Creative capitalism: a conversation

Michael Kinsley alerts me to a website he has started to help write his next book on what Bill Gates has termed "creative capitalism"

Creative capitalism: a conversation

From the website:

"Creative Capitalism: A Conversation is a web experiment designed to produce a book --a collection of essays and commentary on capitalism, philanthropy and global development -- to be edited by us and published by Simon and Schuster in the fall of 2008. The book takes as its starting point a speech Bill Gates delivered this January at the World Economic Forum in Davos. In it, he said that many of the world's problems are too big for philanthropy--even on the scale of the Gates Foundation. And he said that the free-market capitalist system itself would have to solve them.

This is the public blog of a private website where a group of invited economists have spent the past couple of weeks criticizing and debating those claims. Over the next couple of months we'll be posting much of that material here, in the hopes of eliciting public commentary. Some of the public commentary -- the comments posted on this blog -- will also be used in the book. (Comments to the effect of "capitalism is evil and Bill Gates is a fool" probably won't be used. But we're genuinely open to opinions of all stripes, and all of the contributors who do end up in the finished product will be paid on a per-word basis, which should work out to between one and two dollars per word.)

The same goes for economics bloggers who write about the stuff here on their own sites: If we can get permission, we'd like to use that material too.

We also invite contributions by email. You can send submissions to conorjclarke [at] gmail [dot] com. (Anything you send can be posted here, though we might edit it a bit first.) We are especially interested in contributions from economists and anyone working in development. But we welcome pretty much anything that's interesting and well-written."

Bill Gates and Warren Buffett have a really interesting conversation on that pager about what Bill means by "creative capitalism."

"Warren Buffet: I would rather have Bill, if he will, give me the main points.

Bill Gates: Well it’s not completely well defined. It’s a phrase that I used in a speech at Harvard a year ago, because I totally believe in markets as such powerful forces for drawing out innovation and creating things that are sustainable. And yet, you do get trapped in this situation where the markets serve where the dollars are, so you don’t get markets meeting the needs of the poorest. And so how do you bootstrap or support the needs of the poorest so markets are reaching out to them. I mean, when I view the last hundred years as an experiment in how good markets are, the answer is very, very clear and very strong. It’s one of those things that’s so clear people won’t even discuss it with you anymore. Like in this [Edward] Teller biography: he says, Look, if he didn’t believe in innovation, he would have been a communist. If the economy is a zero-sum situation, then you ought to try some crazy sharing thing. It’s only the innovation and pie-growing activity that made Teller feel comfortable with the capitalistic approach. And I think that that’s been validated.

You often hear people saying that companies should do something besides profit maximization. And it’s amazing how strong a message is hidden in words like 'diversity' or the broad term 'corporate social responsibility.' Warren and I were just at the Microsoft CEO Summit for the last couple days and it was amazing how many of the talks were about how a company needs to have core values of who they are and what they do as the thing that makes the employees feel they have a purpose and guides their action. And how that needs to be really at the center, even more so than the short-term profit metrics. Jack Welch was very good on that and Lee Scott [CEO of Wal-Mart] was very good on that, I think in a very sincere way. I think it’s more true all the time.

Bill George [of Harvard Business School] ran the leadership panel, and he was saying how the younger generation really wants to go to work with people who have a purpose. So what I’m saying is when people write down that purpose, when they write down their values, that an element of that should be: what can we do based on our skill set, our innovators, whatever unique capacities we have as a company--what can we be doing for the poorest 2 billion? And that can either be taking more risk in terms of trying to develop markets there, which is C.K. Prahalad-type stuff, or just doing things like the Merck donation that are not profit seeking and yet not giving up huge percentage of profit.

So somebody can read the words 'creative capitalism' and say, 'Okay, Bill Gates said that you should serve the poorest 2 billion and ignore profit.' That is not what I intend to say at all, but then I am being a bit ambiguous about how far you go in being willing to give up something. Am I saying one percent? Two percent? Three percent? Nobody who sets these dual roles is very good about being clear. I mean, what do they say you’re supposed to give up for corporate social responsibility. Well, they’re not willing to be numeric because they feel like the two goals, profit and social responsibility, aren’t totally at odds over time—or diversity, or whatever the value is.

