Creative Capitalism: A Conversation with Bill Gates, Warren Buffett, and other Economic Leaders
December 2, 2008
JOANNE MYERS: Good afternoon. I'm Joanne Myers, Director of Public Affairs Programs, and on behalf of the Carnegie Council, I would like to welcome our members and guests, and to thank you for joining us this afternoon.
Today we are so pleased to welcome Michael Kinsley and Bill Easterly as our guests. Both of them are stars in their own fields. Michael Kinsley is known to many of you as a media innovator, and Professor Easterly has made his name known in the field of economics.
Bill Gates raised it, Michael Kinsley advanced it, and as the conversation continues, it is appropriate that today it is taking place in one of the homes that the patron saint of American philanthropy, Andrew Carnegie, built. The "it" that I'm referring to is an idea that was first presented in a groundbreaking speech that Bill Gates delivered at the 2008 World Economic Forum in Davos in which he challenged fellow entrepreneurs, not-for-profit pioneers, economists, and other scholars to pursue the idea of creative capitalism in order to address the growing gap between the rich and the poor in the global economy.
The idea of creative capitalism is, in Bill Gates' terms, a way to combine two great focuses of human nature: self-interest and caring for others. In the same way that he revolutionized computer software, he wants to challenge corporations to improve the lives of billions of people that have great need. He believes that corporations can integrate doing good into their way of doing business, and without sacrificing their own business needs.
In his speech, Mr. Gates said that the world's problems had become too big for government and philanthropy, even on the scale of the Bill and Melinda Gates Foundation's, and that the free-market capitalist system will need to contribute to solving them.
His challenge was: Can we make the notion of creative capitalism work to help the world's poor as well as it works to help the world's rich?
But by suggesting a new approach to giving, what precisely Mr. Gates meant by this was not exactly clear. As a matter of fact, this notion of creative capitalism raises more questions than it answers, which, in many ways, was perhaps his intention, starting with what it is and whether it's a good thing.
So, then, the question was, who could explain what Bill Gates meant? As one of the most notable participants in the mainstream media's development of online content, it wasn't all that surprising that Michael Kinsley, a well-known and widely acclaimed essayist, would come up with a novel approach to addressing this topic. Accordingly, Creative Capitalism, the book, is rather innovative in itself, in that the content was generated after Bill Gates' speech. It began as a first-of-its-kind online conversation. It was Mr. Kinsley's intention to gather a collection of smart people and entice them into a Web-based discussion of creative capitalism.
That was exactly what he did. Capitalizing on his own creativity, he enlisted the help of over 40 of the most influential thinkers in the world of economics, business, and academics, including three Nobel laureates. Names such as Warren Buffett, Larry Summers, Milton Friedman, and Bill Easterly all participated in the challenge first put forth by Bill Gates and later taken up on the Internet by Mr. Kinsley.
As Mr. Kinsley describes it, this book would have the quality of a blog, a chat, or akin to one of Slate's email dialogues. Although many books have grown out of Websites, this was the first, or at least one of the first Websites, started with the specific intention of producing a book.
This online conversation has raised many questions, fueled debates, and hopefully will inspire action. But not everyone agrees with Mr. Gates's approach to capitalism. Among the many contributors who have taken exception to the notion of creative capitalism is Bill Easterly. He wrote that he believes that Bill Gates's ideas on this topic are misguided, and tells us why he thinks so.
Today, with the financial markets such as they are, it appears that capitalism and philanthropy, as we know it, may have to adapt to a changing world. Therefore, a conversation that challenges conventional wisdom about our economic system is a vital one to have. I am delighted that we have the opportunity to continue the conversation that was begun almost a year ago in Davos.
Please join me in giving a very warm welcome to our two speakers today, Michael Kinsley and Bill Easterly.
Thank you for joining us.
WILLIAM EASTERLY: I wrote something out in advance because I was afraid I'd choke up when I saw you in person.
Bill Gates says traditional capitalism is not good for the poor. I frankly had to disagree with that. After the last few weeks, I think it's not good for the rich either.
I think, actually, we should not get too sidelined tonight by the financial crisis. Maybe we can agree on that as a sort of rule.
MICHAEL KINSLEY: We can agree. I don't know whether the other people in the room would agree.
WILLIAM EASTERLY: I'm going to try to make the bold statement that the financial crisis has got me in a panic, it's horrendous, it's terrible, and we're going to get over it.
MICHAEL KINSLEY: We're going to get over it emotionally or we’re going to get over it financially?
