Creative Capitalism

Professor Clark is in good company at this new group blog.

Here Clark critiques Bill Gates’ idea, Creative Capitalism:

Bill Gates has two major points. First the profit motive fails to provide goods such as vaccines needed by the poor of the Third World. Second the solution to this is not government action, and not private philanthropy. The needs are too great. Instead we need corporate action.

Despite Bill Gates’ abundant good intentions, I have to dispute both propositions.

1. As Michael Kinsley points out, much of modern capitalism is characterized by firms with high fixed costs – for research and development, for production facilities – but low production costs. Think computer software, think computers, think drugs, think airplanes. This production structure, however, mostly favors Third World consumers.

True, they have little to spend. But such goods cost little to deliver to them once developed in the high income countries, because of the low cost of producing more units. And the poor get served because the good old-fashioned profit motive says make a buck wherever you can. This works unless the good sold cheaply in such markets can find their way back to US markets and undercut prices there. But companies are good at erecting barriers to this flow.

It is only when the goods the Third World desires differ from those of rich country consumers that we get a problem. Though Bill Gates gives a list of such goods—anti-malarial drugs being prominent—it is actually a short list. For a whole range of goods—clothing, cars, cell phones, electronics, computers, entertainment—the goods bought by the poorest overlap enough with those bought by the rich that there is little problem. They are indeed well served by selfish capitalism.

The cellphone is a great example…
2. A second problem with the Gates proposal is that is assumes that the poor of Africa do not know their own best interests. Only corporate America can discern this.

Short Clark: “There’s not many goods for which this idea makes sense (i.e. goods that people in poor countries demand, but that aren’t produced cheaply in the rich countries) and for those that it does the profit motive will take care of things.”

1 thought on “Creative Capitalism”

  1. What about government corruption? There’s a huge profit motive for a company to become the state sanctioned monopoly in a region. In the meantime, corporations will remain leery of investment in areas where big portions of their capital can disappear overnight.

    It’s kind of like the Spanish treasure fleet problem in reverse. Then again, maybe increasing the number of land pirates can help fight global warming.

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