I understand it best in terms of the big companies of the world: pharma, banks, technology companies, food companies. Buying from the poor world, supplying to the poor world, having scientists and innovators who come together to think about the poor world. It’s best defined for me there, and then I think, “Okay, how concrete is this?” I go back to this thing of: Okay, if all companies did as well as the best do, then it would be pretty dramatic in terms of the rate of improvement for the poorest. And a year from now I’ll know a lot more about this, because in my new time back at the Foundation I’ll meet with heads of pharma, heads of food companies, heads of…I’ll meet a lot of these companies and try and get a sense of, do they agree that in their hiring it would help them, do they agree that in their reputation and maybe seeking long-term markets it would help them and see how concrete a response is possible.

Warren: But as Bill was talking, it just occurred to me that if you don’t trust the government to do a lot of things very well—and business will never trust them to do that; rich people will never trust them to do that—and if, on the other hand, the honor system doesn’t work particularly well in terms of how many people behave (and this idea just occurred to me ten seconds ago so it will take a lot of refining): what if you had three percent or something like that of the corporate income tax totally devoted to a fund that would be administered by some representatives of corporate America to be used in intelligent ways for the long-term benefit of society, This group—who think they can run things way better than government—could tackle education, health, etc. or other activities in which government has a large role. And it would have this forced funding of three percent of corporate profits or some sum like that. Ace Greenberg used to insist that all the managing directors of Bear Stearns give four percent to charity, and in December he went around and talked to everyone who hadn’t yet given his four percent. And he told all the Jews that they had to give any shortfall at year end to Catholic Charities, and he told the Catholics they had to give it to the United Jewish Appeal. Well this would be a variation on that. Take three percent—pick a figure—of corporate income. That would be, perhaps, $30 billion a year (you would exempt small companies). If there are things to be done in society that the market system doesn’t naturally lead to, something like this would be a supplement to the invisible hand. It would be a second hand that would come down for society—administered in a business-like manner—and it might be interesting to see what a system like that might produce...

Bill: I think there are going to be corporations where expertise builds up to solve problems that is not built up any other place. And your hypothetical is a little strange because what we’re faced with is a world with vast disparities in wealth that have to do with what country you’re born into and you wouldn’t have that if you had one person running the world and so, you know, the degree to which a little bit of innovation can make a huge, huge difference whether it’s an LED flashlight or something you can roll to move the water that you used to have to carry.

Some of these innovations--when you see them you say, 'Oh, well, obviously that rationally should have happened,' but it only happened because somebody cared. Now you could say in the grand sweep of time capitalistic economics would have come up with that. Well, there’s a lot of suffering between now and eventually that this thing can deal with.

The brilliance in innovations inside universities--we haven’t talked about universities here because I haven’t thought about that as much, although even some of them are starting to get involved. Getting them to take their innovation power, thinking power, awareness raising power, into these things is another part thing that I think is important and I hit a tiny bit on that in the Harvard speech, but we have all this expertise. You need to apply it. Drugs are just such a clear, clear case. The government doesn’t know how to make drugs. They don’t know how to trial drugs. There’s no government in the world that’s in the business of doing that. So you’ve gotta send the signals…now I admit that you could do it if you had a single world government. You could do it just by giving money to the poor and then letting the market speak out. I think you could design a utopian system that would do it that way and then you wouldn’t have to rely on--you could have robots working at the company. Whereas here I’m actually explaining the fact you have people who care about humans working at the company.

Warren: But I think the most realistic model actually can be the Gates Foundation. If you’re really looking for ways to take huge amounts of resources over time, and they are going to be huge aggregations of resources, and you show the world that something is a better system than government and will work better and can attack things that government can’t and so on; and that will use resources efficiently. I think people will look for that--not 100 percent of the people, not maybe 50 percent of the people, but a lot of people will. But I think it could be a demonstration project like nothing else the world has ever seen.

Michael: The retiring CEO of the Gates Foundation--she’s very excited about the idea of a middle institution that’s not non-profit and it’s not for-profit. It’s a low-profit, and I think [Grameen Bank founder] Muhammad Yunus has suggested this and basically it runs like a corporation except all the money is put back in.

