How selfish soever man may be supposed…

January 23, 2008

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I just sent this to a couple of my friends and wanting to blog it as well. I just watched the video of the much-talked about Gates speech on Creative Capitalism on Friday at Davos. For me, it was one of the most inspiring and influential speeches I have ever heard. Though Gates is not the best speaker in the world, his message is right on. The WSJ article on the speech is here and the video of the speech is here.

I especially enjoyed the Adam Smith quote Gates references:

“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”

Here’s an excerpt from the speech transcript:

In many crucial areas, the world is getting better.

These improvements have been triggered by advances in science, technology, and medicine. They have brought us to a high point in human welfare. We’re really just at the becoming of this technology-driven revolution in what people can do for one another. In the coming decades, we’ll have astonishing new abilities: better software, better diagnosis for illness, better cures, better education, better opportunities and more brilliant minds coming up with ideas that solve tough problems.

This is how I see the world, and it should make one thing clear: I am an optimist.

But I am an impatient optimist. The world is getting better, but it’s not getting better fast enough, and it’s not getting better for everyone.

The great advances in the world have often aggravated the inequities in the world. The least needy see the most improvement, and the most needy get the least — in particular the billion people who live on less than a dollar a day.

There are roughly a billion people in the world who don’t get enough food, who don’t have clean drinking water, who don’t have electricity, the things that we take for granted.

Diseases like malaria that kill over a million people a year get far less attention than drugs to help with baldness.

So, the bottom billion misses the benefits of the global economy, and yet they’ll suffer from the negative effects of economic growth they missed out on. Climate change will have the biggest effect on people who have done the least to cause it.

Why do people benefit in inverse proportion to their need? Well, market incentives make that happen.

In a system of capitalism, as people’s wealth rises, the financial incentive to serve them rises. As their wealth falls, the financial incentive to serve them falls, until it becomes zero. We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well.

The genius of capitalism lies in its ability to make self-interest serve the wider interest. The potential of a big financial return for innovation unleashes a broad set of talented people in pursuit of many different discoveries. This system, driven by self-interest, is responsible for the incredible innovations that have improved so many lives.

But to harness this power so it benefits everyone, we need to refine the system.

As I see it, there are two great forces of human nature: self-interest, and caring for others. Capitalism harnesses self-interest in a helpful and sustainable way, but only on behalf of those who can pay. Government aid and philanthropy channel our caring for those who can’t pay. But to provide rapid improvement for the poor we need a system that draws in innovators and businesses in a far better way than we do today.

Such a system would have a twin mission: making profits and also improving lives of those who don’t fully benefit from today’s market forces. For sustainability we need to use profit incentives wherever we can. At the same time, profits are not always possible when business tries to serve the very poor. In such cases there needs to be another incentive, and that incentive is recognition. Recognition enhances a company’s reputation and appeals to customers; above all, it attracts good people to an organization. As such, recognition triggers a market-based reward for good behavior. In markets where profits are not possible, recognition is a proxy; where profits are possible, recognition is an added incentive.

This week’s Economist had a section on corporate responsibility, and it put the problem very nicely. It said it’s the interaction between a company’s principles and its commercial competence that shape the kind of business it will be.

The challenge here is to design a system where market incentives, including profits and recognition, drive those principles to do more for the poor.

I like to call this idea creative capitalism, 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.

Some people might object to this kind of market-based social change, arguing that if we combine sentiment with self-interest, we will not expand the reach of the market, but reduce it. Yet Adam Smith, the very father of capitalism and the author of “Wealth of Nations,” who believed strongly in the value of self-interest for society, opened his first book with the following lines:

“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortunes of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasure of seeing it.”

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