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IJLMA
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The creative capitalism

corporate governance model
How radical an approach to modern
capitalism?
Thomas Hemphill
School of Management, University of Michigan Flint, Flint, Michigan, USA
Abstract
Purpose The purpose of this article is exploratory; to evaluate the arguments for creative
capitalism as a viable market alternative, i.e. corporate governance model, for MNCs in lieu of the
capitalist model under which they presently operate.
Design/methodology/approach The paper will first explore the attributes making up the
creative capitalism model; second, compare the core attributes of capitalism to Gates conception of
creative capitalism; third, analyze how creative capitalism fits (or does not fit) within the concepts of
global corporate citizenship; fourth, present arguments for creative capitalism to be considered as a
viable economic opportunity for MNCs and review the latest management strategy frameworks
available for implementation; and lastly, summarize the articles major arguments and offer
conclusions on the viability of creative capitalism in the global economy.
Findings When compared to the essential components of capitalism and the expansion of
government interference in the marketplace, creative capitalism does little more than advocate for
national governments to offer financial and related incentives encouraging corporations to develop
innovative solutions for alleviating poverty.
Practical implications For managers, this paper provides insights not emphasizing a fortune
at the bottom of the pyramid, but profit opportunities available to innovative multinational
corporations willing to search for profit opportunities in less developed countries.
Originality/value This is a seminal, exploratory evaluation of Bill Gates concept of creative
capitalism and applies previous researchers state-of-the-art management frameworks, including the
Corporate Citizenship Model and the Strategic CSR Approach, to his proposed governance model.
Keywords Capitalist systems, Corporate governance, Globalization, Innovation, Poverty,
Multinational companies
Paper type Conceptual paper

International Journal of Law and

Management
Vol. 52 No. 2, 2010
pp. 110-123
# Emerald Group Publishing Limited
1754-243X
DOI 10.1108/17542431011029415

I. Introduction
In a January 25, 2008 speech before many of the worlds most influential business, nongovernmental and government leaders, at the annual World Economic Forum in Davos,
Switzerland, Bill Gates, founder and Chairman of Microsoft Corporation, called for a
revision in the prevailing view of modern capitalism and corporate governance. Having
grown impatient with what he perceives as the shortcomings of modern capitalism, Gates
argues for a creative capitalism which harnesses market forces to address the needs of
the worlds two billion poorest people. He believes that they are being ignored by the
present market system and its major institutional participant, the multinational
corporation (MNC) (Guth, 2008). For Gates, there is simply one vital question: How can we
effectively spread the benefits of capitalism and the huge improvement in quality of life it
can provide to people who have been left out (Gates, 2008b)?
Has Gates, with his call for creative capitalism, lost faith in an economic system
which has personally allowed him to become the richest man in the world? To the
contrary; far from abandoning his faith in this economic system (recently referred to by
Schramm (2006) as entrepreneurial capitalism), he believes that capitalism, in what

he describes as his creative form, can bring much needed relief from the present
poverty, illiteracy and disease afflicting one-third of the worlds population (Guth,
2008). By tapping into what C.K. Prahalad (2004), University of Michigan-Ann Arbor
business school professor, calls the fortune at the bottom of the pyramid, MNCs
can take the lead, in partnership with non-governmental organizations (NGOs) and
governments to address the needs of the worlds poorest people in their role as profitmaking innovators for finding solutions to this persistent global dilemma (Guth, 2008).
The purpose of this article is exploratory; to evaluate the arguments for creative
capitalism as a viable market alternative, i.e. corporate governance model, for MNCs in
lieu of the capitalist model under which they presently operate. Following this
introduction, the author will first, based on the Microsoft chairmans Bill Gates own
words, explore the attributes making up the creative capitalism model; second, the author
will compare the core attributes of capitalism to Gates conception of creative capitalism;
third, the author will follow with an analysis of how creative capitalism fits (or does not
fit) within the concept of global corporate citizenship; fourth, the author will present the
arguments for creative capitalism to be considered as a viable economic opportunity for
MNCs and review the latest management strategy frameworks available for its successful
implementation; and fifth, and lastly, the author will finish the article with a summary of
the articles major arguments and offer conclusions on the viability of creative capitalism
in the global economy.
What is creative capitalism?
In his World Economic Forum speech, Bill Gates (2008a) identifies himself as an
impatient optimist who believes the world is getting better but just not fast enough
for everyone, especially not for the billion people who live on less than one dollar a day.
Granted, says Gates, the status of women and minorities is better almost everywhere,
life expectancy has nearly doubled over the last century, and the number of people who
exercise economic and political freedom is greater than at any time in history. Yet there
are a billion people who are not only are missing out on the great inventions of the
computer age and the material benefits of the global economy, but are faced with the
inequities of lacking basic nutrition, potable drinking water, and electricity on a daily
basis, not to mention being exposed to a multitude of transmittable diseases.
From Gates perspective, if we are going to have a chance of changing their lives, we
need another level of innovation. Not just technology innovation, we need system
innovation . . . Gates solution is to find a way to make the aspects of capitalism that
serve wealthier people serve poorer people as well. Says Gates:
I like to call this idea creative capitalism, an approach where governments, businesses, and
nonprofits work together to stretch the reach of market forces so that more people can make a
profit, or gain recognition, doing work that eases the worlds inequities.

