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It is highly disappointing to see this:

"And if creative capitalism does succeed in lifting billions of people out of poverty, the problem of global warming will become even graver than it is because the world demand for fossil fuels will soar."

This is indeed true. However, wouldn't the powerful good of less poverty and less misery hugely outweigh whatever costs are incurred by global warming? Wouldn't a richer world be more able to deal with global warming than a poorer one? Isn't a richer and warmer world better than a poorer but colder one? Allowing people to remain trapped in dire and miserable poverty on the basis of speculative doomsday scenarios by halting economic growth would in my mind be irresponsible and reckless.


Posner is refering to "kin selection" as a selfish-gene mechanism for altruism. Another powerful mechanism is "reciprocal altruism" as set forth in a highly influential paper by Robert Trivers in the early 70s. It seems that Bill Gates's call for "creative capitalism" is just another form of reciprocal altruism.

As far as Posner's conclusion re: global warming, however offensive it may sound, there is a tragic trade-off here. I would only add that a greater demand for fossil fuels may actually turn out to be a good thing if it leads to greater incentives to develop alternative sources of energy


The argument --- that there's no point in Gates making such a speech since if there were business opportunities to be had in the developing world, they will be exploited anyway --- is valid to the extent that the economy is an omniscient utility-maximizing machine. But given that in fact it consists of entrepreneurs who are short-sighted, and perhaps imperfectly aware of the set of problems/opportunities on which they can spend their finite mental/financial resources, it may in fact be useful for someone like Gates to encourage them to focus their attention on this particular set of problems.


Gates does say in his speech that the effort against economic inequality is ongoing and may never quite end...but the key is in taking it up as a challenge and fighting it with spirit.

True, creative capitalism has some shortcomings when cross-examined from various angles. However, in Mr. Gates' defense, there was only so much that he could pack into a twenty-minute speech. In fact, creative capitalism would be more efficient than government aid financed by (say) progressive taxation and less unorganised and unfocussed than individual charity in bridging the divide. Sadly, poverty levels are too high for isolated individual efforts or NGOs to have any impact on it. But they don't get bigger, richer and more specialized than corporations, and in recognizing this power of the corporation is the key.

"If there are good business opportunities in poor countries, however, it does not require Gates's urging for businesses to seek to exploit them."

The market will only recognize these if it can hear them.

"Do shareholders--the corporation's owners--feel good when corporate management picks objects of charity, unless the charitable giving feeds the bottom line"

The way I see it, creative capitalism is more about doing business with a different set of people than simply giving money away. It is a fact that this will be achieved only at a very high cost, but this should be seen as the cost of improving the lives millions.

With respect to whether improving these lives is even relevant, consider the potential talent and scientific and business acumen that may arise in future once the billions you speak of stop having to worry for their lives and start doing something worthwhile.

Justin Donoho

Judge Posner, many customers might "pay more . . . to benefit poor people in distant lands" if such purchases were tax-deductible. See Profs. Malani and Henderson at Chicago Law, who argue in a forthcoming paper for this addition to the federal tax form because corporations are more efficient philanthropists than are individuals. The trick, of course, would be to calculate which charities, and by extension which consumer goods and services, are most worthy of the tax treatment and by what amounts (and to improve technology, for example, to itemize "green" purchases real time). But I guess this calculation is within the IRS's delegated powers and in any event would be progressive toward a more efficient administrative state predicated on holistic cost-benefit analysis--see Justice Breyer's Breaking the Vicious Circle at 59-72--which would take into account international terrorism, political instability, nuclear proliferation, global warming, and everything else the government has constitutional power to regulate. Panglossian? Perhaps. Impossible?


"Few customers will pay more, and few skilled workers will accept lower wages, to benefit poor people in distant lands."

Judge Posner, I have to agree with Mr. Donoho that these people would pay more, given the right incentives. I might also like to point out that Mr. Gates in his speech calls for governments to come up with creative policies that set up these incentives, both for businesses as well as consumers. He also applauds the '(RED)' campaign, which is a living example that customers are willing to buy products that benefit the 'bottom billion.' If, on providing consumers with moral incentive to purchase its products alone, the (RED) campaign has been able to raise $50 million for the cause, economic incentives might definitely increase the quantum of funds that are raisable in this manner.