WILLIAM EASTERLY: We have had a dozen previous financial crises in the United States, including the Great Depression, and every time we have returned right exactly to the same trend line we were on before.
MICHAEL KINSLEY: And how many years did it take during the Great Depression?
WILLIAM EASTERLY: That was the worst one. I thought you would bring that one up.
MICHAEL KINSLEY: You brought it up.
WILLIAM EASTERLY: That took until World War II to bring us back to the trend line. About 1940, we got back to the trend line.
MICHAEL KINSLEY: So we just have to wait about 12 years.
WILLIAM EASTERLY: I don't think this is going to be as bad as the Great Depression. But economists don't have a great track record in forecasting, so please don't make any investments based on that statement.
MICHAEL KINSLEY: But we're not talking about that.
WILLIAM EASTERLY: The point I want to make is that despite all this, despite all the stuff that has us all in a panic, traditional capitalism increased U.S. average incomes over two centuries by a factor of 35. That's the trend line. We have had during that time 24 financial crises, and every time we have come back to that trend line that has increased average incomes in the United States by a factor of 35.
One of the things that happened along that trend line was that Bill Gates came along. His income increased by somewhat more than a factor of 35, if I have the numbers right.
So the first question I have for you is, why is Bill Gates—he's the world's most successful capitalist in history. Why is he so down on traditional capitalism?
MICHAEL KINSLEY: Let me say a couple of things. First of all, I think you are over-interpreting what he says, and I think he over-said it. You put those two together. He does not denigrate capitalism. He knows where his own wealth came from, and he is quite aware that capitalism is what makes him able to do the wonderful things he is now doing with philanthropy.
But—point number two—he's not just talking about the United States; he's talking about the entire world, Africa especially. I don't know what you want to date the start of the capitalist era to. Do you want to say 1776, when The Wealth of Nations was published and a couple of other things happened? The United States has done quite well. Other places haven't.
The third point I would make is that you do have a point. We were just talking about this. One of the really interesting little pieces of this book is a piece by Clive Crook, formerly of The Economist, now of The Atlantic, where he points out that Bill Gates did not do what Bill Gates recommends. Bill Gates went out and operated as a traditional capitalist, and in the process, he did a world of good for many people, rich and somewhat poor (not too much for the rock-bottom poor). Then, having made this enormous fortune, he is now applying that fortune and his phenomenal intelligence to problems of the poor. Netting his own life, comparing what he did with what he says you should do, it might be that you should follow his example and not what he says.
I would like to hear his answer to that.
WILLIAM EASTERLY: If we talk about Africa, of course, the reason we talk about Africa is because it is poor. We didn't choose it arbitrarily. It's because it's poor. The rough order of magnitude, if you want 1776 as the beginning, is that the global poverty rate—that is, people who are living in extreme poverty, which the World Bank measures as living on a dollar a day—was about 75 percent in 1776, and now it's 10 percent or maybe 5 percent. Economists argue about how you measure the numbers. Most of those are in Africa.
Is it that Africa was bypassed by capitalism? Has Africa had capitalism and it just failed in Africa? Is Africa's problem too little capitalism or too much capitalism?
What do you think Bill Gates would say?
MICHAEL KINSLEY: I think he would say neither. I think he would say that capitalism is doing good in Africa, as in other places, but there seem to be limits to what it can achieve. To overcome those limits, even the $60 billion that he and Warren Buffett now have and are devoting to many things—but that's the biggest, infectious diseases in Africa—is not enough.
WILLIAM EASTERLY: One of the points that he made that I think was insightful—and I guess it's kind of obvious once you point it out, but it's a good point—was that the private market does not have an incentive to meet the needs of the poor, because obviously the poor don't have the buying power to give firms the incentive to want to serve the poor.
But I think he left out another side of the equation, which is, even if the private market is producing mainly for the rich, as demand for the rich's goods expands, they need to hire all those unskilled workers who are poor. That's how they pull along the poor. In fact, Africans have benefited from the demand of the rich in the rest of the world. Just to give you a random example, Kenya is currently supplying 40 percent of the European market for cut flowers. All those romantic European men who go out and buy flowers for their wives are mostly buying Kenyan flowers. Unfortunately, there aren't that many romantic European men, but Kenya is exploiting what they can there.
That's an example where the demand side of the market is working for Africa, even if Africans are not creating tremendous incentives for firms to satisfy their needs.
MICHAEL KINSLEY: So is it just a question of waiting? It took us 230 years to get from 75 percent down to 10 percent. If we are patient for another 10 years, 20 years—how long to get the 10 percent down to whatever you wish, 2 percent or something?
