NewsNotables – Issue 58

Bill Gates Issues Call for Kinder Capitalism

Wall Street Journal, January 24, 2008

In a speech at the World Economic Forum in Davos, Switzerland, Gates called for a “creative capitalism” that uses market forces to address poor-economy needs that he feels are being ignored. Gates told the world leaders, “We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well.” He said he has grown impatient with the shortcomings of capitalism and has seen those failings firsthand in places like the South African slum of Soweto.

He said that the rate of improvement for the third that is better off has been pretty rapid but the bottom third is unsatisfactory — two billion of the six billion people in the world. Gates believes that companies should create businesses that focus on building products and services for the poor. He said, “Such a system would have a twin mission: making profits and also improving lives for those who don’t fully benefit from market forces.”

Key to Gate’s plan will be for businesses to dedicate their top people to poor issues, an approach he feels is more powerful than traditional corporate donations and volunteer work. He also believes governments should set policies and disburse funds to create financial incentives for businesses to improve the lives of the poor. “We don’t need some dramatic big new tax or requirement,” Gates said in an interview, “what we need is the recognition of the creativity here that some of the leaders are exercising.” A core belief of Mr. Gates is that technology can erase problems that seem intractable. He stated that, “In the coming decades we will have astonishing new abilities to diagnose illness, heal disease, educate the world’s children, create opportunities for the poor and harness the world’s brightest minds to solve our most difficult problems.”

Comment: Talk of moral sentiments may seem surprising from a man whose competitive drive is so fierce that it drew legal challenges from antitrust authorities around the world. Gates said his thinking about capitalism has been evolving for years. He has obviously put his money where is mouth is by contributing billions of dollars to his foundation where he mainly helps poor nations fight hunger and disease. In a somewhat corollary thought process, in Seattle Pacific University’s Center for Integrity in Business, they have been challenging the purpose of business, called Re-inventing Business. They believe that business is more than a profit-generating mechanism and has an important and even redemptive role to play in society.

SPU’s School of Business states: “We believe — and want to promote — an alternative model of business which generates profits without being greedy; serves customers without pandering to the basest desires of human kind; respects employee’s skills and creative abilities without betraying their loyalty and commitment; contributes to the local community without simply exploiting and undermining it; utilizes resources from the environment without destroying its productive potential.”

Mr. Gates thoughts on “creative capitalism” and SPU’s Center for Integrity in Business thoughts on “Re-inventing Business” are different but have some common threads on how business or capitalism isn’t just to make money but should also improve lives for all mankind. I think they are both on to something and should be pursued.

If Everyone’s Finger-Pointing, Who’s to Blame?

The New York Times, January 22, 2008

Everyone wants to know who is to blame for the losses paining Wall Street homeowners. A wave of lawsuits is beginning to wash over the troubled mortgage market and the rest of the financial world. Homeowners are suing mortgage lenders. Mortgage lenders are suing Wall Street banks. Wall Street banks are suing loan specialists. And investors are suing everyone.

The legal and regulatory wrangles could dwarf the ones that followed the technology stock market bust and the Enron and WorldCom debacles. But the size and complexity of the current mortgage market will make untangling the latest mess even more difficult. Some cases stretch across continents. Others are likely to involve state and federal regulators.

Homeowners and subprime mortgage lenders are squaring off in cases that claim some lenders engaged in predatory lending practices and other wrongdoing. Two questions lie at the heart of many of the cases. The first is whether lenders and investment banks alerted borrowers and investors to the risks posed by subprime loans or securities backed by them. The second is how much they were legally obligated to disclose. As defaults and foreclosures rise, the various players in the housing market are all pointing fingers at each other.

Comment: It seems to me that blame, if you have to find blame, falls a little on all parties. If you are a homeowner and your new home purchase appreciates $100,000 in the first year, you are not concerned that the valuation may have been off $25,000 to $50,000. But when your house depreciates the same amount or more, you immediately seek someone or some institution to blame. Almost anyone that made their home purchase two or more years ago is still well ahead. History will show that every housing boom comes to an end and the ones most hurt are purchases made in the year before the peak. Before looking for someone to blame, look in the mirror.

By Roger Eigsti
Board President,
Institute for Business, Technology, and Ethics