Bill Gates 2.0

Posted by Marc Hodak on January 24, 2008 under Invisible trade-offs | Read the First Comment

One of the great things about being super-famous is that you have access to certain consumption items not available to the rest of us. One of those cool items is an influential audience for fuzzy ideas that you’re still working through. The media will trumpet your ‘on-the-job’ learning about philosophical and policy issues as if you have something meaningful to add.

So, it turns out that Bill Gates has been engaging in DIY economics to develop an idea he’s calling “creative capitalism.” He introduced this term in a Harvard speech last June.

But at the time he had only a “fuzzy” sense of what he meant. To clarify his thinking, he decided to prepare the Davos speech.

On Jan. 1, following a family vacation, Mr. Gates boarded a commercial flight in Auckland, New Zealand, and during the 21-hour, two-layover journey back to Seattle he started writing his speech.

So, a couple of weeks later, after having read some books and had “a long talk with his wife, Melinda,” he is ready to change the way we approach development economics.

Gates’s business success speaks for itself, and he has had a very public life for nearly two decades. I’m sure it’s easy for him to see all the ad hominem attacks he’s exposing himself to by trying to trumpet a BIG IDEA that has nothing to do with exploiting a monopolistic software standard. He wants to help the world’s poor by tinkering with capitalism. Gates has no doubt seen the public eye-rolling every time some celebritard spouts off on policy issues. He knows, even though he’s infinitely smarter than your average stage monkey, that he will be called hypocritical, amateur, and naive. Well, I don’t have any problem with Bill Gates thinking out loud about global poverty, even if the naive part rings particularly true. I think that any fresh thinking about the problems of the poor should be welcome in light of decades of failure by various public and private groups to help the poor.

My problem with Mr. Gates will begin when he actually convinces a few businessmen that they should stretch their rare skills afield from their core competencies. He apparently wants “businesses to dedicate their top people to poor issues — an approach he feels is more powerful than traditional corporate donations and volunteer work.” It appears to me as if he’s looking at this resource issue from the perspective of the chief of a company that has the luxury of spreading its top people a little thinner than the rest of us. I doubt that Microsoft became Microsoft because Bill Gates allowed himself or his people any distractions from their goal to profitably create and sell software for the masses. Yet, he appears to want to “encourage companies to take their innovative thinkers and think about the most needy — even beyond the market opportunities.”

If he succeeds on this point, Bill Gates will have negated his beneficial effect on the world economy. By encouraging our most productive minds to something other than their best and highest use, he’ll be advocating a marginal reduction in global GDP. What if that marginal loss equates to one-tenth of one percent of our economy? Well, that is pretty much the value that Microsoft has created for our economy since its inception. Getting more smart people to pursue non-market initiatives means the productive world–the top third–will be marginally poorer. If the productive world is poorer, then everyone who is depending on the wealth of that world, whether via their productivity or their generosity, will be poorer.

I will really have a problem with Mr. Gates when he convinces my government to reach into my pockets to fund some “financial incentives for businesses to improve the lives of the poor,” as he seems prepared to do at his Davos speech today. At that time, he will not only be bending productive minds away from their best and highest uses, but he will be taking my tax dollars to encourage it.

Mr. Gates has clearly read and thought a lot about the problems. He has wisely consulted Nobel laureates to inform him of some of the issues and how they have gotten resolved. Now he needs to read a couple of other Nobelists, like Hayek or Friedman, or their ably distilled work, about how markets solve the knowledge problem and how government really works. Once he gets that, Gates is plenty smart enough to see why no one, including his foundation, would voluntarily give a dime to the government to solve social problems.

My biggest problem with this whole story is precisely that it is a story about one man’s intellectual journey written as a serious policy discussion on the front page of a major newspaper. Whenever I read the views of celebrities offering their views on how “rich societies can help the poor,” I think of some unknown academic schmuck, perhaps hailing from India or South Africa, toiling away on his or her ninth peer-reviewed paper on development economics, listening to some bubble-headed theater major spouting off “all it takes is…”

Bill Gates is certainly no bubble head, but he’s not exactly a development economist either. In fact, he comes across as rather ignorant of his own value to the development of our society. He stands in contrast to John D. Rockefeller, the first billionaire philanthropist. Rockefeller founded our early modern health care and educational institutions to great effect. When asked which of his causes he felt had done the most good, Rockefeller famously answered that his greatest good to the world was Standard Oil. His commercial enterprise not only gave light and heat “cheap and good” to the middle class, extending their days into the night where modest families could read or sing or think about things, it also provided an entrepreneurial example for countless American youth, and a powerful business model for the rest of young corporate America to learn from. And, by the way, it was the source for his personal fortune that made all of his charities possible.

Bill Gates apparently doesn’t share this high opinion about his own business creation and example. Maybe that’s because Microsoft is the purveyor of mediocre-to-crappy software. Well, that shouldn’t take away from the fact that his business has created tremendous value that permeates our entire society–top to bottom–with the immense productivity that his software has enabled. Gates’s comments that capitalism doesn’t “serve the needs” of the poor merely proves that great businessmen don’t make good economists any more than great economists make good businessmen.