A student of Economics

Does Posner work solely to increase his financial remuneration? Is that why he's writing this blog?

Do his academic colleagues do their research to maximize their "profits"? Is that why the University of Chicago exists? Is that what drives his fellow judges? Do his children choose careers or employers based solely, or even primarily, based on pay? Does he think the teachers, doctors, scientists, authors, social workers, or homemakers do?

While Chicago-school ideology has little tolerance for non-financial motivations, even the most casual look at the facts shows that real humans do care about values other than profits and money. Posner either has a very weird circle of friends or else is astonishingly blind to the fact that most people have strong values beyond profits and money.

Professors who tell CEOs and investors only to look at profits are giving bad advice based on bad science. It doesn't even apply to the advice-givers themselves.

It's a caricature of economics to focus so narrowly on money profits when real human motivations are much broader and obviously frequently include a strong desire to help other people.

Bill Gates is trying to restore some balance and realism to the understanding of human motivations, and ultimately, business success.

Michael Martin

"The essential ingredient of economic growth is human capital, and it depends primarily on the existence of a political system that prevents violence, enforces property rights, provides a minimum level of public goods, and minimizes governmental interference in the economy. Without such institutions, economic growth will be stunted; altruistic capitalists will not cure their absence."

Perhaps this is really Gates's point. Most businesses have time horizons too short to realize the value (and later profit) that would be created by making investing in infrastructure of the kind you describe. If that's a collective action problem, then non-sovereign organizations like the Gates foundation are probably in the best position to tackle it.

The Gates/Buffet philanthropic vision is perhaps the first credible attempt to address those massive scale problems with economic growth in the poorest parts of the world. I wouldn't lump it in with earlier attempts at philanthropy and criticize it that way. Maybe philanthropic investing in basic economic growth is a scale business.


I always find it interesting how it seems to be an innate human characteristic trait that we always have this great fear that our world and present generation is doomed and on a eminent path to self destruction.

Posner states, "But there is no basis for predicting that these trends will continue, given such threats to peace and prosperity as international terrorism, political instability, nuclear proliferation, and global warming."

I'd like to point out a few historical facts:

-Today large segments of humanity live in secure peace (Just 150 years ago the American West was governed by the six-shooter and hang man's noose, in Japan every citizen was under protection from their local Shogun, etc. etc.) Just a few generations ago in most the world, unless you were part of the social elite, or royalty, you were almost certainly a peasant living under the protection of your local tribal leader.

-For the first time in the history of humanity, there are large-scale humanitarian efforts. Today, the global organization humanitarian effort against disease, famine, poverty is unprecedented. Billions of dollars are spent every month combating these evils. This is a recent human social phenomenon. Go back a generation, and organized humanitarian work was usually conducted by unsophisticated Christian missionary groups.

-Income. Today billions of people are able to consume goods and services that a 150 years ago, were only fit for royalty. Today people in some of the poorest parts of the world can still order Big Macs (high source of protein and fat), have cell phones, obtain affordable housing, running water, take public transportation. Chances are, if you were living 150 years ago, you would've been a subsistence level farmer living in a 1 bedroom straw shack. The consumption of just a few grams of protein would've been a luxury.

I do agree, the proliferation of nuclear weapons is not something to sweep under the carpet. But I must also say, if there was ever a time period in the history of humanity that I would choose to live in, it would be today. And why is that? It is because as a whole, global cooperation, peace, and humanitarian efforts, are at all time record levels.

Please folks, quit the fear mongering, and just keep up the good work! Today, with frenzied technological progress, the material gains realized by previous generations in the past 150 years or so will pale in comparison to what the next 200 years will bring. Too bad I won’t be here to participate!


Judge Posner, many customers might "pay more . . . to benefit poor people in distant lands" if such purchases were tax-deductible.