According to Gates, the genius of capitalism lies in its ability to make self-interest serve
the wider interest. The Microsoft chairman sees two great forces vying in human
nature: self-interest and caring for others. Consequently, creative capitalism must fulfill
the twin mission of making profits and improving the lives of those who do not fully
benefit from todays market forces. Gates believes that we need to use profit incentives
whenever we can, however this needs to be matched with another incentive, recognition,
which enhances reputation and appeals to customers and attracts good people to an
organization. The challenge is to design a system where market incentives, including
profits and recognition, drive those principles to do more for the poor. Citing the January

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capitalism

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19, 2008 edition of The Economist, specifically a section dedicated to reviewing the status
of corporate responsibility on a global basis, Gates says it put the problem very nicely;
its the interaction between a companys principles and its commercial competencies that
shape the kind of business it will be.
For Gates, his vision of creative capitalism gives the most innovative thinkers in
MNCs the time and resources to find solutions and:
[. . .] matches business expertise with needs in the developing world to find markets that are
already there, but are untapped. Sometimes market forces fail to make an impact in
developing countries not because theres no demand, or even because money is lacking, but
because we dont spend enough time studying the needs and requirements of that market.

Gates cites examples of this creative capitalism approach, including how the World Health
Organization (WHO) expanded the use of vaccines for meningitis by going to Africa and
asking the people directly of their needs. These WHO officials, when questioning the
target population, found out from mothers that they would get vaccinations for their
babies if the pharmaceutical company priced it at less than 50 cents a dose. WHO officials
then placed this pricing challenge out to vaccine pharmaceutical manufacturers. Serum
Institute, an Indian vaccine manufacturer, accepted the challenge developed a new process
to manufacture the vaccine for 40 cents per dose and agreed to supply 250 million
doses through both the public and private health systems. Furthermore, a Dutch
pharmaceutical manufacturer agreed to share its patent rights on a cholera vaccine no
royalties required with generic pharmaceutical manufacturers in developing countries.
The result: a Vietnamese company now manufactures the cholera vaccine for less than one
dollar, which includes delivery and the costs of the immunization program. Because of the
low marginal cost of manufacture of many advanced products, the use of tiered pricing, i.e.
multi-point price differentials between the developed and developing world, can be used
broadly to address problems of the poor in developing countries.
While Gates acknowledges a role for government, including funding basic research, he
believes that the highest leverage work that governments can do is to set policy to create
market incentives for business activity that improves the lives of the poor. As an
example of such a government incentive, Gates cites the recently enacted (September 27,
2007) Elimination of Neglected Diseases Amendment to the U.S. Food and Drug
Administration (FDA) Revitalization Act, which allows a pharmaceutical manufacturer
who develops a new treatment for a neglected disease, for example, malaria, to receive a
priority review voucher with the FDA for another product they have invented. This
priority review voucher could have significant regulatory value to a company by
speeding a product to eventual commercialization. The use of Advanced Market
Commitment, whereby governments and foundations promise specific sums of money to
be spent on vaccines successfully developed for neglected diseases, is another example of
an important role for government. Gates also notes that where theres good governance
the government can be a good partner addressing some of the tougher problems of
education, infrastructure, nutrition, and medicine.
NGOs also have an important role to play in creative capitalism. Gates cites the
Schwab Foundation for Social Entrepreneurship, established by Klaus Schwab, the
founder of the World Economic Forum, as an example of an NGO which assists social
entrepreneurs around the world who turn their innovative ideas into goods and
services, thus helping people improve their lives. Furthermore, individuals, such as
Bono, the lead singer of U2, is responsible for initiating the RED Campaign, whereby
MNCs, including the Gap, Motorola, Armani, Dell and Microsoft, contribute a

