He wasn't saying this back in the beginning.... - Granite Grok

He wasn’t saying this back in the beginning….

Latest from the financial world

Microsoft Trumpets Record Second Quarter Results 

…the giant from Redmond is proudly announcing record second quarter results and pinpointing "robust holiday sales and enterprise demand drive" as the culprit. In the three months ending December 31, 2007, Microsoft pulled in some $16.37 billion in revenue and $6.48 billion in operating income, which translated to 30-percent and 87-percent growth in each area, respectively.

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Now consider this

Bill Gates Issues Call for Kinder Capitalism 

In a speech at the World Economic Forum in Davos, Switzerland, the software tycoon plans to call for a "creative capitalism" that uses market forces to address poor-country needs that he feels are being ignored.

"We have to find a way to make the aspects of capitalism that serve wealthier people serve poorer people as well," Mr. Gates will tell world leaders at the forum, according to a copy of the speech seen by The Wall Street Journal.

You know, I’ve been in the computer industry before Microsoft and MS-DOS started to take over the computer industry.  Along the way, the hyper-competitive Gates and his side-kick Steve Ballmer, along with Paul Allen, became rich beyond anyone else imagination.

And put a LOT of businesses out of business with the (in)famous Borg strategy: surround, envelope, and absorb.  Time and time, things that normally were not considered part of an operating system were stuffed in over and over again.  Good business sense for them, but they rapidly became the company to hate, easily displacing the dreaded IBM.  And with the OS/2 fiasco, supplanted them big time.

And, again, became wealthy beyond belief.

I have moderated some of my views, as I CAN and DO applaud his turn at philanthropy.  With his twist on how his money is used, he is going after root causes and demanding results.  This is in direct opposition to much of the Western aid money (think Africa) that often has gone to Swiss bank accounts of despots and dictators.

And that is the reason why I disagree with Bill – it is not the money, it isn’t the willingness to spend the money, or even how you are spending your money…. 

 

The article continues:

Mr. Gates isn’t abandoning his belief in capitalism as the best economic system. But in an interview with the Journal last week at his Microsoft office in Redmond, Wash., Mr. Gates said that he has grown impatient with the shortcomings of capitalism. He said he has seen those failings first-hand on trips for Microsoft to places like the South African slum of Soweto, and discussed them with dozens of experts on disease and poverty. He has voraciously read about those failings in books that propose new approaches to narrowing the gap between rich and poor.

Now, I’m just a middle aged engineer that dabbles in local politics.  But one thing I have learned – capitalism is the greatest wealth producing system that the world has ever seen.  But something has to go with it – good governance. 

I am of the mind that the Anglosphere, with its heritage of English common law, its insistence on the Rule of Law and respect for private property.  Societies that transcended tribal bonds for the primacy of individual rights over those of the society at large.

In particular, he said, he’s troubled that advances in technology, health care and education tend to help the rich and bypass the poor. "The rate of improvement for the third that is better off is pretty rapid," he said. "The part that’s unsatisfactory is for the bottom third — two billion of six billion."

And where does that bottom third live?  In countries that do not respect the Rule of Law, property rights are trashed at a whim, and power (raw, naked, unadulterated power) is the coin of the realm.

And I will add, the Judeo-Christian history and culture of the West certainly taught respect for the individual, as the philosophy of God (a Person higher than ourselves) acts as a governor.  Yes, we can talk about and point to the Renaissance, the Enlightment, the Industrial Revolution, and the Information Revolution.  However, without good governance, we’d still all be feudal serfs (for the most part).

Without that, a government that follows a Western model, wealth cannot bubble upward. 

Among the fixes he plans to call for: Companies should create businesses that focus on building products and services for the poor. "Such a system would have a twin mission: making profits and also improving lives for those who don’t fully benefit from market forces," he plans to say.

Mr. Gates sees a role for himself spurring companies into action, he said in the interview. "The idea that you encourage companies to take their innovative thinkers and think about the most needy — even beyond the market opportunities — that’s something that appropriately ought to be done," he said.

His thoughts on philanthropy are closely heeded because of the business success that made Mr. Gates one of the world’s richest men. His eight-year-old charity is expanding rapidly following the 2006 decision by Warren Buffett to leave his fortune to the foundation. That donation, at the time valued at about $31 billion, increases to some $70 billion the hoard Mr. Gates says will be given away within 50 years of the deaths of him and his wife.

With today’s speech, Mr. Gates adds his high-profile name to the ranks of those who argue that unfettered capitalism can’t solve broad social problems. Muhammad Yunus, the Bangladeshi economist who won the 2006 Nobel Peace Prize for his work providing small loans to the poor, is traversing the U.S. this month promoting a new book that calls capitalism "half developed" because it focuses only on the profit-oriented side of human nature, not on the satisfaction derived from helping others.

