion to their need?
Market incentives make that happen.
In a system of pure capitalism, as people’s wealth rises, the financial incentive to serve them rises. As their wealth falls, the financial incentive to serve them falls—until it becomes zero. We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well.
Capitalism harnesses self-interest in helpful and sustainable ways, but only on behalf of those who can pay. Philanthropy and government aid channel our caring for those who can’t pay, but the resources run out before they meet the need. But to provide rapid improvement for the poor we need a system that draws in innovators and businesses in a far better way than we do today.
Recognition as an incentive for corporations
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.
Adam Smith, author of The Wealth of Nations wrote, “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”
Creative capitalism takes this interest in the fortunes of others and ties it to our interest in our own fortunes—in ways that help advance both. This hybrid engine of self-interest and concern for others serves a much wider circle of people than can be reached by self-interest or caring alone.
A Dutch company, which holds the rights to a cholera vaccine, retains the rights in the developed world, but shares those rights with manufacturers in developing countries. The result is a cholera vaccine made in Vietnam that costs less than $1 a dose—and that includes delivery and the costs of an immunization campaign. There are a number of industries that can take advantage of this kind of tiered pricing to offer valuable medicine and technology to low-income people.
Role of Governments
The highest-leverage work that government can do is to set policy and disburse funds in ways that create market incentives for business activity that improves the lives of the poor.
Under a law signed by President Bush last year, any drug company that develops a new treatment for a neglected disease like malaria or TB can get priority review from the Food and Drug Administration for another product they’ve made. If you develop a new drug for malaria, your profitable cholesterol-lowering drug could go on the market a year earlier. This priority review could be worth hundreds of millions of dollars.
Connecting the poor with rich word markets
Another approach to creative capitalism is simply to help businesses in the poor world reach markets in the rich world.
A few years ago, I was sitting in a bar here in Davos with Bono. After Asia and most of Europe and Africa had gone to bed, he was on fire, talking about how we could get a percentage of each purchase from civic-minded companies to help change the world. He kept calling people, waking them up, and handing me the phone. His projections were a little enthusiastic at first—but his principle was right. If you give people a chance to associate themselves with a cause they care about—they will pay more, and that premium can make an impact. That was how the RED Campaign was born, here in Davos.
Corporations sharing their brainpower with the poor
I hope corporations will consider dedicating a percentage of your top innovators’ time to issues that could help people left out of the global economy. This kind of contribution is much more powerful than simply giving away cash, or offering your employees time off to volunteer. It is a focused use of what your company does best. It is a great form of creative capitalism, because it takes the brainpower that makes life better for the richest, and dedicates it to improving the lives of everyone else.
When you look on a global basis…at the tough problems of the poorest, a company really should stick to what it knows well. Does it know food, does it know distribution, drugs, media, cell phones? You are developing something that’s lower cost and are true to the identities of that organisation.
On the Gates Foundation’s goals
I’ve set very ambitions goals. Of the 20 diseases that our global health program goes after, for over half of them we could make a very significant impact. Reduction in the mortality rates in developing countries has an effect of reducing population growth, which then makes other things like education and nutrition a lot easier.
I think these are great ideas that we should try to push for in Singapore. There is little doubt that our country is marching forward towards capitalism, with lower income tax, more regressive taxes like the GST and now means testing. We will no longer be able to rely on just the government to foot the social bill. This makes it all the more important for corporations and wealthy individuals (and there are a lot of them in Singapore) to do their part to uplift those in our society who have been left behind by globalisation and economic progress.