...how is that paying more, then? If I pay more but get it back in taxes, all that's happened is that the government pays more [by virtue of collecting less in taxes]. I'm perfectly fine with that [yay $3.1 trillion budget] but I don't get how you refute the judge's argument that people would pay more [for products] if they could pay less [in taxes].

Brn 2Run

I think the economics student is missing the whole point regarding corporate governance. Yes, people are motivated by many things, but the corporation serves its shareholders by maximizing value. Employees can choose to send their earnings wherever they'd like, shareholders can sell their shares and send that money to starving children, but the corporation needs t obe in the business of maximizing shareholder value or it is no longer a corporation. The point, I think, is that Bill Gates is not suggesting corporate philanthropy as a change to business practice, but rather noting potentially untapped markets or new ways of doing business in the context of underdeveloped and poor regions.


The other day I read an article written by some kid about how people should be paid according to how hard they work (and that this was undermined by minimum wage laws). I was like, "Wow! This kid really doesn't understand capitalism."I mean, it's right there in the name "capital"-ism. In order to produce things you need labor and supplies (capital). The people who own the capital let the workers use the capital for production and, in exchange, the owners of the capital allow the workers to have a small share of what is produced (the "wage").Anyway, the whole point of capitalism is that you have some people sitting around doing nothing while getting rich and you have other people doing all the work. Granted, through a combination of luck and hard work some of the workers are able to become owners of capital (and, through a variety of factors including taxes, some owners of capital become workers).This creates an unstable system where the rich tend to get richer (without having to do any work) while the poor stay poor (while working very hard). Naturally, this system does provide a very strong incentive to work hard - and become an owner of capital. But, it's not designed to be "fair". It's not designed so that everyone receives an income that is proportional to the value of their labor. If you're born into poverty (and you don't get a leg up from social programs or plain dumb luck) then you're very likely to work very hard in perpetual poverty.

A student of Economics

"the corporation needs to be in the business of maximizing shareholder value or it is no longer a corporation"

Is that what Richard Posner's employer, the University of Chicago does? It is a corporation. See http://trustees.uchicago.edu/articles/

Does Ben and Jerry's do everything legally possible to maximize money profits? Is it part of a for-profit corporation?

Yes, it is true that corporate philanthropy can increase shareholder value, and Gates points this out. That certainly is one (very good!) reason for doing it, even if Richard Posner would not be won over as a customer.

However, boosting shareholder value is not the only reason. Many entrepreneurs, CEOs and yes, investors, have other goals in their ventures, corporations and investments. In most cases, those other goals are right in the companies' mission statements and the values the publicly espouse.

Justin Donoho

Hais, either people would pay fewer taxes as you suggest, in which case corporate philanthropy would substitute for government spending in general (despite the net zero monetary effect to the taxpayer), thereby more directly benefiting people in distant lands. Or people would donate directly less, instead preferring to subsidize "green" goods, and thus would pay the same amount of taxes, in which case corporate philanthropy would substitute for individual philanthropy. In this case, assuming as Profs. Malani and Henderson do that corporations are the most efficient philanthopists, people in distant lands also would receive more benefits.


However, boosting shareholder value is not the only reason. Many entrepreneurs, CEOs and yes, investors, have other goals in their ventures, corporations and investments. In most cases, those other goals are right in the companies' mission statements and the values the publicly espouse.

This keeps missing the point of corporations, not to mention some major features of corporate law.
First, you have to differentiate between entrepreneurs/investors and CEOs of public corporations. The CEOs you mention are obligated by law [and their fiduciary duty] to maximize shareholder value. Occasionally, that will involve charitable work to increase the public perception of the corporation. Some other PR campaigns may be called for. We clearly can't tell ex ante whether any such campaigns are going to increase the stock price, but they're legitimate attempts to do so. However, no matter what tactic they pursue, a CEOs obligation is to maximize the MONETARY return to shareholders. The shareholders then can use the money to do good.

Investors and entrepreneurs, unlike CEOs with fiduciary duties, control their own resources, and they're free to do as they please.