WILLIAM EASTERLY: I will agree with you that it would be great to do everything we could to meet some of the most desperate needs of poor people, like basic medicines. The babies who are dying from dehydration due to diarrhea because they can't get 10-cent oral rehydration salts that would rehydrate them and prevent them from dying—that's definitely something that I think rich people could try to do and make happen for poor people in Africa. I'm sympathetic to that.
I guess the next question I have, though, is—Bill Gates has this idea that it's the corporations of the world that should play an important role in that—where do they fit in?
MICHAEL KINSLEY: Before we get to what we should do, you make it sound like it's not necessary to do anything, because capitalism is—it's not moving instantaneously, but it's moving fast enough. My question to you is, is that your view, that you really don't need to do much of anything, except tear down tariff walls and other things within the theory of capitalism that might help some of these poor countries? Or do you think that we need to do more? Then we can talk about what that more might be.
WILLIAM EASTERLY: I wish that there was some convincing historical evidence out there that there is something that aid or rich people could do that would have a really rapid effect on lifting Africans out of poverty. I don't really see any historical evidence for something that does that, besides capitalism.
What I was trying to say is that as far as Africans exiting poverty and becoming rich, I don't think that’s something that rich outsiders can achieve. But as far as the desperate needs that people have today, I think rich outsiders who mean well can supply some of those basic goods, like oral rehydration salts for babies or other things.
MICHAEL KINSLEY: But are you saying that there is no point in this creative capitalist stuff because nothing will move that 10 percent any lower, or are you saying to just be a little more patient and it will be lower by itself?
WILLIAM EASTERLY: "By itself" means a lot. "By itself" means the creative energies of hundreds of millions of African entrepreneurs and workers who lift themselves out of poverty. That's how poverty ends, I think. If you look at historical experiences of how poverty actually ends, it always seems to end by the homegrown efforts of the workers and entrepreneurs themselves.
MICHAEL KINSLEY: So are you saying, "This will happen. Don't worry about it"? Or are you saying, "It will never happen. Don't worry about it"?
WILLIAM EASTERLY: I worry about it. I think you are setting it up as if there's some alternative that I'm against. But there's not. There is no alternative that we know of. If I knew of an alternative that would get Africans out of poverty quickly, I would be very enthusiastic about it. But I don't. I don't see any evidence for such an alternative.
MICHAEL KINSLEY: Back when I did this for a living, I used to have a rule that I would ask a question three times, and if I didn’t get an answer by the third time, I would give up.
WILLIAM EASTERLY: What question am I not answering?
MICHAEL KINSLEY: This is the third time. Is the continuation of poverty, extreme poverty, in Africa, to take the most obvious, concrete example, inevitable or is it inevitably going to disappear? Either one of those could lead you to the conclusion that creative capitalism won't work. I'm just trying to figure out which direction you are coming from.
WILLIAM EASTERLY: Nothing is inevitable in history or economics, but I think it's very likely that Africans are going to hop onto the same train. In fact, they may already be on the same train, because the last ten years have been very good economic growth in Africa that has pulled the rest of the world out of poverty.
MICHAEL KINSLEY: Okay, that's pretty close to an answer.
WILLIAM EASTERLY: I'm glad you're happy after three times.
MICHAEL KINSLEY: Here's another one. You are skeptical. You don't think it will work. But what is wrong with the idea that corporations and rich individuals in prosperous countries ought to do more to help the people who need help, taking the concept of creative capitalism at its most basic level? I'm very glad it bothers you so much, because that was good for the book. But I have to wonder, what’s the harm?
WILLIAM EASTERLY: I think by sort of setting up this big case that traditional capitalism is so bad and unsatisfactory and we need this other creative capitalism, you are risking this big thing that has worked. It has reduced poverty in the developing world. If you want a shorter time period, I'll give you the last 35 years, when it has reduced it from about 40 percent in 1960 to 5 or 10 percent today. So you are risking something that really has worked and criticizing it at a moment when it's extremely vulnerable. With the current financial crisis, we really might be ready to give up on that. This has happened before in development economics. After the Great Depression, a lot of people gave up on the market in poor countries.
I'm afraid that this idea is sort of feeding that movement that is going to throw out the baby with the bath water, throw out traditional capitalism, and you are substituting for it something that, you have to admit, is historically untried. You are going to have corporations somehow respond to the needs of the poor through some mixture of recognition and profit. This is historically untried. I have my intuitive doubts about whether it will really work, and you are putting in danger the one thing that has been working.
