Mon, 30 Jun 2008 11:09:00 GMT

A conversation on creative capitalism.

There is a very interesting conversation going on between some very noted individuals at this new blog. It started with this Davos speech by Bill Gates. Ed Glaeser has joined in to support it somewhat while economists such as Steve Landsburg, Richard Posner, Gary Becker and others are doing the typical economist thing and wondering whether corporate social responsibility or what have you is a good idea. Perhaps cure government first.

My submission to the conversation (I have no idea whether they will publish it or not) is over the fold.

Dear Mr Clarke,

I wanted to submit this thought on the Creative Capitalism conversation:

I am an economics professor and also a parent. So it is on a day-to-day basis that I see a conflict between the notion that self-interest guided by free market competition can lead to good outcomes but that non-market respect and sharing is desired paths to the same outcome. And so I see the debates arising in the conversation on “creative capitalism” as both interesting but perhaps a little off point.

On the one hand, Bill Gates has stimulated us to think about corporations having goals beyond those solely of profit. In some situations, pursuit of social goals can lead to higher profits. But in others, they involve an explicit trade-off and, as Gary Becker, notes the market economy might not sustain that.

On the other hand, respondents to this notion argue for specialisation. We should not expect corporations to play a role beyond the profit-motive. They are good at that. Instead, we should look to governments to hold the social interest or, in some cases, delegate that role to private philanthropists. I see these people as arguing for a division of labour (the other plank of Adam Smith’s great contribution). In this case, the division is in motives and pursuit of them.

Whether decision-making entities should balance two motives or a diverse set should specialise in different ones is a difficult issue to address. In economics, it depends whether the activities underlying them are complements or substitutes. Bill Gates sees complementarity while others see a loss of focus and inherent tensions that suggest substitutability.

I have no answer here (not yet anyway) but wanted to see if I could encourage the conversationalists to consider the debate in these terms.

But I do have one final question: when all is said and done and we look back on this time when wealth was sufficient in scale but held in a concentrated manner, will we see the goals that those here debate as the relevant one. For economists, we accept a desire to talk of the pursuit of happiness or satisfaction. However, when higher level debates about whether our system is doing what it is supposed to is at stake, can we really accept the goal of widespread individual happiness as the right one. I must admit, that I do not tell my children to pursue their own happiness nor even to measure their success in life in those terms only (even if I do to some degree). I want them to learn, absorb and spread knowledge. It is not quite the same thing.

Sincerely

Joshua Gans
(Professor of Economics, University of Melbourne)

[CoreEcon]