CREATIVE CAPITALISM - THE WAY AHEAD

The world does seem unfair. On one hand, you have people fighting it out to top the Forbes rich list, and on the other, you have 1.1 billion people living on less than a $1 a day, according to a report published by The World Bank. Poverty is a problem many countries face, but due to a lack of resources, governments and NGOs can't do enough. They need support, and that's where Bill Gates comes in.

The man, who has topped the Forbes rich list consecutively from 1995 to 2007, gave a ground-breaking speech on 'creative capitalism' at the World Economic Forum in Davos in January 2008. Coupled with his article in Time magazine ('How To Fix Capitalism', August 11, 2008), he provides an insight, and more importantly, a thin end of the wedge for the future of capitalism.

The Problem With Capitalism

Capitalism has touched and improved the lives of many people. But, in it's pristine form, it hasn't provided anything for the neglected.

How do the billions (in dollars) of net income by Microsoft help the people of Ethiopia? One might be tempted to say that a portion of that income could be used in helping Ethiopia, a country which, according to The World Bank, has only 1 medical doctor per 100,000 people, confront it's health problems and other such struggles by providing medicines and other medical aid.

But, the problem lies in the longevity of the solution. In this world of short-term economic ups and downs, it's hard to remain attentive to global welfare issues. And in the midst of a global economic crisis, these welfare issues get neglected and thrown back down the priority list. Fund-raisers, donations and aid may be temporary fixes. But, there is a need for a continuous, long term effort to solve problems like the one faced by Ethiopia.

What Is Creative Capitalism?

Government aid and philanthropy are generally, selfless. Capitalism isn't. Capitalism deals with making a profit, and harnesses self-interest regarding it's own employees. The problem lies in permanently riveting capitalism to global welfare problems. This is where creative capitalism comes into the picture.

Creative capitalism deals with channeling market forces and innovation into solving the problems of economically-challenged, thereby paying heed to the problems of the neglected and helping companies see the green in the bottom line.

It helps by creating a permanent ground for companies to work on, and helps maintain their interest in projects targeting under-developed and developing countries and extends the longevity of benefit provided to the people of these countries.

Is Creative Capitalism Possible?

Creative capitalism isn't just some new penned word. It has already reached fruition in some cases. Companies like Gap, Hallmark and Dell sell (RED)-branded products, a brainchild of U2 vocalist Bono. These companies donate a portion of their profits, from this brand, to fight AIDS and, in the past year, has generated $100 million for the Global Fund to Fight AIDS, Tuberculosis and Malaria. These companies get recognition for the work being done, customers experience a moral satisfaction knowing that they have contributed to a welfare cause, and the donation helps the cause.

Product (RED) is not a non-profit brand and hence, companies do reap profits, thereby making the brand, and ultimately the proceeds towards the cause, permanent.

Creative capitalism is not about asking companies to be more virtuous, but it's about asking them to identify opportunities in places previously uninspected. It combines innovation and technology, present with companies, in developing products which people in under-developed and developing countries need and, in the same time, help these companies make profits.

According to The World Bank, there is almost $5 trillion of purchasing power in the poorest two-thirds of the world's population. Indeed, there is plenty of scope for companies to benefit financially and simultaneously help bring technology to these people. But, companies must study these markets in order to identify the needs of these people. Vodafone, in 2000, invested in a Kenyan cell-phone company called Safaricom. Today, Safaricom has more than 10 million customers, much more than the estimated 100,000, and is making a profit (net income of $169 million in 2007). To cater to low-income Kenyans, Safaricom charges users on a per-second basis, which helps reduce call charges. Kenyan farmers use their cell-phones to find the best prices in nearby markets. Cell-phones also enable users to carry electronic cash, which requires authorization before its use, and hence, limits the potential of becoming a victim of a robbery or theft (commonplace incidents in Kenya). These amenities provided by cell-phones have helped Safaricom prosper in Kenya, which shows the outcome of creative capitalism.

Who's Responsibility Is It?

Companies willing to embrace creative capitalism need help. R&D costs incurred in developing a drug are huge and the incentive, in terms of publicity and praise, involved in helping the people of an under-developed country might be insufficient to convince companies to get involved. In such cases, the government should do it's part to support such companies and reward them in non-financial ways. For example, under a U.S. law enacted in 2007, any drug company that develops a new treatment for a neglected disease, like malaria, can get a priority review, from the FDA, for another drug the company has produced. A priority review speeds up the FDA review process, and this helps the company in putting its product in the market as much as a year earlier, and this could be worth millions to a company.

There is a need to eradicate red-tape to allow more business investment and provide flexibility to companies. The government, industrialists as well as NGOs need to work together to make creative capitalism work.

The Future Of Creative Capitalism

The future of creative capitalism lies in identifying new opportunities in poor countries. The examples of Sumitomo Chemicals (a Japanese company, which bought a stake in Tanzania's A to Z Textile Mills to create up to 10 million insecticide treated mosquito nets) and Cadbury (the British confectioner is investing millions in small farming communities in Ghana that provide the cocoa beans for one of it's lines of chocolate) reiterates this fact. There seems to be immense opportunities for creative capitalism. And industrialists should take note of this.

Please feel free to post comments regarding any personal ideas or examples of creative capitalism.

THE COLLAPSE AT DOHA

On July 29, 2008, the 8th Doha Development Round organized by the World Trade Organization, held in Geneva, Switzerland collapsed due to disagreements of India & China with the U.S. over the Special Safeguard Mechanism (SSM).

A failure in agreement regarding the threshold which would allow the SSM to be used triggered the collapse with the U.S. blaming India and China for being steadfast in their position on the issue. With both sides rejecting any compromise the talks collapsed with Susan Schwab, U.S. Trade Representative being quoted as saying, 'In the face of global food price crisis, it is ironic that the debate came down to how much and how fast could nations raise their barriers to imports of food.' and calling the attempts by India & China as 'blatant protectionism'.

India and China depend heavily on agriculture, with India having 60% of its workforce and China having 45% of it population in agriculture. Because of huge populations, countries like India and China can not meet the food requirements for its population and as a result have to import from other countries. Countries, like the U.S. and the European Union, export food grains to India and China. These exporters knowingly or unknowingly resort to 'dumping' which is the practice exporting a good at a relatively lower rate compared to the rate of the good manufactured in the importing country. Dumping and large import volumes decrease the price of a good or commodity, thereby hurting local producers of the same commodity.

In order to protect farmers in low-income countries like India and China, Mexican Foreign Minister Lois Ernesto Derbez, in September 2003, suggested the establishment of a special agricultural safeguard which came to be known as the Special Safeguard Mechanism.

According to the SSM, whenever the import price of a commodity falls below a certain threshold or if the import volumes increase to a certain level, the SSM is triggered. The SSM automatically applies additional duty to imports to keep the price of the commodity from falling further.

The stance taken by India and China was severely criticized and was seen as a demonstration of the power and influence that China and India have on the international economic agenda, although India's Minister of Commerce Kamal Nath defended India's stance saying, 'I'm not risking the livelihood of millions of farmers.'

A question that needs to be asked is, 'Is the government's (of India) stance genuine, in view of the plight of Indian farmers, or is this just a performance executed by the Congress Party keeping in mind the imminent general elections in 2009?'