MARCH 2008 :: INTERVIEW

Compassionate Capitalism?
Bill Gates Calls on Business to Take a New Approach to the World's Problems

By Robert A. Guth
The Wall Street Journal

Free enterprise has been good to Bill Gates. But now, the Microsoft chairman is calling for a new approach to capitalism.

Mr. Gates is proposing a "creative capitalism" that uses market forces to address poor-country needs that he feels are being ignored.

"We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well," Mr. Gates told attendees at a recent meeting of world leaders in Davos, Switzerland.

Mr. Gates isn't abandoning his belief in capitalism as the best economic system. But in an interview with The Wall Street Journal, he said 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 is 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."

Recently, 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 gave at the annual World Economic Forum of world leaders in business, politics and nonprofit organizations earlier this year.

Among the fixes he's calling 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 said.

Life After Microsoft

Mr. Gates's 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.

Mr. Gates's thoughts on philanthropy are closely heeded because of the business success that made him one of the world's richest men. His 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.

Key to Mr. Gates's plan will be for businesses to dedicate their top people to poor people's 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 says. "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 says.

But Mr. Gates's argument is certain to raise skepticism. "There are 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 had 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 in the interview, "although low-cost personal computing certainly is a tool for drug discovery and things that have had this very pervasive effect," 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 program, the company offers stripped-down software and alternative ways of paying for PCs to poorer countries.

With his speech at Davos, Mr. Gates added 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, has been traveling in the U.S. 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.

Moral Sentiments

Mr. Gates is emphatic that he's not calling for a fundamental change in how capitalism works. He cites 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 in the interview.

But there's more to Adam Smith, he added, flipping through a copy of Adam Smith's earlier book "The Theory of Moral Sentiments." It argues that humans gain pleasure from taking an interest in the "fortunes of others."

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 says 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 at Harvard's graduation, 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 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 use of computers, while in "other places you announce a big free software grant, come back a few years later, nothing," Mr. Gates says.

The Power of Technology

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," "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 says.

Mr. Gates notes 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 also cites 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 says. "What we need is the recognition of the creativity here that some of the leaders are exercising."

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 the late business professor Julian Simon, who argued that increases in wealth and technology would offset shortages in energy, food and other resources.

The influence of such optimists was woven into Mr. Gates's Davos speech. "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 said.