MICHAEL KINSLEY: You have amazing confidence in the power of books.
WILLIAM EASTERLY: And you as a writer. You're such a persuasive writer. People just tell me I'm a good writer for an economist. It's like saying, "You’re a good football player for a midget."
MICHAEL KINSLEY: Or for an economist, yes.
WILLIAM EASTERLY: I have to confess, there is one more thing that bothers me about corporate philanthropy. Corporations are really a fiction. Corporations are people. They are owned by people, by all of us—actually, not by me at the moment; I'm not in the stock market. They are owned by a very large segment of American society or world society, the rich countries—dentists and schoolteachers and auto mechanics. Why should corporate managers be the ones that use our money to do what the corporate managers think is best to try to reduce poverty?
MICHAEL KINSLEY: I think that's a very good question. I think I may even side with you on that. My sense—you have to read a little bit between the lines—is that Warren Buffett may side with you on that. There is a very interesting discussion that begins with Warren saying that they had a program at Berkshire Hathaway where they decided how much they were going to give—and there is some sort of maximum in the law—of their net profits to charity, and stockholders could designate the charity for their fraction of the total.
The first question that arises is, why bother? Why not just give them the money and they can give it to charity if they want? The answer is, under our tax system, that money gets taxed twice, and if they give it away, it only gets taxed once, whereas if the corporation gives it away, it's not taxed at all.
But even so, they ended up having to drop the program because, inevitably, the things that people gave money to were controversial. People got far angrier—this is the interesting part to me, it's more a political point than economic—people would get furious at the fact that Berkshire Hathaway gave $7.25 or some relatively small amount—not that small—to a cause they didn’t like. That bothered people much more than that Berkshire Hathaway gave an equal amount or even more to a cause they did like. That’s very typical of American politics. Basically, it became too much of a hassle for him, so he gave it up.
Let me ask you, though—oh, I should say, I called an old law professor friend of mine who writes about whether it's even legal, whether it's possibly taking away stockholder rights. Then the question becomes, what if it said in the corporate charter or in some founding document, or what if it said on the walls of the factory, whatever, "This corporation has several goals, only one of which is maximizing profits. You should know this before you invest"? If they did that, would that be okay with you? Would you at that point say stockholders don't have to buy the stock if they don't want to, and if they would like the corporations they own to be more socially responsible, there ought to be a way they can do that, and this is the way?
WILLIAM EASTERLY: I think when you have multiple goals, you tend to get very confused and do less well on each individual goal.
MICHAEL KINSLEY: It may be a terrible idea, but the question is, is it denying anybody their rights?
WILLIAM EASTERLY: I'm not worried about rights of shareholders. That's the last thing I'm worried about.
MICHAEL KINSLEY: Could have fooled me. That was what you asked me.
WILLIAM EASTERLY: No, what bothers me is, why should the corporate managers be the anointed of society to fight global poverty? Why isn’t it aid workers who have spent years and years in the field or—I don't know—university professors or schoolteachers or health workers? Why is it corporate managers that should be designing these programs?
MICHAEL KINSLEY: I think the answer is, it's not a question of corporate managers or professors of economics; it's corporate managers or no one. The corporate managers, by definition, have the control of the resources. You say that possibly they shouldn't have the right to use the resources in this way. But I don't think, if they lose that right, you are going to get it.
Anyway, you're a bad example, because you wouldn't spend it the way Bill Gates has in mind anyway.
WILLIAM EASTERLY: We have some disagreements, it's true.
What worries me is—Bill Gates talks about this recognition motive that will make corporations want to help the world's poor. I do have to point out in passing that this recognition motive does not seem to be extremely strong at the moment, because corporations are only giving a total of $5 billion to the Third World at the moment—U.S. corporations—and U.S. corporations are producing $13 trillion for the market. So $5 billion out of $13 trillion—
MICHAEL KINSLEY: That's why he gave the speech.
WILLIAM EASTERLY: Now it's you who has great faith in the ability of a speech to change incentives.
MICHAEL KINSLEY: Well, it's a start at any rate. But fair enough.
WILLIAM EASTERLY: So that's one problem. And then, if they do decide they want recognition, what I have noticed a lot in the aid industry is that the things that are really glamorous are not the same things that are really good for the poor and really help the poor a lot. The example I have already given of oral rehydration therapy for babies is, unfortunately, something that is very unglamorous and has never attracted any Hollywood movie star or rock star to hold a concert for the sake of babies dying from dehydration.
MICHAEL KINSLEY: Really?