Bill: Well, there are such things, you know, there are mutual operations that are like that, you know, the recreational co-op, which is pretty sizeable now a days…What percentage of the hospitals in the U.S. are under that type of structure--50 percent, 60 percent?

Warren: If I owned 100 percent of Berkshire I could have set it up that way. But I think the model of intelligent, private philanthropy will look superior to governmental spending in many areas. I don’t think there will be a shortage of funds over time and I think there will be a lot of people who will make a lot of money who don’t now have the faintest damn idea about how to best funnel that money back to society, but will, nevertheless, feel like they want to funnel that money back to society. I think intelligent private philanthropy has a huge potential.

Bill: Yeah. I would say two things about that. One is there will be an effort with more to spread the word about how much fun it is to do philanthropy--either the way I’m doing it, where you get deeply involved, or the way Warren’s doing it, where you look and you pick somebody who you’re excited about their approach and you back them to go do it. So I’m going to meet some percentage of the very rich people in a quiet way and encourage them. It will be all their credit if they choose to do it, but I’ll say that (a) philanthropy is good, and (b) the hardest part of philanthropy, which is getting to poor countries because learning how to do that, knowing it’s effective, dealing with some of the challenges there, you know, showing them where that works and in a few cases maybe they will want to partner with us. I think upping that goes along with upping the corporate part, which is the creative capitalism, and goes along with upping the academic attention to the problems of the poorest.

Things like grand challenges are another kind of innovative thing here where we might dial a grand challenge in micronutrition and it might be some guy at Nestle in that food lab who sees that thing and says he can solve it and he needs a little bit of forbearance from his managers to take, you know, five or 10 people and write it up and come to us and say they’ll transfer that technology or something. It doesn’t take some big diversion of a profit.

Also, to the degree The Gates Foundation works, we are engaged in these things where companies like GlaxoSmithKline--even though we’re funding a lot of the work--they’re putting some of their top innovators on the malaria vaccine. You’ll never figure out the numbers, but there are some opportunity costs where those people could have worked on something else. Now if one or two of them were people who said they would have retired if they couldn’t work on this or figuring out how fungible that resource really would have been for them and what it would have done. It would be pretty hard to beat America on that, but they are really giving up opportunity costs to do these things. If we work it will be partly because people like GSK are going along with us or [India’s] ICICI Bank are going, or Nestle are going along. And that list, you know, a year from now will be a lot longer.

Warren: Over the years, by his letter, Bill will be talking to more rich philanthropists or potential philanthropists, you know, than anybody ever has in the world. I mean Carnegie is still talking 100 years later or whatever it may be since writing The Gospel of Wealth. Bill’s model can have a huge potential and it can have a huge potential with smart people who may think of variations on it. He’s in a unique position to talk to the world on it and the world wants to hear what he has to say. It’s a great opportunity.

Bill: Just to be clear what Warren’s referring to: I don’t know if you’ve heard, but I’m going to do something that in the world of philanthropy that is much like what Warren’s annual letter is in the world of business. And the target is that the first one of those will come out this January.

I do think talking with rich people globally, they will be interested. Not necessarily that they will do anything, but for me to say, 'Oh, wow, this went well, this went poorly. Damn these governments who can’t do this and that.'

Mike: You get the letter if you could give away money and you don’t actually have to be giving it away yet?

Bill: The letter will be on the Internet. We’ll promote it as, 'Hey, maybe you’d be interested in reading this thing.' And there will be a number of constituencies, but potential givers are a big part of it. Somebody who works at a UN agency I bet, you know, some of them will read it. Some people in poor world governments will read it. Some people in the drug industry, who knows.

Warren: They will all read it every time.

Bill: I’m going to get the jokes from Warren and so that is--

Melinda: The clean ones.

Bill: No Mae West.

Warren: It’s got huge potential, because you’re actually doing it. I mean it has so much more impact than some academic writing about it or something. Everything goes through your mind and they love it. They want to know that. They get a chance to sit down with Bill Gates and talk about philanthropy or listen about it anyway. They can see what you’ve done and they can say all kinds of things. Really, look at Carnegie’s thing. I mean it isn’t that amazing what he wrote or anything like that, but it influences people a century later. I mean this has got 100 times the potential."