percentage of each consumer purchase to the Global Fight for AIDS, Tuberculosis and
Malaria which now adds up to $50 million and resulted in two million Africans now
receiving life-saving drugs. As partners, Gates also believes that relationships between
NGOs and MNCs have matured so that negotiations regarding expectations from
both parties perspectives are reasonable and attainable.
Gates challenges MNCs, governments, and NGOs to take on a project of creative
capitalism in the upcoming year. Specifically, he hopes that CEOs will personally take
the lead and dedicate a percentage of their top innovators time to issues that could
improve the lives of the worlds poor. He cites some specific examples of firms and
industries, including pharmaceutical manufacturer GlaxoSmithKline and Sumitomo
Chemical, and the food, information technology, telecommunications, and financial
services sectors, who are already pro-actively pursuing such creative capitalism
initiatives. Gates wants other MNCs to match these outstanding efforts of leading
MNCs by initially concentrating on one, or at most, only a few projects. He emphasizes
that a firm should be sticking to what it knows well that is, its true identity, and
build its creative capitalism initiative on core competencies or organizational function,
e.g. product distribution. In conclusion, Gates believes that it is necessary for
corporations, governments, NGOs and the media to develop and publicize measures
even mapping efforts by industry sector of what MNCs are actually doing to
sustainably serve a wider circle of people and to reduce poverty in the world and
provide accountability for their creative capitalism efforts.
II. Capitalism vs creative capitalism
As Robert A. Degen (2008) writes in his recent book The Triumph of Capitalism, it is
important to know that what is understood to be capitalism has changed very
significantly over time. While the capitalist model has evolved in practice over the
centuries, an understanding of the essential attributes of the socio-economic system of
capitalism is an important departure point for a discussion and analysis of Bill Gates
creative capitalism. According to The Clemson Institute for the Study of Capitalism
(2008), located at Clemson University, Clemson, South Carolina (USA):
Capitalism is the social system that separates economy and state completely. It is the socioeconomic system where all property is privately owned, where freely formed contracts form the
basis of economic interaction, and where government does not engage in regulation, supervision,
or direction of processes. In short, it is a government policy of non-interference with the
economic lives of its citizens; it is the system of laissez-faire. The proper implementation of a
program of laissez-faire capitalism, however, requires an appropriate political system at its base.

The above definition of capitalism provides the essential elements of this socioeconomic system. How does creative capitalism compare with the essential elements
found in this definition of capitalism? As can be seen in Figure 1 (A comparison of
the essential elements of capitalism vs creative capitalism), in his explanation
of creative capitalism, Bill Gates does not in any way advocate for state ownership of
major industries, the elimination or weakening of the right of private property
ownership, or the elimination or weakening of the right of citizens to negotiate
contracts. While Gates does not encourage enhanced government regulation or
supervision of the economy (he does, however, emphasize governments traditional role
of providing basic public health, education and physical infrastructure services found
in the developed world), he does advocate for national governments to utilize creative
financial and programmatic incentives encouraging creative corporate solutions for

Creative
capitalism

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alleviating poverty in the developing world. Lastly, Gates is an avid proponent of

democracy, recognizing the freedoms, both personal and economic, which it brings to
the citizens of countries having adopted this political system. In general, Gates vision
of twenty-first century creative capitalism does no more than ever so modestly impinge
on one of the essential elements of modern day capitalism, i.e. government direction of
markets through the deployment of public incentives.
III. Global corporate citizenship and creative capitalism
In Gates follow-up Question-and-Answer session to his speech in Davos,
Switzerland, Klaus Schwab, founder of the World Economic Forum, and no doubt a
strong influence on Gates thinking, compared creative capitalism to the concept of
global corporate citizenship, a term which entered the corporate social responsibility
(CSR) lexicon in the late 1990s. James E. Post (2000, p. 8), of Boston Universitys School
of Management, offers the following definition:
Global corporate citizenship is the process of identifying, analyzing, and responding to the
companys social, political, and economic responsibilities as defined through law and public
policy, stakeholder expectations, and voluntary acts flowing from corporate values and
business strategies. Corporate citizenship involves actual results (what corporations do) and
the processes through which they are achieved (how they do it).

