Saturday, March 23, 2013

Harnessing that profit motive. Creative and Conscious Capitalism?

As I noted a fortnight ago, the profit motive is so darn wonderful and a curse at the same time.  Since the end of WWII, and especially since the collapse of the Soviet Bloc, it has been a worldwide experiment on how to handle this profit motive.  We do have variations on this, from the US model to the Scandinavian approach to the Chinese one to ... In all these, there is no hands-off approach to the profit motive and, instead, these different approaches reflect the different ways in which societies attempt to rein in that profit motive.

A few years ago, as Bill Gates started thinking, talking, and doing philanthropy, he talked about ideas on "creative capitalism."  That was five years ago, and it is awful that as I go back to posts that long ago, hyperlinks rarely work anymore.  I wonder how archivists and librarians deal with this nightmare; not my problem, at least for now!  For now, I did a Google search, which led me to this site, in which Gates notes:
Why do people benefit in inverse proportion to their need? Well, market incentives make that happen.
In a system of 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.
The genius of capitalism lies in its ability to make self-interest serve the wider interest. The potential of a big financial return for innovation unleashes a broad set of talented people in pursuit of many different discoveries. This system, driven by self-interest, is responsible for the incredible innovations that have improved so many lives.
But to harness this power so it benefits everyone, we need to refine the system.
See, the gazillionaire Bill Gates, as he started to think of the world beyond Microsoft, also was seduced by that tricky question of how to refine the system that is driven by the profit motive.  In such a refined system, the poor and the underserved can also be quickly brought up to levels where the market forces might then take care of them too.

It is one heck of a challenging question.  And Gates' vision?
The challenge here is to design a system where market incentives, including profits and recognition, drive those principles to do more for the poor.
I like to call this idea creative capitalism, an approach where governments, businesses, and nonprofits 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.
Hey, we cannot complain that Bill Gates simply talked about this and forgot all about it after exiting Davos--the guy has been walking that talk ever since.  But, of course, this is not a challenge that he can take up on his own and solve it.  

Now, another entrepreneur is talking a different variation.  This time, it is the founder of Whole Foods, which is also popularly joked about as "whole paycheck," but that is a different story.  
"I think the critics of capitalism have got it in this very small box - that it's all about money," explains John Mackey, co-founder and co-CEO of Whole Foods. "And yet, I haven't found it be that way. I've known hundreds of entrepreneurs and with very few exceptions most of them did not start their businesses primarily to make money."
The popular, or populist, image of a capitalist is of bloated fellow smoking his cigar in utmost comfort while plotting how to screw the hoi polloi.  But, that ain't so.  There is no doubt that there are several rogues out there, but, seriously, isn't Whole Foods that liberals love so much a capitalist enterprise by itself?  My neighbors own a small business and they aren't out to rob people.  Anyway, let me stay focused here on creating a refined system, call it "creative capitalism" or "conscious capitalism" or whatever.  
In Conscious Capitalism: Liberating the Heroic Spirit of Business, Mackey and his co-author, Raj Sisodia, make a case that businesses are at their best when reaching for a higher purpose that ranges far beyond any simplistic notions of the profit motive or self-interest.
I came across one other example of how the profit motive is doing good--in the case of providing potable water, the lack of which was something I recently wrote about.
WaterHealth International, a social business that has set up drinking water centers in western and southern India, now purifies about 1.4 million liters of water a day, and serves around five million people.
As I recently commented to a student, if I am not an "Argumentative Indian" then I am a "Doubting Thomas." So, of course, I checked out the company's website; it is not clear whether the communities in which this system has been installed fully paid for it, or whether corporations and/or foundations subsidized it.  Even if the latter, then it is nothing but the model that Bill Gates outlined where businesses, NGOs, and governments team up in order to provide for goods and services to the poor whom, otherwise, the profit-motivated businesses completely bypass.

It isn't a perfect world; but, to read about such developments is encouraging enough.

Women carrying water from the common hand-pump, in Pommern (Tanzania)


Ramesh said...

This is a complex area which many people can study for a lifetime and still be no wiser.

Let me add a Chinese perspective to this, for the model of China 9economically) has much to be commended.

Deng Xiaoping (he must be studied and researched much more than currently happens) put China on the path of unfettered capitalism. He let loose the profit motive. The result after 3 decades has been the greatest upliftment from poverty history has ever seen. When his comrades rounded on him for being unfair, he made one of his famous quotes "Let a few become rich first".

China has all the problems attributed to gung ho capitalism - corruption, pollution, inequality, etc etc. But it will take me no more than 5 minutes to prove that any alternative approach would have had worse consequences.

This is not to argue that unfettered capitalism is right. Sure there must be controls and the rule of law. But as you observed, very few people operate purely from a mercenary motive. But I have little sympathy for those who dream of an utopia where everybody is equally rich and there is perfect fairness (otherwise called the loony left). There will be inequality always. It is absurd for people of unequal ability or unequal willingness to put the effort to have equal outcomes. Life is not fair and nowhere in nature is fairness a quality we observe. All we can do is to give as much opportunity as possible to everybody (equality of opportunity is an utopian myth) and then let nature take its own course. There will be winners and losers, but to castigate the winner for the loser's plight is mistaken bleeding heart syndrome.

As an aside I wish your students, who are readers of your blog in droves join in the debate. Apart from wanting to know how the youth think, it is a great opportunity to debate such weighty issues that you raise. Mention it in your next class !

Sriram Khé said...

Yep, as we often end up agreeing, there isn't any feasible alternative to the one that we are working with.
It is an unfair world, and it will always be an unfair world. After all, fairness is in the eye of the beholder. A few at the loony left, and its mirror image at the other end, think they have that magic formula. But, most of the rest of us even intuitively understand that it is all in the grey ...

As for students ... I keep pushing them, as much as I can, to think ... but, I am increasingly worried that in an academic world that is dominated by the loony left, discussions in my class, for all I know, come across as aberrations ... I am increasingly disappointed that higher education doesn't offer students a balanced set of views from which we can then require students to draw their own conclusions, and that the courses we offer are almost always loaded in favor of leftists preferences. And, the irony is that I am sympathetic to those very lefty ideas--but, my preferences have nothing do with what students ought to think about on their own.
My point is that even the few students who tell me that they read my blog or follow my tweets rarely get into serious discussions. In the classroom, many students have explicitly said that they are worried that professors might not be favorable to views that don't agree with theirs ... awful!!!!
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