For policy folks, it's got to be kind of funny to read Bill say something naive like this:

"...now I admit that you could do it if you had a single world government. You could do it just by giving money to the poor and then letting the market speak out. I think you could design a utopian system that would do it that way and then you wouldn’t have to rely on--you could have robots working at the company."

...and then read Warren say this...

"I mean it has so much more impact than some academic writing about it or something."

I always love when people talk about serious thinking and writing like it isn't doing something. As if all those wise things just get thought up and written all on their lonesome. I'd be curious to see what kind of world we would have where people were always doin' stuff without studying it, seriously, or if people didn't write about the important stuff. Warren's got to be curious about what his world would look like without Ben Graham - the man whose work he credits all his wealth to - doing all that there them book learnin' and writin'. And we all need to reflect, seriously, about what the world would look like without the writing of people like John Stuart Mill, Adam Smith, Karl Popper, Mary Wolstonecraft, Shakespeare, Mark Twain, Harper Lee, Benjamin Graham, and the writers of the Bible. Not all of those folks are academics, of course. But they do go to the point. Thinking and writing are doing something. And, often, they are the most powerful things to be done, when we're not bullshitting ourselves.

But I also agree with Buffet's larger point. Most people are more convinced by what they see than what they read (even when they're wrong). It's a curious, reasonable, if often foolish tendency we have. But it also often one of the most powerful final words on many matters and makes enough sense to be true.

I do happen to seriously believe in what Gates is arguing. It is an important reason why I believe in the capacity of for-profit and non-profit markets to handle most areas of public service and commitment that are not ones government uniquely or ideally performs or performs well. And I think this is a better focus, generally, than either a strictly for-profit focus in the market or a focus on government responsibility for society's needs or a non-profit focus that is not focussed on results and accomplishment.

This is a nice opening play on this concept. The rest is up to us. Actually, no matter happens, the rest is up to us.

Here's to using our opportunities wisely.

I still haven't found what I'm looking for.

My favorite U2 song, by far.



Though the better version is still, and always, backed with the New Voices of Freedom gospel choir on the Joshua Tree and Rattle and Hum tours.



Theme song for life. And that's how it should be.

The case for sensible universal acess to health care

Politics is often so shrill and mindless, that I've often felt that many policy questions are a matter of just sitting down dispassionately with evidence, rather than the self-righteous fits that people are often so given to.

Single-payer health insurance as a route to a commitment to universal access to health care is one such issue, I believe.

It is encouraging that the architect of the Quebec single-payer system has arrived at the same conclusion.

Canadian Health Care We So Envy Lies in Ruins, It's Architect Admits

"Back in the 1960s, Castonguay chaired a Canadian government committee studying health reform and recommended that his home province of Quebec — then the largest and most affluent in the country — adopt government-administered health care, covering all citizens through tax levies.

The government followed his advice, leading to his modern-day moniker: 'the father of Quebec medicare.' Even this title seems modest; Castonguay's work triggered a domino effect across the country, until eventually his ideas were implemented from coast to coast.

Four decades later, as the chairman of a government committee reviewing Quebec health care this year, Castonguay concluded that the system is in 'crisis.'

'We thought we could resolve the system's problems by rationing services or injecting massive amounts of new money into it,' says Castonguay. But now he prescribes a radical overhaul: 'We are proposing to give a greater role to the private sector so that people can exercise freedom of choice.'

Castonguay advocates contracting out services to the private sector, going so far as suggesting that public hospitals rent space during off-hours to entrepreneurial doctors. He supports co-pays for patients who want to see physicians. Castonguay, the man who championed public health insurance in Canada, now urges for the legalization of private health insurance.

In America, these ideas may not sound shocking. But in Canada, where the private sector has been shunned for decades, these are extraordinary views, especially coming from Castonguay. It's as if John Maynard Keynes, resting on his British death bed in 1946, had declared that his faith in government interventionism was misplaced.

What would drive a man like Castonguay to reconsider his long-held beliefs? Try a health care system so overburdened that hundreds of thousands in need of medical attention wait for care, any care; a system where people in towns like Norwalk, Ontario, participate in lotteries to win appointments with the local family doctor.

Years ago, Canadians touted their health care system as the best in the world; today, Canadian health care stands in ruinous shape.

