Response to Bill Gates

Here is an interesting critique of Bill Gate's recent call for increased "market based social change" at the World Economic Forum.

The authors make at least two mistakes; the first in underestimating the positive feelings consumers associate with being attached to firms that are perceived as being "socially conscientious," the second (and more important) in creating a false dichotomy between successful firms that pursue profit maximization and those that are engaged in "money-losing projects."

The authors focus a great deal on firms that donate a substantial portion of their revenues to charity.

Of course, some businesses have found that embracing "social" goals can boost profits: the list includes Ben & Jerry's, Celestial Seasonings, Patagonia, Stonyfield Farm, and Whole Foods. Cypress Semiconductor, run by the free-market capitalist T.J. Rodgers, has won trophies for the most food donated per employee in Silicon Valley for over a decade. Rodgers calls it "a big employee moral builder, a way to attract new employees, good PR for the company, and a significant benefit to the community--all of which makes Cypress a better place to work and invest."

True. But in using these firms as examples the authors have mischaracterized "market based social change" as market based philanthropy, which are not the same thing. The above are illustrative of the latter, which the authors are correct to be suspicious of (they remind us that both Milton Friedman and Adam Smith wrote specifically on dubious "trading for the public good").

But socially aware business is not philanthropy. It is being selective about the industry (or market) in which to maximize profits. If the authors are really interested in taking on the efficacy of "market based social change," they would do well to focus less on Ben & Jerry's and more on Grameen Bank or one of the myriad businesses that have been so successful at aligning profit maximization and enfranchisement.