Schwab (2008, p. 108) adds further context to Posts (2000) definition of global
corporate citizenship:
It [global corporate citizenship] expresses the conviction that companies not only must be
engaged with their stakeholders but are themselves stakeholders alongside governments and
civil society. International business leaders must fully commit to sustainable development and
address paramount global challenges, including climate change, the provision of public
health care, energy conservation, and the management of resources, particularly water.
Because these global issues increasingly impact business, not to engage with them can hurt
the bottom line. Because global citizenship is in a corporations enlightened self-interest, it is
sustainable. Addressing global issues can be good for both the corporation and for society at
a time of increasing globalization and diminishing state influence [emphasis added].

According to Waddock (2003, p. 4), corporate citizenship, I believe, is at the core of

companies reputations, and the ways in which stakeholders are served. Gardberg and
Fombrun (2006) argue that corporate citizenship programs can create intangible
assets having value, including a good reputation, trusting relationships, or customer
loyalty. Furthermore, these corporate citizenship activities help create legitimacy,

Figure 1.
A comparison of the
essential elements of
capitalism vs creative
capitalism

reputation, and competitive advantage for the MNC. Gardberg and Fombrun (2006)
argue that a company can choose a configuration of citizenship activities, therefore
creating a citizenship profile matching the environment in which the firm operates.
According to The Economist (2008a), companies are having to work harder to protect
their reputation and, by extension, the environment in which they do business. In
conclusion, Gardberg and Fombrun (2006) believe that companies whose citizenship
profile best meets public expectations are most likely to benefit from strategic
investments in corporate citizenship.
In recent years, business scholars have begun formally studying the managerial
implementation of the corporate citizenship concept. Based on their extensive studies
of hundreds of corporations, Mirvis and Googins (2006), of the Center for Corporate
Citizenship, Boston College, have proposed a five-stage model describing the
organizational evolution of corporate citizenship in the firm (see Table I, Stages of
corporate citizenship): Stage 1, Elementary, is episodic and such programs are
underdeveloped; Stage 2, Engaged, where executive management wakes up and
embraces a new outlook on their companys role in society; Stage 3, Innovative,
whereby management deepens its corporate citizenship agenda as top executives
assumes more of a stewardship role; Stage 4, Integrated, involving an attempt to
integrate citizenship from top-to-bottom and throughout its businesses; and Stage 5,
Transformative, with the strategic intent of management to create new markets by
fusing their citizenship and business agenda. This model involves seven dimensions
of corporate citizenship, including definition and actions making up of corporate
citizenship; strategic intent (purpose and intended achievements); degree of leadership
support; organizational structure of the corporate citizenship function; issue
management response of the firm; level of stakeholder engagement by the firm; and

Stage 1
Elementary

Stage 2
Engaged

Stage 3
Innovative

Stage 4
Integrated

Corporate
citizenship

Jobs, profits
and taxes

Stakeholder
management

Strategic
intent

Legal
compliance

Philanthropy,
environmental
protection
License to
operate

Business
case

Sustainability
or triple
bottom line
Value
proposition

Leadership

Lip service,
out of touch

Supporter, in
the loop

Steward, on
top of it

Champion, in
front of it

Structure

Marginal:
staff driven

Functional
ownership

Organizational
alignment

Issues
management
Stakeholder
relationships

Defensive
Unilateral

Reactive
policies
Interactive

Crossfunctional
coordination
Responsive,
programs
Mutual
influence

Transparency

Flank
protection

Public
relations

Public
reporting

Assurance

Source: Mirvis and Googins (2006, p. 108)

Pro-Active,
systems
Partnership

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capitalism

115

Stage 5
Transforming
Change the
game
Market
creation or
social change
Visionary,
ahead of the
pack
Mainstream
business
driven
Defining
Multiorganization
alliances
Full disclosure

