Companies and Philanthropy: Debating "Creative Capitalism"

A lot of hoopla is always made whenever large and public companies dip their toes into the philanthropic pool - whether it be Gap's debatable 'Product Red' Campaign or Starbucks' "fair trade" coffee practices. To the extent that this hoopla is positive, it is often undeserved; after all, the real impact of such campaigns is usually so minuscule that they arguably become nothing more than disingenuous marketing ploys. So what sort of companies actually make a difference? The answer might be Tech companies - Google and Microsoft are just a tad more involved, and with their ambitious strategy (of hoping to leverage not only their huge fortunes but also their best and innovative talent), they seem to be more promising.

Google has big goals - in 2004, founders Sergey Brin and Larry Page expressed their hopes that Google.org (the philanthropic division of the company) would one day "eclipse Google itself in overall world impact." Yet its impact is so far only the infantile stage. Hired two years ago, Dr. Larry Brilliant took 18 months to set and cement Google.org's overarching strategy: 5 core initiatives in three areas: fighting climate change, economic development, and building an early-warning system for pandemics. These initiatives were chosen with Google's inherent strengths and capabilities in mind - after all, [Google.org is] focused on what it can do “uniquely,” said Sheryl Sandberg* in a NYTimes article, "if you do things other people could do, you’re not adding value.” Sandberg and Google seem confident of Google.org, but Brilliant remains cautious:

In the 1960s Dr Brilliant bought into the anti-corporate zeitgeist, but “I must have been wrong,” he says. Now he believes that companies can play a big part in solving the world's problems. Is Google.org, with its innovative mix of for-profit and non-profit strategies and political advocacy, within a corporate structure that denies it some of the tax and regulatory advantages of a traditional foundation, a new model for how a big firm should engage with society? “Let's see how we do first,” says Dr Brilliant. (Economist Article 1/19/08)

There are two big differences in Microsoft's (or Bill Gates') approach: first is that the Gates Foundation is completely separate from the company (except that all the money used to initially fund it was from the success of the company) and second is that it is a lot farther along and a lot larger (its annual budget is around $70MM). Recently, Gates made a speech at the World Economic Forum in Davos, Switzerland where he talked about the need for 'creative capitalism' - a new form capitalism that encourages companies to think beyond market opportunities. In a really interesting WSJ article about the speech, author Robert Guth draws links between Gates' outlook on philanthropy and capitalism and Grameen Bank founder Muhammad Yunus' similar arguments regarding the incentive issue:

Gates adds 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, is traversing the U.S. this month 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.

It is undeniable that Yunus and Gates have done a lot of good for the world. And many would also argue that there is quite a lot of strength to their theories about why the world is in the state it is in and how we can change it. Yet despite all the grand hopes and progress, it must be noted that there is an educated stance against such forms of philanthropy. Such a stance is best illustrated in a snappish but well-reasoned column published last month by respected economist William Easterly in the WSJ, Why Bill Gates Hates My Book. In the article Easterly reasserts his long-running claim that there is simply no evidence that grand aid schemes actually lift people out of poverty, and that old-fashioned capitalism is still the best and only cure:

Mr. Gates seems to believe that the solution is to persuade for-profit companies to meet the poor's needs by boosting the "recognition" of corporate philanthropy. But the dossier of historical evidence to suggest this would work is as thin as Kate Moss on a diet. First of all, the recognition motive has proven to be awfully weak compared to the profit motive. Otherwise we would have had a lot more than the $5.1 billion of annual American corporate philanthropy to the Third World (as of 2005, which has the most recent reliable figures). That was four one-hundredths of 1% of the $12.4 trillion of U.S. production for the free market. Is it really the poor's only hope that the Gap will donate a few pennies per sexy T-shirt for AIDS treatment in Africa?

Sure, let those who have become rich under capitalism try to do good things for those who are still poor, as Mr. Gates has admirably chosen to do. But a New-Age blend of market incentives and feel-good recognition will not end poverty. History has shown that profit-motivated capitalism is still the best hope for the poor.

It is quite likely that Easterly's cynicism is well founded - his 'simple economics' arguments are as compelling as they are clear. However, the fact that Easterly is able to bring up legitimate questions to the approach of Gates' and others in fighting poverty and other world problems does not negate the endeavor as a whole. So, as naive as it may be, I'm going to have to argue that we should give this 'creative capitalism' concept a chance. What can I say? I'm an optimist.


Recent related news:
Gates Foundation to give $306MM to Assist Poor Farmers
Gates Foundation Head to Leave Longtime Post

*At the time, Google's VP of Global Online Sales and Operations, who was recently appointed as Facebook's Chief Operating Officer.