In a much admired and debated speech given at the World Economic Forum in Davos last January, Bill Gates said that many of the world's biggest problems cannot be fixed by philanthropy, but instead require free-market capitalism—"creative capitalism"—to solve.
According to Gates, creative capitalism is "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."
Harvard Business School professor Nancy Koehn recently contributed an essay on creative capitalism to the blog Creative Capitalism: A Conversation (No longer available, -ed.), run by Michael Kinsley and Conor Clarke. We reprint her comments here with permission from the site.
Bill Gates has earned our ear (and for many of us, our respect) largely because he succeeded so convincingly playing the game of market capitalism that first emerged in the late 19th century and grew to great influence during the 20th century.
This game or system has been dominated in many industries by large, multinational corporations that compete intensively—usually with a small number of rivals—for market power. (Indeed, at the Harvard Business School where I have taught business history to thousands of MBAs, students often compare the early growth of Standard Oil to that of Microsoft 100 years later. They also compare John Rockefeller to Gates, arguing that both entrepreneurs saw the outlines of competition in their respective industries before other players and could thus act quickly to create and control what became the standards of rivalry in each young market.) The economic spoils of this system have been valued and distributed in different ways—through employment patterns, market share, business investment, and most prominently, stock market performance.
Given Gates's achievements, it is interesting that he is throwing down a gauntlet to have global capitalism direct itself toward social contribution as well as financial gain. Viewed through the lens of history, there are five powerful forces working on the system of global capitalism in this moment, propelling it along the broad path that Gates sketched out at Davos.
The first is the issue of resources. Who has what to deal with the pressing challenges today? If we think solely about resources—people, innovation, traction, money, and execution—business is the most powerful force for change on the global stage right now. No other set of institutions—not religious organizations, not the nation-state, not individual NGOs—has the resources or the breadth and on-the-ground depth of business to deal with what is in front of us today. Yes, all these other players matter, in some cases a great deal. But not as much as business matters—in the form of both large global corporations and small-scale entrepreneurial enterprises. This is not philosophy or politics, but the ineluctable reality of our moment.
A second force affecting the speed and direction of global capitalism comes from the demand side. There are millions-soon to be billions-of consumers, voters, and other actors, most obviously "millennials," who want something new and different from business, who conceive of business and the "flywheel" of global capitalism in ways distinctive from their counterparts in the past (and indeed in ways different from many boomers today). These actors will exert great power in the next two decades.
At the same time, the corporate form is changing very fast. New networks of companies and organizations are emerging, new ways of competing and collaborating are becoming more important. Old boundaries are withering. The traditional widget-making company maximizing its own profit in a nationally defined space is evolving into something more complex and much more integrated into a broad, often global, web of relationships.
A fourth catalyst is transparency. Leaders and organizations of all kinds are increasingly operating in glasshouses. The explosion in transparency wrought by a global media, great leaps in connectivity, and a generation of global citizens who demand novel commitments from business are creating new standards of conduct for even those actors least willing to change.
Finally, though less obviously, there is a palpable thirst among people around the world for leadership that is not for sale, for individuals and organizations that are not solely defined by the transactional rhythms and white-hot speed of the marketplace. (My graduating MBA students talk of this concern frequently as they discuss job choices and sketch out their own career plans.) We can see this in the enduring popularity of entrepreneurial leaders such as Warren Buffett and Oprah Winfrey, individuals who have thrived in their respective industries partly because they consistently pursued something more than the next market-dictated score.
All of these forces are gaining strength now, and helping lay the pavement along which global capitalism will travel. This is evident in the success of large companies such as Costco, Jordan's Furniture, Southwest Airlines, Google, and even Starbucks, businesses that meet the needs of a broader set of stakeholders than shareholders. (A recent study of 30 such firms, by Rajendra Sisodia, David Wolfe, and Jag Sheth and published by Wharton School Publishing, demonstrated that the public companies in this group returned 1,026 percent for investors over the 10 years ending June 20, 2006, while the S&P 500 returned 122 percent.)
The importance of these five forces is also evident in the young enterprises that are now beginning to exert themselves. Entrepreneurs and their creations have always been the sinews of capitalism. So we can look to organizations like (RED), founded by Bono and Bobby Shriver, or Kiva-the online microlender created by two Stanford MBAs, Matt and Jessica Jackley Flannery- as important examples of where global capitalism is going. (RED) integrates the power of big business, new customer priorities, and the interconnected agents of social change, in the form of the Global Fund to Fight AIDS, Tuberculosis, and Malaria. The animating mission of (RED) is to harness two of the most potent forces operating today, business and consumer spending, in service toward eradicating deadly disease in Africa. Kiva connects small lenders-many of whom lend $50 or less-with promising entrepreneurs, mostly in developing countries. Three years after its founding, Kiva has helped fund more than 18,000 entrepreneurs in places like Samoa and Ecuador.
This is creative, this is capitalism, and this is the future, right here on our doorstep.