Also, it's true that some corporations specifically make charity, costly "green" technology, and above-market wages part of their mission. However, in this latter case, investors know up-front what they're getting into, and make their investment decisions accordingly. They use their own resources, and they accept below average returns in exchange for contributing to causes they support.

And finally, my guess is that Ben & Jerry does everything that they're good at to make as much money as they can.


"Anyway, the whole point of capitalism is that you have some people sitting around doing nothing while getting rich and you have other people doing all the work."

I hope this was in jest...

The point of capitalism is that there is incentive to continue producing higher quality and higher quantity work. Of course, there are inefficiencies that occur, causing variations of this, but for the most part its true.


"Also, it's true that some corporations specifically make charity, costly "green" technology, and above-market wages part of their mission. However, in this latter case, investors know up-front what they're getting into, and make their investment decisions accordingly. They use their own resources, and they accept below average returns in exchange for contributing to causes they support."

Haris, you don't even need to mention this as an exception. It is included in the former part of your post. This may be part of their plan to increase the bottom line. Green technology offers a better image, and above market wages provide loyal employees.

Corporations will only invest in these undeveloped countries if they think it will increase the bottom line; that is inherent in a public company. Maybe what Gates should be suggesting is that CEO's should look at a longer time range when considering such investments. Maybe then investing in undeveloped countries looks like a more attractive investment.


Wes: good summary, and as capital along with higher barriers to entry speak louder than ever before the need for collective bargaining on behalf of labor becomes more important even as it is at a very weak point today.

It's good to note how many agreed that the function of companies and corporations IS making as much as possible, and more specifically making the highest return to capital. The time horizon is typically short.

Logically, that leaves the responsibility for looking out for our future as a community and a nation, along with our long term well-being up to a functioning, responsive, representative democracy.

Gates being a bit brighter than most is aware that the past quarter century of "the market fixes all" and corporations running rough-shod over all but the upper level employees, would rather companies become a bit more socially conscience than to leave the task to the democratic (small d) revolution that seems to be, finally, taking place. Perhaps it would also be wise for him to up the Yahoo offer so as to consolidate more monopoly power before the Anti-Trust Division is resuscitated?


"If there are good business opportunities in poor countries, however, it does not require Gates's urging for businesses to seek to exploit them."

It has became an article of faith that all actors in a capitalist society would necessarily view all information in exactly the same way.(i.e. the 'rational' way) Companies and individuals have neglected or invested in parts of the world based on their own read of the situation. For example, General Motors has invested far more in China than almost any other automaker. They have a good hold in the fastest growing economy in the world.

Did Ford not have access to the same information? Toyota? Honda? Did GM somehow have access to the secret files?

Or could it be that independent entities understood the same information differently? Perhaps there isn't a single 'rational' reaction to information. Maybe 'value-maximizing' firms occasional screw up. Perhaps career-seeking middle managers distort or kill opportunities for some kind of personal gain.

I am always amazed when people assume companies make rational and value-maximizing decisions. Haven't any of these people worked in an office?

Bill Gates certainly does have a point in urging companies to invest in these markets. They are poorly understood and represent great risk. Plus, the more companies that invest and improve infrastructure, the likelier that residents of those countries will purchase windows-based computers.


It is hilarious to watch all these Marxists (or Leninists or Stalinists, who can keep track?) assail Judge Posner.


Haris, you don't even need to mention this as an exception. It is included in the former part of your post. This may be part of their plan to increase the bottom line. Green technology offers a better image, and above market wages provide loyal employees.

Perhaps, but I am referring in this part specifically to companies who are willing to make a sacrifice to the bottom line in order to achieve other goals. While some may do this as part of the overall campaign to maximize profits, some others might give up some profits for quasi-charitable reasons. Their investors accept lower returns, and their customers often accept higher prices, in order for the company to be able to do business in a certain way, with green technology, from certain suppliers, or using certain materials.

pat toche

Sorry Prof. Becker but there's a twist in your logic, you cannot, can you, argue that on the one hand there are no bills lying on the sidewalk, and on the other hand if you do find one more will be coming your way!