Table I.
Stages of corporate
citizenship

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public performance transparency, all of which vary at each stage of development, from
basic (elementary) through to advanced (transforming).
According to the Mirvis and Googins (2006) model, companies which embrace the
corporate citizenship concept engage in increasingly complex and sophisticated
patterns of organizational activity as they progress through each stage of the model.
From a managerial perspective, this recently developed model can provide valuable
insight into the level of resource commitment required of firms contemplating
embracing creative capitalism. Therefore, given the availability of this evaluative
framework by Mirvis and Googins (2006), where does Gates vision of creative
capitalism fit into its five-stage model of corporate citizenship (see Table I)?
As it pertains to the corporate citizenship concept, Gates is quite clear in his
intentions: he is committed to changing the game of MNCs by transforming their
managerial mindset so they will now recognize the profit potential of untapped markets
in developing countries (Stage 5). This transforming view of corporate citizenship
translates into a strategic intent on developing new markets (being innovative and
placing creative resources, i.e. human resources, behind these business initiatives) built
upon an organizational value of caring for others. This market creating intent, while
benefiting the company by enhancing corporate reputation, brand appeal to customers
and attracting good people to an organization, results in social change, i.e. a reduction
in world poverty and improvements in the everyday lives of hundreds of millions of
people in the developing world (Stage 5). Furthermore Gates emphasizes that CEOs will
initially have to personally lead, to be the organizations champion behind the
initiatives supporting creative capitalism, if they are to be successful (Stage 4).
Creative capitalism, however, requires that the company choose a few business
initiatives focused on meeting the unmet needs of consumers in developing countries.
These business initiatives must, however, reflect the firms core competencies and are
driven by business opportunities and performance standards (Stage 5). By default, it is
highly unlikely that a company which embraces the concept of creative capitalism
would be operating at lower than a pro-active level of issues management (Stages 4
and 5). When it comes to stakeholder relationships, Gates discusses the need for publicprivate partnerships (especially dealing with infrastructure problems, such as
transportation systems, education and public health) and multi-organizational
alliances with major MNCs (the RED Campaign) and with NGOs, who can often help in
the delivery of educational information related to these corporate initiatives (Stages 4
and 5). Lastly, Gates insists that transparency requires full company disclosure of what
business initiatives they are undertaking related to markets in developing countries
and the boundaries, or limitations, of these organizational efforts (Stage 5).
Furthermore, this is a necessary stage of corporate citizenship development to be in so
as performance measurements can be created to accurately assess the success of
individual corporate efforts, as well as to learn what business models work and can
become industry practice. In conclusion, key attributes of creative capitalism for all
seven dimensions of the corporate citizenship concept reside in advanced (complex
and sophisticated) stages, specifically in either Stage 4 (Integrated) or Stage 5
(Transforming) of the Mirvis and Googins (2006) five-stage model.
IV. Prospects for MNCs adopting creative capitalism as their
corporate governance model
Gates challenge to MNCs executives to embrace and act on creative capitalism
recognizes the usefulness of national governments in addressing some of the tougher

problems of education, infrastructure, nutrition and medicine but with the important
caveat of where theres good governance. Yet we know that market-based economic
systems can operate in less than Jeffersonian democracies. While there is still debate
over the direction of causality between economic freedom and democracy, the positive
relationship remains undeniable (Kim, 2008). As Harvard University economist Robert
Barro (1996, p. 11) argues:

Creative
capitalism

[. . .] the more advanced Western countries would contribute more to the welfare of poor nations
by exporting their economic systems, notably property rights and free markets, rather than
their political systems, which typically developed after reasonable standards of living had been
attained. If economic freedom can be established in a poor country, then growth would be
encouraged, and the country would tend to become more democratic on its own.

117

To some extent, Gates recognizes that where there is less than good governance, a
euphemism for corrupt and incompetent political regimes, MNCs can still positively
affect the lives of the worlds poor by providing the basic services and products which
the governments of many developing countries have failed in their sovereign charge. In
fact, this deficiency in competent governance is what Schwab (2008) refers to as
symptomatic of diminishing state influence to adequately perform for its citizenry.
Due to attitude changes on the part of business and NGOs, the partnerships developed
between MNCs and NGOs will, in many instances, provide the supply chain for
distribution of these firm-generated goods and services what Brugmann and
Prahalad (2007) call co-creating businesses and what Porter and Kramer (2006) call
shared value creation activities directly to the poorest citizens in the worlds
developing countries. Brugmann and Prahalad (2007, p. 82) argue that:
. . . [A]s their interests and capabilities converge, these corporations and NGOs are together
creating innovative business models that are helping to grow new markets at the bottom of
the period and niche segments in mature markets. These models, we believe, will lead to novel
frameworks that can renew the corporations social legitimacy even as they allow for
sustainable development and accelerate the eradication of poverty.