Without capital, what he wants to do is impossible.  Yes, the fact that he has the capital makes what he wants to do possible.  But while he may give his billions on very good projects (and I believe that he is attacking root causes like clean water and the like).  I believe he is conflating two areas.

With all due respect, it is not the aim nor the business of businesses to do charity.  Their sole aim is to return value to the owners – the shareholders.  It is my belief that once that capital is earned, let the owners use that gain anyway they want.  For instance, just like Mr. Gates is doing now. He above all should realize and know that if business concentrates on profits, the owners can then give more to help others.  Capital used for charity by companies will often reduce the amount of money (in general) earned over the long term.

In other words, it should always be a two stage effort – companies earn the money and the owners do the philanthropy. 

"If we can spend the early decades of the 21st century finding approaches that meet the needs of the poor in ways that generate profits for business, we will have found a sustainable way to reduce poverty in the world," Mr. Gates plans to say.

If that can be done, wonderful!  The problem is that for most companies of size, including his, the profit margins are too small for the capital involved.  Can he solve this problem?  Perhaps, but I am more than willing to bet that the other shareholders of Microsoft would not be enamored of the idea of Microsoft moving into or staying in low profit margin areas of business.

In the interview, Mr. Gates was emphatic that he’s not calling for a fundamental change in how capitalism works. He cited Adam Smith, whose treatise, "The Wealth of Nations," lays out the rationale for the self-interest that drives capitalism and companies like Microsoft. That shouldn’t change, "one iota," Mr. Gates said.

Whew! 

But there’s more to Adam Smith, he added. "This was written before ‘Wealth of Nations,’" Mr. Gates said, flipping through a copy of Adam Smith’s 1759 book, "The Theory of Moral Sentiments." It argues that humans gain pleasure from taking an interest in the "fortunes of others." Mr. Gates will quote from that book in his speech today.

True indeed!  But that is the domain, in my opinion, the purview of individuals and charities – not businesses.  And not Government (which should be concentrating on better (and in my view) a more limited government.  That way, government gets out of the way of people trying to do good.

Meanwhile, companies including Microsoft had donated huge amounts of cash and products to developing countries without seeking to create sustainable growth. Free Microsoft software in some countries spawned broad usage of computers, while in "other places you announce a big free software grant, come back a few years later, nothing," Mr. Gates said.

Let’s be clear here – I am quite sure that while part of those donations may have been altruistic, from the inside, it can just as easily be seen as flanking moves to prevent competitors, especially open software products! 

Mr. Gates in his speech will note several programs that "stretch the reach of market forces," including a World Health Organization venture with an Indian vaccine maker to sell a meningitis vaccine in Africa for far less than existing vaccines. He will also highlight a new program designed to give African coffee farmers better access to coffee buyers in rich counties. "We don’t need some dramatic big ne
w tax or requirement," Mr. Gates said in the interview. "What we need is the recognition of the creativity here that some of the leaders are exercising."

Let’s take two examples – look at Zimbabwe.  Once the bread basket of Africa, it has become the proverbial basket case.  Mgambe, under the guise of anti-aparthied actions and redressing past wrongs, has use the force of government to take private property.  Now, starvation is looming.

No amount of charity, of philanthropy, can overcome a governmental process that can just step in and take it all away.  Greed, graft, and outright theft by government employees, and a culture of such, will doom such and all efforts. 

 

To a degree, Mr. Gates’s speech is an answer to critics of rich-country efforts to help the poor. One perennial critic is Mr. Easterly, the New York University professor, whose 2006 book, "The White Man’s Burden," found little evidence of benefit from the $2.3 trillion given in foreign aid over the past five decades.

Mr. Gates said he hated the book. His feelings surfaced in January 2007 during a Davos panel discussion with Mr. Easterly, Liberian President Ellen Johnson Sirleaf and then-World Bank chief Paul Wolfowitz. To a packed room of Davos attendees, Mr. Easterly noted that all the aid given to Africa over the years has failed to stimulate economic growth on the continent. Mr. Gates, his voice rising, snapped back that there are measures of success other than economic growth — such as rising literacy rates or lives saved through smallpox vaccines. "I don’t promise that when a kid lives it will cause a GNP increase," he quipped. "I think life has value."

Brushing off Mr. Gates’s comments, Mr. Easterly responds, "The vested interests in aid are so powerful they resist change and they ignore criticism. It is so good to try to help the poor but there is this feeling that [philanthropists] should be immune from criticism."

Technology helps – a lot.  Capital helps – a lot.  Motivation helps – a lot.

 

Bad governance and culture can either throw or take it all away in a heartbeat.