Sick with ovarian cancer, Sylvia de Vires, an Ontario woman afflicted with a 13-inch, fluid-filled tumor weighing 40 pounds, was unable to get timely care in Canada. She crossed the American border to Pontiac, Mich., where a surgeon removed the tumor, estimating she could not have lived longer than a few weeks more.

The Canadian government pays for U.S. medical care in some circumstances, but it declined to do so in de Vires' case for a bureaucratically perfect, but inhumane, reason: She hadn't properly filled out a form. At death's door, de Vires should have done her paperwork better.

De Vires is far from unusual in seeking medical treatment in the U.S. Even Canadian government officials send patients across the border, increasingly looking to American medicine to deal with their overload of patients and chronic shortage of care.

Since the spring of 2006, Ontario's government has sent at least 164 patients to New York and Michigan for neurosurgery emergencies — defined by the Globe and Mail newspaper as 'broken necks, burst aneurysms and other types of bleeding in or around the brain.' Other provinces have followed Ontario's example.

Canada isn't the only country facing a government health care crisis. Britain's system, once the postwar inspiration for many Western countries, is similarly plagued. Both countries trail the U.S. in five-year cancer survival rates, transplantation outcomes and other measures.

The problem is that government bureaucrats simply can't centrally plan their way to better health care.

A typical example: The Ministry of Health declared that British patients should get ER care within four hours. The result? At some hospitals, seriously ill patients are kept in ambulances for hours so as not to run afoul of the regulation; at other hospitals, patients are admitted to inappropriate wards.

Declarations can't solve staffing shortages and the other rationing of care that occurs in government-run systems.

Polls show Americans are desperately unhappy with their system and a government solution grows in popularity. Neither Sen. Obama nor Sen. McCain is explicitly pushing for single-payer health care, as the Canadian system is known in America...

However the candidates choose to proceed, Americans should know that one of the founding fathers of Canada's government-run health care system has turned against his own creation. If Claude Castonguay is abandoning ship, why should Americans bother climbing on board?"

I favor a commitment to universal access to health care, actually. I just think a single-payer system or any system driven by government is far from ideal and trades off with the advantages of a private market unnecessarily.

A voluntary, decentralized for-profit and non-profit commitment to universal access to health care is a better model. It offers more diversity, more choice, better care and better opportunities for care for everyone, it threatens the advantages of our private health care market not one iota (in fact, it very much supports those advantages since it alleviates pressure to curb the all-too-taken-for-granted advantages of our health care market, with all of its research and development, specialties, technology, pharmaceuticals and drug research, and all of the plethora of advantages of a robust health care market), it offers patients the ability to more readily navigate a robust and forever imperfect marketplace of ideas, relationships, options, etc., in a way that a socialist system could never match, and it could, as Castonguay suggests, be easily transitioned to from single-payer systems, by simply decentralizing control of existing hospitals, doctors' offices, drug manufacturers, and the like from the top-down model currently in place in Canada and giving them autonomy and responsibility for patient issues and results.

Public education, the field I work in currently, is the last bastion of socialism in the United States, and it should be plenty evidence of the failure of that route to anyone not dead-set on defending its every failure. Like health care, the freedom of choice and the freedom to develop institutions that care for peoples' most basic needs is critical to strong institutions and strong services.

What maintains socialists commitments is not their success. What maintains them is persistent defense of the part of their apologists, the fear that abandoning socialist projects equates with abandoning people and serious needs, much agnosticism and ambivalence on the part of a lot of citizens, and the lack of adequately argued and understood alternatives.

Decentralized for-profit and non-profit markets, the kinds that are advocated by school choice advocates in the United States, is the strongest general idea to address institutions where citizens have commitments to universal access to fundamental needs in modern societies, like education and health care.

Properly conceived, it is the only reasonable way to offer the highest quality care and services to the most number of people possible. And it is the only way to most adequately and constructively address inequities in those services, with a given understanding that such inequities will never fully be addressed, no matter what system is now or ever adopted. We can reduce the inequities, we cannot eliminate them, ever. And decentralized for-profit and non-profit markets offer us the best opportunity to do that in a way that single-payer and socialized care and services could never, in their wildest dreams, accomplish.

Here's to one more important voice to contribute to that chorus.