Part 2 of a Discussion of Peter Foster’s Why We Bite the Invisible Hand Chapter 17 “Bill Gates and the Pitfalls of Philanthrocapitalism”
Foster next turns to Bill Gates’ call for a “creative capitalism” that he saw as a new form that would merge the ideas of caring for others as Adam Smith wrote in The Theory of Moral Sentiments with the capitalism Smith wrote about in The Wealth of Nations. (p. 409)
Gates sees a split between profit maximizing capitalism and concern for others, but Smith was not arguing that because he knew it was more nuanced.
But Gates was in fact merely regurgitating the confusions of those who asked whether man was motivated either by self-interest or by sympathy. As Smith and other philosophers understood, and as modern studies of the “modular mind” confirm, man is motivated by both, in varying degrees, at different times, depending on the circumstances. (p 409)
Dr. Deirdre McCloskey explained that Smith held to virtue ethics, a philosophy that fell out of favor soon after his time, and as a result he is often misread today as being only interested in a one dimensional cost/benefit view of the economy.
Gates seems to be in that erroneous camp as he called for business to “join the salvationist crusade.” (p. 410)
Salvationist corporations should be out there doing economic missionary work, the reward for which would be not profit but “recognition.” (p. 410)
Foster notes that corporations are “wealth-generating machines,” and the wealth could be used to fund philanthropy. (p. 410) However, he says the proper direction for such charity should come from the individual wealthy executives, not the corporation.
That is, charity should not take over the focus of the corporation, which should be focused on producing the best product it can. It might make sense for a business to give to the community it is located in but not to look to saving the world.
The global salvationism idea that Gates had adopted assumes business won’t do good unless forced. However, there is much evidence of businesses giving to their local communities. In poorer countries, successful businesses often contribute to the building of schools and medical facilities. (p. 410)
Foster says a business making charitable donations to its community as a good corporate citizen is fine, but the problem is when their focus becomes serving as “global social agencies” because it can divert them from their main focus of running their business. (p 410)
Adam Smith specifically pre-refuted Gate’s idea of corporate social responsibility when he wrote, in the Wealth of Nations, “I have never known much good done by those who affected to trade for the public good.” Now, however, businesses were tripping over themselves to claim that they were trading “for the public good.” (p. 411)
A business helping locally can see all the issues and know the key players and respond in a way that is beneficial. But asking businesses to come together to achieve global goals results in top down solutions and all the problems that come with that.
The HIV/AIDS epidemic in Africa has attracted a lot of public and private funds, which have not resulted in the intended help.
…a vast array of initiatives and programs, were, as usual, creating havoc…much of the cash was “leaking away without result.” (p. 417)
The anti-capitalism bias results in a desire to not rely on the chaos of the market and instead to impose solutions onto the people. But without the market signals, you can waste a lot of money. Plus, there is the problem that less PR friendly diseases like dysentery that need funds get overlooked. (p. 418)
Brain drain is another problem when a deluge of outside money comes into a country along with other market distortions.
All the best local talent wound up working for the “aid industry.” The surge of funds also threatened to produce local inflation and thus, ironically, further hardship for the poorest of the poor. (p. 418)
Ultimately, the problems with corporate global salvationism and foreign aid are due to the fact that throwing money at something is not a solution.
Without market signals, resources get misallocated and can cause other unintended consequences.
Yet, Gates thinks foreign aid is needed to solve these problems. He, with his foundation, seeks to pool private and public money to tackle these big problems.
Economist William Easterly has done a lot of research on the failure of foreign aid. I really enjoyed his book, The Elusive Quest for Growth, which I used in a class to learn about the history of foreign aid, the factors that contribute to economic growth, and ultimately why aid did not lead to growth.
Foster cites a later book of his, The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good.
Easterly calculated that some $2.3 trillion had been spent on aid over the previous 50 years, with precious few results in stimulation of economic growth or lifting people out of poverty. (p. 405)
Not only has little good occurred, but it has caused harm. As mentioned in the previous article, economist Dambisa Moyo wrote Dead Aid, to explain how foreign aid caused corruption among other problems.
She explained that aid didn’t merely feed corruption; it meant that African governments didn’t have to listen to their own people because they didn’t rely on them for taxes. The taxpayers upon whom the African kleptocrats relied were those of developed countries, for whom aid effectiveness was a matter of only passing interest. The aid industry also painted the African picture as bleakly as possible to keep the donations coming, but these images put off investors, who were Africa’s only real hope. (p. 419)
The global numbers on people living in absolute poverty have actually decreased in the past couple of decades but not because of foreign aid. The investment and economic growth that has occurred in India and China freed half a billion people from poverty just between 2005 and 2010. (p. 420)
Yet, the aid model that is applied to Africa has kept poverty relatively high. That has left room for Gates and his foundation to continue to help. One area has been agriculture, but it has not had success for many of the same reasons.
Here are two articles criticizing the agriculture programs pushed onto Africa because they are being imposed without consideration of what they want. These programs use high tech GMO seeds and lots of chemicals and ultimately makes the farmers reliant on big companies for the seeds and pesticides.
Bill Gates Should Stop Telling Africans What Kind of Agriculture Africans Need
Among other things, we might simply not agreewww.scientificamerican.com
Critiques of Gates Foundation agricultural interventions in Africa
Fact sheet on the Gates Foundation links to resources from African groups, researchers, food security experts…usrtk.org
While the small scale farming of old could be improved to increase productivity, there is no effort to work with the people of Africa towards a solution they want and that makes sense to them.
Again, this is the kind of outcome you get when the solution is imposed on people instead of growing up organically within the system.
Summing up, Foster concludes that at the heart of Gates’ philanthrocapitalism is anti-capitalism bias.
The problem with Bill Gates’ philanthrocapitalism…was that they fed the impression that capitalism does not promote benevolence or charity without arm-twisting. His attempts to pressure corporations into joining his global salvationist crusade again fed the notion that there was a moral vacuum at the heart of commerce. (p. 413)
Capitalism is not perfect, but it does allow a voice for all the participants. Businesses can only survive if they are providing what people want. Philanthropy does not have that limitation; they can keep throwing money at an issue, the way they want to, without consequences, at least not to themselves.
Reference: Foster, Peter, 2014. “Bill Gates and the Pitfalls of Philanthrocapitalism” Chapter 17 of Why We Bite the Invisible Hand, Pleasaunce Press.