WILLIAM EASTERLY: And yet that is one of the most amazing payoffs that you can get for your aid dollar that is available to us today. There are 1 million babies dying every year in Africa from this cause alone. It would cost you 10 cents to save each one of those lives.
MICHAEL KINSLEY: I'm amazed.
WILLIAM EASTERLY: That’s the kind of thing that gets lost when you get people who only want recognition. They go for something glamorous. AIDS treatment—let's take that as an example. I have nothing against AIDS patients getting drugs. That seems like a very worthy cause. it's also a very expensive cause, so it has tended to overwhelm the health systems in Africa. There are horror stories of these multimillion-dollar AIDS hospitals that turn away the mothers who come to the hospital door saying they have an infant that has measles or is dying from dehydration or is malnourished. All these things for which you could use the $2,000 a year that it costs to treat an AIDS patient—if you just reallocate a little bit of that toward the babies and the children that are dying from measles and malnutrition and dehydration, you would save millions of lives, as opposed to the 100,000 lives we are now saving on AIDS treatment.
It's because AIDS treatment is glamorous and this other stuff is not. The stuff that's glamorous gets tons of money. I'm in favor of the poor getting tons of money. I just wish that it could be spread out a little bit more evenly so that it would help millions of poor instead of just 100,000 poor.
MICHAEL KINSLEY: That sounds like a serious defect in our current arrangements. Bill Gates has a solution that he proposes. What’s your solution?
WILLIAM EASTERLY: I missed Bill Gates'solution.
MICHAEL KINSLEY: His solution is creative capitalism, and you have various problems with it. But you can't beat a horse with no horse. What do you suggest?
What you describe is not a problem with the system Bill Gates would like to see, because that system doesn't exist. The problem you describe is with the current arrangements. So what should we do about it?
WILLIAM EASTERLY: I think the huge defect in the aid system now, which affects both private, high-profile philanthropy and official aid agencies, is the total lack of any kind of accountability for results. No one is going out and asking the poor, "Did these goods actually reach you? Did you actually get what the aid agencies promised?" There is virtually no independent evaluation, no independent surveying, or any kind of method that is being used to really get feedback from the poor on whether they are getting the goods or not from the official aid system.
So the official aid system is basically operating both sort of deaf and blind. it's blind because it itself doesn't know whether the goods are reaching the poor, and so it can't correct any mistakes that it makes, and it's deaf because, since there is no political pressure emanating from poor people going away unsatisfied, aid agencies can get away with doing anything they want, basically, and continually employing their high-paid workers.
Corporate philanthropy kind of has the same problem. Who are the corporate managers accountable to with these dollars? Who are they going to answer to? How are we going to know that these dollars actually reach poor people?
MICHAEL KINSLEY: I do think creative capitalism means more than corporate philanthropy. In fact, Bill's emphasis is on things corporations can do that are part of who they are, part of their corporate mission in general. For example, he is very much in favor of Microsoft giving away software and training people to use it in ways that will help. He thinks drug companies should make pharmaceuticals more available. It's much more that than tithing or anything like that.
Let me ask you a little bit about—you would be hard-put to say what Bill Gates' definition of creative capitalism is when you read this book. I think, in part, he was throwing this out there to start a discussion. But one of the original ideas is this notion of recognition as another form of compensation. The question is, why should a corporation, which does have a fiduciary duty to its stockholders, worry about these other problems?
Shouldn’t they maximize profits in the way Adam Smith told them they should?
He points out that people crave recognition for caring for others. What's not clear in his book is, does he, therefore, think that corporations should just do this because they want recognition? Or does this tie back into the profit motive, in the sense that the best young people whom you might want to hire don't want to work for you unless you are doing something more than just maximizing profits?
This is a huge change in our culture that has really been a good thing. It could be that recognition for doing good works, for trying to do things that help, is a perfectly legitimate capitalist incentive. How about that?
WILLIAM EASTERLY: Let me give you the example of Product Red, to sort of examine how this recognition is working. Product Red is this program that was really pushed by Bono, where certain products for each corporation—like blue jeans for The Gap—would be identified with a label, "This is Product Red, and if you buy these blue jeans, some of the profits will go for poor people in Africa."
This is a good example of what recognition becomes in a celebrity-driven culture. We have tons of sexy Product Red ads with all kinds of beautiful men and women in them. Unfortunately, the budget on marketing so far exceeds what has actually gone to the poor. They have spent more on marketing than they have actually given to any fund for the poor.