Sorry, that was for Prof. Posner, actually.

Jess Curtis

I'd like to hear from Posner why a warming planet is a threat of the same order as nuclear holocaust or world war ...
The earth has been warming since the last ice age, will undoubtedly continue to warm until it begins its descent towards the next ice age.

Meanwhile, global warming tends to increase this planet's biomass. Despite the green-left rhetoric there's no evidence that a warming planet is bad for the earth's ecology as a whole.

Also, there's little doubt that the economic problems of a warmer world are imminently fixable with the added resources provided by the economic growth that Posner so fears.

For example, rising water levels might flood some land but there's plenty more land to develop elsewhere. Also as some areas become excessively warm others will become pleasingly more temperate (and this is aside from the fact that current models predict that greenhouse warming mainly affects the colder latitudes -- so the cold regions get more warming than the already warm regions ... booyah!) Finally, because of the asymmetrical nature of this warming the heat gradient from poles to equator will become reduced -- thus likely causing less severe weather on the whole. Why is global warming frightening again?


To echo basman's post above, when Posner says, "If there are good business opportunities in poor countries, however, it does not require Gates's urging for businesses to seek to exploit them," he is making a number of assumptions.

I am not sure that the free flow of capital is quite so efficient as he imagines. Real people make decisions in corporations and real people often overestimate risks and underestimate rewards of expanding into new markets and exploiting new business models. It is much less likely that you will be fired for doing things "the same old way" and failing, than if you fail in some spectacularly novel way.

Add to that that most western sources of capital do not have perfect information on all the legal and political risks of the various far flung markets, and doing the legwork necessary to assess those risks will cost money in and of itself.

Dipping your toe in the water of those markets, especially in a way that allows a manager to save face (and possibly his position) if the endeavor fails to generate profits might well encourage managers to explore these new areas.

To be honest, I am a bit skeptical that Gate's exhortations alone will spark much change, but mostly because I think the apprehensions and satisficing strategies of most managers are too firmly entrenched to be moved by such a speech. What I suspect would be needed is a persuasive argument that the markets, though riskier, will be profitable in the future and some evidence that the first movers will gain an advantage in those markets (rather than simply incurring all the extra costs and suffering all the likely missteps that accompany being a first mover).

India is the natural choice for this sort of expansion, initially. Companies have already started migrating there and the understanding of their business environment is now relatively deep.


