Bill Gates? speech [hyperlink] on creative capitalism was misguided in two important ways?it made a false accusation about traditional capitalism, and it made extravagant claims for corporate philanthropy.
The false accusation was that traditional capitalism fails to help the poor. It is certainly true that firms have much more incentive to meet the needs of rich people with money than to meet the needs of poor people without money. What Mr. Gates forgot was that as firms expand their production to meet more of rich people?s needs, they hire more unskilled labor to do so, driving up the incomes of poor people. As firms invest in machines to increase production for the rich market, they drive up the productive power of workers-further increasing wages of poor people. And lastly, firms have an incentive to continually search for new technologies that make both machines and workers more productive. Think of the information revolution that makes today?s factories more efficient, i.e. makes both machines and workers more productive. Or if you prefer historical examples, think of the assembly?line-a new technology that simply rearranged machines and workers in a way that made them all more productive. Traditional capitalist forces such as these explain why unskilled wages trend steadily upward and the poverty rate has declined drastically in American economic history. Such forces also largely explain why the global poverty rate has fallen in half over the last three decades.
I am sympathetic to Gates? impatience that the fall in poverty is not fast enough and that global inequities are still too large. If I knew of a system that did better than traditional capitalism (I don?t), I would be happy to join the advocacy campaign for such a system.
?http://www.creativecapitalismblog.com