That kind of statistic really makes me wonder about what, in a celebrity culture, recognition is really going to mean. In fact, I would have thought that such a campaign would have been a lot better—instead of trying to promote Gap blue jeans, why don't we promote African products? Why don't we convince people to buy more African products? Buy more jeans made in Lesotho. They have a textile industry. Buy more Ethiopian coffee. Buy more cut flowers from Kenya.
MICHAEL KINSLEY: It sounds to me like this is a defect in capitalism. Why hasn't the free market directed—
WILLIAM EASTERLY: Product Red was a defect in creative capitalism.
MICHAEL KINSLEY: Why hasn't the market directed these resources in ways that maximize the return—
WILLIAM EASTERLY: Why doesn't Bono, if he wants to do creative capitalism, promote African products instead of The Gap? That’s my question.
MICHAEL KINSLEY: Well, why doesn't he?
WILLIAM EASTERLY: His Live 8 concert a few years ago didn't have a single African musician—not even in music. There are great African musicians. I have tons of African musicians on my iPod. Why isn't he promoting African products?
MICHAEL KINSLEY: Why isn't he?
WILLIAM EASTERLY: Because he gets recognition for doing the glamorous thing that involves sexy blue jean ads for The Gap. That's what he gets recognition for.
JOANNE MYERS: I just have to say, if the definition of a conversation is an exchange of ideas, I think the two of you certainly did exchange your viewpoints. I want to thank you very much.
Questions and Answers
QUESTION: I'm a bit confused. Are you saying that the market left on its own would direct profits in whichever way it should to be able to solve the problem of poverty? Or do you think that capitalism has not really been applied because there are still tariffs against African goods and that trade, if it was free, would be the ideal sort of traditional capitalism, which would take care of it?
To get rid of those tariffs, you have to actually intervene politically. You have to get the legislature to remove those tariffs. There, you are dealing with competing political interests.
The same thing with your tax dollars. Again, you have to get the political part, the legislature, to, in a sense, raise the taxes, which each one of us individually would be part of by voting for it, as opposed to leaving it to some corporate manager to decide.
WILLIAM EASTERLY: You used an interesting word there: Does capitalism eliminate poverty the way it should? The word "should" is interesting.
From my perspective, I could agree that, in some sense, poverty is being reduced too slowly. Any rate of reduction is too slow. The sooner poverty is eliminated, the better. So in some sense, the "should" question is—yes, we should desperately search for anything that would reduce poverty faster.
It's just that I so far don't know of many historical examples, besides free-market capitalism—not extremely dogmatic, fundamentalist, rigid, ideological laissez-faire, but just kind of pragmatic capitalism. That's what historically has ended poverty in most places around the world, and I expect that's what will end poverty in Africa, too.
QUESTION: I'm only at the fringe of the philanthropic industry in the United States. I'm not an expert. But it seems to me—one observation—that philanthropy is such a big deal in America for the same reason that the housing industry is such a big deal, and that's because we have a tremendous tax incentive to give, both corporate and individual.
But what's really interesting to me is that the nonprofit field and the people and organizations who benefit from giving have adopted capitalism now as their model. They talk about social entrepreneurship and social entrepreneurs. They talk about social return on capital. We see microlending in Bangladesh, this capitalistic model. We see people like Hernando de Soto, the Latin American economist, saying that we need to capitalize the poor; we need to recognize that poor people have assets, and if they had legal title to those assets, they could then use those assets as collateral in a capitalistic model.
So I guess my question is—not that capitalism should be more philanthropic, but philanthropy itself is becoming more capitalistic—where do those things meet?
MICHAEL KINSLEY: Philanthropy becoming more capitalistic is definitely part of what Bill has in mind, and microlending and all that. Once again, the definition is fuzzy, but that's definitely part of his thinking.
Actually, I would be interested. Bill, do you have any problem with those kinds of things?
WILLIAM EASTERLY: No. My book—which I won’t tell you the title of because then I might sound self-promoting—in a book that I wrote a couple of years ago—
PARTICIPANT: Tell us the title.
WILLIAM EASTERLY: It's called The White Man’s Burden.
In the book, one of the main concepts I actually went out on a limb about was having aid workers and all philanthropists in the Third World think like entrepreneurs. I called them "searchers." I thought a big problem with foreign aid was that there were too many people operating like central planners in foreign aid. They sort of had the Soviet central plan for ending poverty or improving health, and they didn’t have an entrepreneurial mindset.
One thing that drives me crazy about meeting corporate social responsibility types is—obviously, the corporate bosses themselves are entrepreneurial, because they have been successful, but the people they hire for the corporate social responsibility departments are not. They are like planners; they are like central planners. They are like refugees from the central-planning aid agencies that have come to the corporation. So that's another thing that worries me a little bit about the current trends in this.
