Enlightened Capitalism

Capitalism for the poorest

Roopen Roy


At the Global Business Summit held to mark the Centennial of Harvard Business School (HBS) Bill Gates told Professor Emeritus John Cash some home truths about capitalism. According to him, over the past 100 years capitalism has been enormously powerful. It has helped improve the living standards around the world. It has enabled hundreds of millions of people to come out of abject poverty. Yet there are numerous instances where capitalism falls short, where market failure takes place.

For instance, the poorest countries in the world have no money. Therefore, there is no economic incentive for pharmaceutical companies to invest in developing and producing drugs to fight diseases that affect the population of those countries. Bill Gates drove the point hard by citing that ten times more money is spent developing a cure for male baldness than developing a cure for malaria despite the fact that malaria kills one million children every year. The logic is as simple as it is cruel: there is a profitable market for male baldness but no such market for malaria drugs. There are numerous examples of how the disparity in income levels distort the allocation of research dollars.

Most of the poor in “emerging” countries like India are trapped in the vicious cycle of poor governance and corruption, inadequate health care and plain poverty. Over 2 billion out of the world’s population of 6 billion are caught in this trap. To break out of this trap, several initiatives are delivering results. The Gates Foundation for example is using the best practices of the private sector to reduce waste. It is using score cards to set goals and is measuring the success of every program it funds. It is spending $3.3 billion every year and Warren Buffett is funding half of it. Bill Gates believes that time has come for what he calls “creative capitalism”. Drug companies, cell-phone companies, food companies and others could achieve “amazing accomplishments if companies took 5% of their best innovators and had them examine the needs of the poorest in the context of their realm of expertise.”

We have seen progress. Low cost vaccines for polio and measles have been developed. We have the example of the Jaipur foot. It is affordable and meets quality standards. A similar innovation is underway at Frontier Lifeline. Dr Soma Guhathakurta, a cardiac surgeon and a PhD in Biomedical Engineering from IIT, Madras, working with Dr.K M Cherian has successfully developed biological implants ( pig and cattle to human) saving lives of hundreds of children at a fraction of the cost of similar synthetic implants manufactured in Europe.

Mohammad Yunus of Bangladesh is advocating an innovation in the business model itself He is not relying on philanthropy but leveraging capitalism to deliver social good. He has been a pioneer in micro-credit .His Grameen Bank has disbursed loans of almost $ 8 billion and has achieved a recovery rate in excess of 98%. He has set up a mobile phone company called Grameen Phone which is competing successfully with its private sector rivals. He is now suggesting that reforming capitalism and using the market logic to the advantage of the poor may be the answer. Why should companies measure their performance only in terms of revenue and profitability? What if pharmaceutical companies reported on their bottom lines, along with those familiar figures, the number of lives saved by their drugs every quarter and food companies reported the number of children rescued from malnutrition? He suggests that we travel now from micro-credit to social business enterprises in collaboration with successful global companies.

Yunus invited Danone CEO Franck Riboud to come to Bangladesh and build his first social business enterprise. Riboud listened carefully and finally agreed. The yogurt (Shakti Doi) Danone would make would be fortified to help curb malnutrition and priced (at 7 cents a cup) to be affordable.

The factories ( ultimately 50 or more) will rely on Grameen microborrowers buying cows to sell it milk on the front end, Grameen microvendors selling the yogurt door to door and Grameen's 6.6 million members purchasing it for their kids.

For Riboud the enterprise is about expanding into new markets with nutrition-enhancing products. He had famously said almost borrowing Prahlad’s words,”We are convinced that in this world, when you are a consumer-goods company and the country is a developing country, it would be crazy to think only about the peak of the pyramid." Grameen is now entering the healthcare market with micro-insurance, affordable health centers and the setting up of a Grameen Medical College and teaching hospital in collaboration with a leading school of medicine of a premier US university.

Unlike some NGOs , Yunus is not constantly cursing the darkness of poor governance, corruption and dictatorships that abound in many parts of the globe afflicted by poverty. He is kindling lights to save and deliver capitalism from unenlightened capitalists.