For Gates, waiting for democratic freedoms to arrive is no longer an option; he believes
that where there are economic freedoms in the developing world, they should
be exploited by MNCs and their increasingly willing partners, global NGOs. He
emphatically believes that multinational CEOs can provide the pro-active leadership to
take advantage of those economic freedoms which exist in poorly governed countries.
While Gates is reported to have hated economist William Easterlys book, The
White Mans Burden, in which the New York University professor found little
evidence that developing countries benefitted from $2.3 trillion in foreign aid over the
previous five decades (Guth, 2008), he has borrowed from Easterlys book. Professor
Easterly (2006) favorably regards a searcher, one who finds out what is demanded by
the consumer and attempts to meet it, which Gates defines in creative capitalism as the
MNC, versus the excoriated planner who determines what to supply, which would
include such supranational agencies as the World Bank and the International Monetary
Fund. Yet, as Prahalad and Hammond (2002, p. 51) point out, these searchers, the
MNCs, cannot ignore the fact that though they may each be earning the equivalent of
less than $2,000 a year, the people at the bottom of the pyramid make up a colossal
market 4 billion strong the vast majority of the worlds population, a new growth
market, and rather than saving for a rainy day, they spend their income on things they
can get now that improve the quality of their lives (Prahalad and Hammond, 2002, p. 50).

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What are the arguments for MNCs to seriously consider embracing creative
capitalism as governance model? One reason can be found in the results of a February
2007 McKinsey & Co. survey of 391 CEOs whose companies are active participants in
the United Nations Global Compact, a voluntary initiative established in 2000 which
encourages companies to adopt ten principles outlining sustainable and socially
responsible business practices and publicly report on their performance against them
(Bielak et al., 2007). According to 95 percent of the CEOs surveyed by McKinsey & Co.,
society now has greater expectations that companies will assume traditionally public
responsibilities than it did five years ago, and more than half of these CEOs predict that
these expectations would increase significantly during the next five years. While this
group of CEOs is pre-disposed to the concept of global corporate citizenship (based on
their active participation in the United Nations Global Compact), nevertheless there is an
overwhelming conclusion reached: that societal expectations are expanding the scope of
products and services which corporations provide to meet an unmet demand of the
citizen-consumer, and thus reflecting further privatization of traditionally public
products and services. This conclusion fits in well with Schwabs (2008) conception of
global corporate citizenship as a long-term, sustainable investment: Since companies
depend on global development, which in turn relies on stability and increased prosperity,
it is in their direct interest to help improve the state of the world. How these MNCs
improve the state of the world is where Gates creative capitalism (coupled with the
academic guidance of a select group of management scholars) enters the MNC decisionmaking calculus to address the needs of the worlds two billion poorest people.
As The Economist (2008b) notes: Like most industries, the corporate responsibility
business has a handful of leaders, a large number of followers and many laggards.
According to Harvard Business Schools competitive strategy guru Michael Porter,
despite a surge of interest in CSR, in most cases it remains too unfocused, too shotgun,
too many supporting someones pet project, with no real connection to the business
(The Economist, 2008a). However, as a response to these weaknesses in the
implementation of CSR, Porter and Kramer (2006) argue that corporations must
embrace a strategy that applies the same business principles to their relationship with
society as they apply to their relationships with customers and competitors. Their
approach, which they call Strategic CSR,
[. . .] moves beyond good corporate citizenship and mitigating harmful value chain impacts to
mount a small number of initiatives whose social and business benefits are large and
distinctive. Strategic CSR involves both inside-out and outside-in dimensions working in
tandem. It is here that the opportunities for shared value truly lie. Many opportunities to
pioneer innovations to benefit both society and a companys own competitiveness can arise in
a companys product offering and value chain. (Porter and Kramer, 2006, p. 88)

As can be seen in Table II (Corporate Involvement in Society: A Strategic Approach),

