A Discussion of Peter Foster’s Why We Bite the Invisible Hand Chapter 17 “Bill Gates and the Pitfalls of Philanthrocapitalism”
In this chapter, Foster turns his attention to philanthrocapitalism. It is some combination of charity somehow wrapped up in capitalist behavior.
The most well-known current example is likely the Bill & Melinda Gates Foundation, but it is nothing new. Certainly, the Rockefeller and Carnegie foundations were similar in their intent and execution.
Foster dislikes the concept because it gives “the impression that capitalism does not promote benevolence or charity without arm-twisting.” (p. 423)
That is, at its heart capitalism functions by serving others.
People are motivated by their self-interest no matter what system they are in. However, capitalism does the best job of creating a system where you can do the best for yourself if you can figure out what others want.
As an employee, you gather the skills someone is willing to pay for. As a business, you gather the inputs to produce a product that someone is willing to pay for. Your desire to get paid is fulfilled only if you can provide a good or service that someone wants.
Yet, being motivated by self-interest is largely criticized in the culture; people tend to look with suspicion at the idea businesses want to maximize profits.
Foster has discussed in earlier chapters that people generally hold various assumptions about economics that derive from a primitive society and do not fit the modern abstract economy we live in. Before industrialization, resources were limited and when they went to one use there was less left over for others.
With this thinking, when one person earns a profit they are reducing what is available to everyone else.
Today, however, we live in a world where we have consistently raised our standard of living for over 200 years by getting more and more out of our resources. And this innovation is driven by companies seeking profits.
But the suspicion of profits runs deep, so there is a general belief that non-profits are somehow better. Economist Per Bylund does a beautiful job of destroying that idea in this interview explaining that in fact, non-profits are problematic.
If you don’t have the five minutes to watch that, and you should because he explains it so well, essentially he is arguing that profits provide the signals that allow businesses to most efficiently use our scarce resources.
If a business has an idea that does not sell well, it will likely go out of business if they refuse to adapt. And that is good because it frees up resources to produce what is wanted.
With a non-profit, the money comes from donors, not customers. Bylund notes these donors are the consumers, paying for the satisfaction of feeling like they are contributing to something good for society.
The non-profit then produces the product or service that it and the donors think is needed, without regard to any market signals of what is needed.
Bylund used the idea of building housing for the homeless. A lot of money and resources can be spent to produce housing that is often not successfully used because it does not fit the actual needs of the homeless.
We also see this a lot in foreign aid when money is given to a developing country, yet it seldom results in changing the standard of living. Economist Dambisa Moyo wrote a passionate book decrying the problems with foreign aid and how it has been hurting her home country of Zambia and Africa in general.
At its heart, such aid is the same kind of activity as the philanthrocapitalism Foster is criticizing in this chapter. A lot of money is being directed at the behest of an outside organization based on what they think is best.
Without having to be responsive to the market, a lot of resources are spent. Since the funds can continue flowing even without satisfying the market, there is no natural check on bad ideas.
Foster then focuses on Bill Gates’ efforts and the problems his foundation is causing.
Is philanthropy needed?
Foster’s first point is that Gates doesn’t need to have this foundation to benefit people because he already has done so through Microsoft.
If Bill Gates had never had a philanthropic bone in his body, he would still rank as one of the greatest benefactors of mankind. He developed products that greatly increased people’s ability to communicate, be productive, grow wealthier, help others, and enjoy themselves. He created tens of thousands of jobs directly, and millions indirectly. (p. 402)
I want to pause here for a moment because that is such a key fact that is seldom acknowledged.
So much good is done simply by the profit-seeking model. The wealth he and Microsoft amassed came from people voluntarily buying their products because the products made their lives better.
It is a mutual win. Yet, the anti-capitalist views that run subconsciously through the culture often make those who have won so substantially at capitalism feel like now they need to do something to help others!
Further, Gates is demonstrating a lack of understanding of capitalism.
Like Ray Anderson and other businessmen going back to Robert Owen and beyond, Bill Gates had a sense of personal exceptionalism that led him…to denigrate the very system that had made him so rich…It also led him to cleave to the belief that big problems required big, top-down solutions…He had fallen hook, line and sinker for the cause of global salvationism. (p. 404)
In the next blog, I will explore further the problems Foster raises with the philanthrocapitalism that Gates is pushing.
But I see another potential issue behind what Gates is doing. For example, his foundation was a major investor in Beyond Meat and other plant-based meat substitutes.
At the same time, he is pursuing policies to push people away from meat to meat substitutes with the weight of the money from his foundation. In addition, his philanthrocapitalism is about creating partnerships with other corporations, NGOs, and governments to push such policies. If he had been successful with that push, the foundation would have benefited financially due to the Beyond Meat investment.
In this case, people rejected the product, and his investment managers managed to sell out before the crash in the stock price. Somehow all of this seems like it is more about using wealth to create more wealth while trying to make it look more like helping others. Or at best, it is trying to profit off of forcing what you think is good policies on others.
The apparent conflict of interests seems more like the caricature of capitalism he is seemingly decrying with his call for philanthrocapitalism than true philanthropy.
Reference: Foster, Peter, 2014. “Bill Gates and the Pitfalls of Philanthrocapitalism” Chapter 17 of Why We Bite the Invisible Hand, Pleasaunce Press.