MICHAEL KINSLEY: And I just have to make one small point. I think it's true that—your point about taxation is right. Americans give away money, I think, in part, surely, because they are extremely generous. We as a culture are generous. But the tax system certainly contributes to it.
Also, of course, you can look at it the other way and say that in Europe, where they have much more of a social welfare safety net, there isn't the obvious crying need for philanthropy that you have in the United States. So you can argue that one way or another.
My understanding is that Bill Gates and Warren Buffett have both given away so much money that they will never have to pay income tax anyway. So that is not their motive, in any way.
QUESTION: Professor Easterly, at the beginning you said that income had grown—I think you meant per capita income—35-fold in 200 years. A little mental arithmetic says that's a bit over five doublings, doubling time, a little under 40 years. That would be 2 percent growth per year for two centuries.
WILLIAM EASTERLY: Yes, that was 2 percent per year.
QUESTIONER: The last century surely has had significantly greater growth than 2 percent—I think between 3 and 4. That must mean the first century—I'm talking about the 19th century—would have had perhaps 1 percent growth per annum.
So it seems, if this is correct, that what has helped us all become wealthy is not just capitalism, but capitalism turbocharged with some other factors that were present in the 20th, but not the 19th century.
My question is, does that seem about right to each of you? Secondly, what are those factors, then?
WILLIAM EASTERLY: To give an exact answer to your question, as far as the U.S. economy, the percent growth rate per year has, remarkably enough, been roughly constant for about 200 years. If you draw a line through U.S. per capita income and measure it in logarithms, which is how you are supposed to do it, then it's just a straight line. it's just a constant growth rate for 200 years.
But the world as a whole—you are right—has had a significant acceleration of per capita income. In the developing world, per capita income has risen by a factor of about three in the last 40 years—so that's somewhat better—because world growth has accelerated.
MICHAEL KINSLEY: I don't have anything to contribute to this. I think that's a fascinating situation you pose. Of course, the unspoken follow-up question is, what about the 21st century? Is it possible that there were factors in the 20th century, but not in the 19th? Suddenly you think, well, it's not inevitable by any means.
QUESTION: I think, but I'm not sure, there might be another dynamic when you extrapolate backwards. Two hundred years ago, we weren't competing with anyone at a much higher level than we were. I think the fact that that disparity is so great now makes it a much harder burden to catch up. I know when we give food aid, we give our food, on our boats. I know Oxfam wants us to contribute 25 percent to locally grown food. So you have different kinds of dynamics.
Just a last question. When you talk about capitalism, I try to think what you mean. Do you talk about our capitalism, Europeans' capitalism? Then I think of China and South Korea, how, really, they had quite a controlled society until they loosened up into capitalism with a mixture.
So I think "capitalism" is a very complex term.
MICHAEL KINSLEY: I'll answer the way I think Bill Easterly would, if I would only shut up and let him. Suppose there were only two countries in the world and you are one of them. Would you want the other one to be extremely advanced, capitalistic, and far more prosperous than you, or would you want it to be much less developed than you?
The correct answer is, you would want the first one, not the second. Right?
WILLIAM EASTERLY: Absolutely, yes. I think the dynamic really goes both ways. You might feel that you suffer more competition from the more technologically advanced country, but also you can borrow the technology that they have already paid all the huge invention costs for. You can borrow their technology at very low cost and catch up very rapidly if you do it right. That is, I think, the dynamic that China and South Korea have exploited.
QUESTION: Is there any mention of the severe population growth in Africa being a problem? For example, Kenya has gone from 8 million in 1965 to 38 million.
I know a lot about Kenya. Contrary to what you think about corporate managers, I put four battery plants in Africa in the 1960s and know a lot about it. I think one terrible problem is the population growth. I think, from going back there, the quality of life now is far worse than it was then. I don't know anyone in his right mind, with the infrastructure falling way behind, the population, and disease, that would put any money in most of Africa.
WILLIAM EASTERLY: Population growth is actually a very controversial position. There are population optimists who would say that it's not such a big deal, that technology and creativity—there is actually an Africa proverb: "For every mouth that is born, there are also two hands." Each person that comes into the world is a creative individual that, we hope, will be creative enough to feed themselves, plus feed a few others besides. Those are the optimists.
The pessimists are what you are saying.
The evidence is not very strong for the pessimists, I have to say. I don't think it's very strong. Population growth has exploded in the developing world, and yet the developing world did go through this threefold increase in per capita incomes, despite the explosion.