Responsive CSR represents a corporate social agenda which mitigates harm from
company value chain activities to society; in contrast, the Table II section which
represents Strategic CSR is transformative (and not reactive) for company value chain
activities which simultaneously advances benefits to society while reinforcing the firms
competitive strategy. Strategic CSR is built on the premise that company management
selects an explicit and affirmative social issue agenda which, while responsive to
reasonable stakeholder demands, intersects with its particular business, as a significant
portion of corporate resources and managerial focus is committed to this agenda. The
Porter and Kramers Strategic CSR approach mirrors and underscores the creative

capitalism corporate governance approach. Furthermore, from an organizational

infrastructure perspective, to address those at the bottom of the pyramid, Prahalad and
Hart (2002, p. 12) recommend that MNCs:
.

build a local (host country) base of political support;

reorient R&D to focus on the needs of the poorest;

form new alliances with host country organizations;

increase employment opportunities for these targeted consumers; and

re-invent cost structures.

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119

In his book The Fortune at the Bottom of the Pyramid, Prahalad (2004) requires MNC
executives to change their long-held beliefs and assumptions regarding the developing
world, i.e. viewing these people (at the bottom of the pyramid) as victims or burdens
to be pitied. For example, instead of using the accepted metric of gross domestic
product (GDP) as the measure of national economic activity, Prahalad and
Bhattacharyya (2008) recommend a more accurate conversion measure, purchasing
power parity (PPP), which is based on a comparison of the prices of a typical basket of
goods in different markets. Using PPP dollars as an alternative economic measure,
which represents the purchasing power of consumers in that local market, Prahalad
and Bhattacharyya (2008) report that the economies of the developing world are
forecasted to grow at more than 5 percent per year, twice the rate forecasted for the
developing world. Moreover, Prahalad (2004) argues that these developing world
consumers are not necessarily difficult to reach, are very brand-conscious, and are
increasingly connected (and open) to state-of-the art telecommunications technology,
such as cell phones, televisions and personal computers. To meet these new market
growth opportunities within a Strategic CSR approach, Prahalad (2004) identifies a
building blocks innovation framework (see Figure 2 The bottom of the pyramid: 12
principles of innovation) for MNCs to create innovative products and services for the
worlds poorest consumers in developing countries.
Prahalad and Bhattacharyya (2008) further recommend that MNCs adopt a
gateway-hub structure of market penetration, a third alternative to centralization or
de-centralization of operations and an answer to the tension which exists between
global integration and local responsiveness. The gateway-hub structure involves 20
countries ten in the developed world and ten in the developing world which taken
together represent, respectively, established and most promising gateways to 80
percent of the worlds economic activity and 70 percent of its 6.6 billion inhabitants

Generic social impacts

Value chain social impacts

Good citizenship

Mitigate harm from value chain

activities

Responsive CSR

Transform value chain activities

to benefit society while
reinforcing strategy

Source: Porter and Kramer (2006, p. 89)

Social dimensions of competitive

context
Strategic philanthropy that
leverages capabilities to improve
salient area of competitive
context
Strategic CSR

Table II.
Corporate involvement
in society: a strategic
approach

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Figure 2.
The bottom of the
pyramid: 12 principles
of innovation

(including many at the bottom of the pyramid). Moreover, Vachani and Smith (2008)
offer three creative, market-based alternative distribution strategies for reaching the
rural poor in developing countries identified by Prahalad and Hammond (2002) as a
critical barrier (for doing business) to breach: the first, taking cost out, thereby
lowering the cost of distribution; the second, reinventing the distribution channel
by embracing innovative technologies and business process re-design, which offer
additional routes to meeting rural consumer demand; and third, taking the long-term
view and having companies invest for the future, therefore anticipating a longer period
of payback and/or as a social commitment of the firm.
V. Summary and conclusions
After Bill Gates announced his call for a creative capitalism, it did garner negative
responses from many who were not attending in Davos, Switzerland. For example,
conservative economics commentator Larry Kudlow (2008) remarked that Gates after
he got rich in the process . . . is now trashing capitalism and telling us it doesnt work.
According to Kudlow, Gates should blame the absence of capitalist principles [in
Africa], not capitalism itself. Even the most compassionate corporate executives are
not going to bring prosperity to impoverished countries with statist economies. But, as
evaluated in this paper, Gates criticism of modern capitalism focuses on his impatience
with it operating to its potential (as he personally knows of the systems capabilities)
not his condemnation of this socio-economic system.
Is creative capitalism a radical approach to interpreting capitalism? Not according
to Gates explanation of the concept. When compared to the essential components of
capitalism and the expansion of government interference in the marketplace, creative
capitalism does little more than advocate for national governments to offer financial
and related incentives encouraging corporations to develop innovative solutions for
alleviating poverty. According to Gates, creative capitalism meets the requirements
of making profits, enhancing corporate reputation (which appeals to customers), and