Justice Dept. Eyes U.S. Firm’s Payments to Foreign Officials
The Justice Department is probing the relationship between the Federal Bureau of Investigation and a small investigative firm that helped American officials make a headline-grabbing arrest of an Afghan warlord.
Under scrutiny are several payments that the firm, Rosetta Research and Consulting LLC, may have made to foreign government officials, including an Afghan diplomat in London, court documents suggest.
Little is publicly known about the now-defunct Rosetta, which was founded in 2003 by a former Treasury Department researcher, Michael Patrick Jost. The firm’s goal was to “develop highly sensitive information regarding the funding of terrorist activities worldwide and to make commercial use of this information,” according to a description of the firm offered in court papers.
“Rosetta sought and obtained millions of dollars of investments,” according to the court filing “and developed relationships with high levels of officials in the FBI” and Department of Defense. The firm played a central role in helping law enforcement officials develop contact with an Afghan warlord, Bashir Noorzai, whom the government is now prosecuting in New York for heroin distribution, Mr. Noorzai’s lawyer claims in court documents filed yesterday.
Details about Rosetta are emerging in Mr. Noorzai’s case because his attorney, Ivan Fisher, is alleging that Rosetta violated the law in its pursuit of Mr. Noorzai on behalf of the government.
In a twist to the case, Mr. Jost yesterday filed a sworn affidavit on behalf of Mr. Noorzai describing an investigation into Rosetta that was conducted by the Justice Department’s internal watchdog, the Office of the Inspector General. The investigation centers on the FBI’s relationship to Rosetta. Despite a sale’s pitch by Rosetta delivered to senior FBI officials, the FBI never signed a contract for the firm’s services, according to Mr. Jost’s account, which was confirmed by a former federal official. “They came to the FBI proposing to rent us their extensive database about people in the Middle East,” the former official said.
Mr. Jost’s account raises questions about whether individual FBI employees improperly shared information with Rosetta and whether Rosetta bribed foreign officials with the knowledge of some FBI employees.
In 2006, Mr. Jost told the Justice Department investigators that an FBI employee “had been looking up information in FBI databases and forwarding it to Rosetta,” according to his testimony. The FBI employee, who is not identified in Mr. Jost’s account, was considering taking a job with Rosetta, according to Mr. Jost.
The investigators reviewed Rosetta’s financial records, Mr. Jost said, adding that he identified some payments as going to “an Afghan diplomat serving in London.” Other money, potentially millions of dollars, Mr. Jost said, “went to government officials in Afghanistan and Pakistan.” A spokeswoman for the inspector general, Cynthia Schnedar, declined to comment. During its short existence, Rosetta’s main enterprise was to develop a relationship with Mr. Noorzai, the Afghan’s lawyer, Ivan Fisher, claims in court papers he filed yesterday. Rosetta had obtained from a source in the Office of the Secretary of Defense a list of individuals whom “our government believed could provide strategic assistance in interfering with” terrorism, Mr. Fisher claims in court papers.
Mr. Noorzai, who was the head of a million-man-strong tribe in Southern Afghanistan was on that list, Mr. Fisher’s letter to the court claims. Mr. Noorzai may have been an attractive figure to American foreign policy officials because of his extensive track record with the Central Intelligence Agency over the years.
He had helped recover unused Stinger missiles dating back to the war with the Soviet Army in Afghanistan and returned them to American officials, according to news accounts.
Rosetta employees offered to deliver Mr. Noorzai to the FBI.
“They were proposing that they could bring him to us with a grant of immunity and he would tell us about bin Laden and where he hides out,” the former official said. “The FBI did not go for it. When private business comes to you like that, wanting to make money off of the flesh trade so to speak, it’s kind of unsavory.”
Rosetta, according to Mr. Fisher, did get access to Mr. Noorzai, by bribing foreign officials from Afghanistan, Pakistan, and the United Arab Emirates.
One recipient of the payment, an Afghani diplomat stationed in London, put Rosetta in touch with a former Pakistani intelligence official, who also received payment from Rosetta, to arrange for an introduction with Mr. Noorzai, according to Mr. Fisher’s court filing. Mr. Fisher’s account does not provide exact figures for the alleged payments. Nor does the account make clear exactly on the behalf of which government agency, if any, Rosetta was pursuing Mr. Noorzai.
Mr. Noorzai made several trips to Dubai to meet with Rosetta employees he believed were representatives of the American government, according to transcripts of those conversations that have been reviewed by The New York Sun. Mr. Noorzai knew these two contacts as “Mike” and “Brian.” Mr. Noorzai has said he had only seen Osama bin Laden once in passing.
Mr. Noorzai was under the impression that American officials would help install him in the new Afghanistan government, according to his court filings.
In April of 2005, under the pretense of working out such a deal, Mr. Noorzai flew to New York and spent two weeks in a hotel at the Embassy Suites in Lower Manhattan talking with agents from the Drug Enforcement Administration. He was arrested and spent the last three years awaiting trial on drug charges.
Before Mr. Noorzai arrived, there was at least one meeting in Washington with DEA agents, a federal prosecutor, and Mr. Jost, according to Mr. Fisher. According to Mr. Fisher, a disagreement ensued over whether to arrest Mr. Noorzai when he arrived or not. Rosetta’s position was to provide safe passage to Mr. Noorzai, Mr. Fisher said. Only then did the law enforcement officials inform Mr. Jost that Mr. Noorzai had already been indicted on the heroin charges, according to Mr. Fisher’s account.
In court papers, Mr. Fisher argues that the safe passage Rosetta employees promised to Mr. Noorzai is binding on the federal government, and he urged a federal judge to release Mr. Noorzai.

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