QUESTIONER: [Not at microphone]
WILLIAM EASTERLY: Africa is a place where a lot of things are going wrong besides high population growth—if that is indeed something wrong. The evidence is not very decisive on that.
QUESTION: I realize that the purpose of your conversation is, in a way, to debate traditional versus creative. But it seems to me that you have excluded so many other factors. This gentleman introduced the question, were there not other factors involved in the growth of our capitalism?
How can you have successful capitalism, entrepreneurship, success when you have a society where there is massive ignorance, massive lack of education, which results in a massive misunderstanding of how to grow food to feed themselves, massive ill health, where people have to focus primarily on just survival? How can you have a successful form of capitalism in a society like that? Perhaps we should be thinking more about education as a step toward capitalism.
I don't know if that falls into your concept of creative capitalism or not, but it certainly is something to give thought to, because capitalism itself is not the only answer to bringing wealth.
WILLIAM EASTERLY: Capitalism makes education pay off. It creates an incentive to get educated, because there is a huge payoff to becoming educated under a free-market system. Your skills have market value, so you have a financial incentive to become educated.
I think you can also do that with philanthropy. I'll let Mike talk about that. I think scholarships for poor kids are one of the great things that philanthropy can do. I should know; I was one of them.
MICHAEL KINSLEY: Let me tout my former boss and, for that matter, my current wife, who ran the Gates Foundation until recently.
One of the best things about the Gates Foundation, in my opinion, is, apart from having a great deal of money, they spend it more analytically, I think, than the typical foundation. That's not a scientific judgment, but that's my impression. They go through an analysis very much like yours. It led them from thinking of computers in libraries ultimately to infectious diseases. Health is what you need most of all. Then, if you can solve that problem, you can move to education. If you can solve that one, you can move to the point where maybe someone in Africa will be the next Bill Gates.
QUESTION: There's another wildcard: global warming and irresponsible regimes. How do you reach that? With everything you said, money sometimes may not work.
WILLIAM EASTERLY: Economists are the first to admit that markets get things wrong sometimes. One of the serious things that the market gets wrong is that it doesn't force polluters and global warmers to pay for the consequence of the damage that they are doing. That's something the market clearly gets wrong. The way to solve that is to make the polluters pay, to have people who are emitting carbon pay a carbon tax. Then they will have an incentive to—
QUESTIONER: [Not at microphone]
WILLIAM EASTERLY: Yes, negative recognition. I actually think a carbon tax would be more persuasive than public relations. But either one I would settle for.
QUESTION: We are talking about two distinct things here. One is a moral and ethical and social obligation to maintain with help and life. The other thing is ending poverty. The only way I can see for ending poverty is providing people with jobs and a skill education to take those jobs. I can't see how poverty alone can do it. It makes people dependent.
So I would suggest that Mr. Easterly has the right angle. Do what you can to have free trade and encourage these countries to have the jobs that engage in free trade, so they have a decent standard of living.
WILLIAM EASTERLY: I'm glad I convinced one member of the audience. Thank you.
MICHAEL KINSLEY: I'm for free trade. I think it's great.
QUESTION: My question is specifically on free trade. It's really a question as to the extent to which creative capitalism—I haven't read the book—encompasses the idea of corporations that are in favor of free trade and promoting the comparative advantage that in certain areas African producers may have, to see, for example, the abolition of tariffs in the United States and in Europe on agricultural products like sugar and cotton.
To what extent does this theory of creative capitalism view it as a legitimate thing for corporations to be doing, to be lobbying for the abolition of these tariffs and informing the public about how insidious they can be?
MICHAEL KINSLEY: To be frank, I think there's almost nothing about free trade in this book. I would say that the problem is not that anyone is stopping corporations from lobbying for free trade; it's that corporations are lobbying for their own self-interest, which is likely to be with protectionism and subsidies—sugar, of course, being an outrageous example of screwing the world's poorest people to help some ridiculous number, like 11 sugar producers.
WILLIAM EASTERLY: I would say this is a kind of philanthropy that corporations should be doing, not just lobbying for their own interests, but if they are saying they are concerned about global poverty or poverty in Africa, they should use their high profile and their lobbying influence to advocate for eliminating cotton and sugar tariffs. I totally agree with you.
The last thing I want to say is something that Mike is too modest to say. This is a great book. Please go buy it and read it, Creative Capitalism by Michael Kinsley.
Thank you very much.
JOANNE MYERS: Thank you both for participating in our conversation.