attracts good people to work for the corporation. What Gates wants MNC executives to
do is spend enough time studying the needs and requirements of that (developing world)
market or be a searcher who finds out what consumer demand is and meet it. This is
changing the game for corporate citizenship transforming value chain activities to
both benefit the corporation and transform society. But in line with transforming value
chain activities, Gates emphasizes that MNCs should limit themselves to initially one, or
at most a few projects, which are tied directly the to core competencies of the firm.
While Gates has been influenced by C.K. Prahalads writings on market opportunities
among the worlds poorest consumers, he does not go as far as Prahalad in heralding his
developing market forecasts for MNCs. While Gates focuses on the bottom two billion of
the worlds poorest consumers, he does not emphasize a fortune at the bottom of the
pyramid, but profit opportunities available to MNCs. Professor Aneel Karnani (2007), of
the University of Michigan, Ross School of Business, has called Prahalads bottom of the
pyramid proposition logically flawed and inconsistent with the evidence. According to
Karnani (2007), Prahalads (2004) claim of a potential bottom of the pyramid PPP of
$13 trillion grossly exaggerates this market. For an MNC operating in a developing
country, profits are repatriated at the financial exchange rate, not the PPP, resulting in a
global bottom of the pyramid market of less than $0.3 trillion. Furthermore, Karnani
(2007) argues that this market is small, geographically dispersed, and unlikely to be
profitable for a large MNC. With the poor spending nearly 80 percent of their limited
income on the necessities of food, clothing and fuel, it leaves little room for the
purchasing power needed to acquire brand name luxury goods. Nevertheless, Jaiswal
(2008) argues that the poor need to be viewed as consumers for two important reasons:
the first reason, so that MNCs can offer products at a lower cost (saving them money) and
with greater value, and the second reason, that MNCs can offer them welfare-oriented
goods and services, e.g. agricultural inputs enhancing productivity and insurance and
micro-finance. Karnani (2007) recommends that the best way for MNCs to help eradicate
poverty is for them to invest in upgrading the skill sets and productivity of the poor and
help create more local employment opportunities. This recommendation could be
construed as a broad interpretation of the concept of foreign direct investment certainly
not a policy recommendation which could not comfortably fit within Gates concept of
creative capitalism.
Notwithstanding the legitimate criticisms of an overselling of the fortune at the
bottom of the pyramid, Gates has challenged MNCs to do more of what they do best
search for what consumers demand. Coupled with increasing stakeholder expectations
of MNCs, he has purposely limited what he wants from them to focus their innovative
capabilities on finding a profitable, unmet opportunity related to core competencies
and provide needed products and services to these impoverished consumers. Together,
these MNCs, with their NGO and government partners, can have a positive impact on
alleviating global poverty. Yet, one cannot help but think that Karnani (2007) is correct
in the long-run: poverty is best alleviated when the indigenous population possesses
marketable skills which can then be productively applied in newly established local
businesses. As Garrett (2007, p. 22) notes in her recent opinion piece:
True creative capitalism would envision the formation of similarly efficient, reliable, profitmaking ventures for health supplies, medicines, delivery and insurance inside poor countries
operated by indigenous companies, with profits forming the basis of taxable revenue growth
for the countries.

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Reflecting Karnanis (2007) development approach, Simanis et al. (2008) offer a Base of
the Pyramid Protocol (BOP Protocol) for MNCs. This BOP Protocol presents a new
innovative business process model which includes both collective entrepreneurship
development and business enterprise co-creation between local communities and
MNCs. The BOP Protocol reflects a shared goal of producing enduring value for the
local income poor communities while building sustainable corporate growth and
renewal. Thus, both the Karnani (2007) and Simanis, Hart and Duke propositions offers
valuable guidance for those MNCs who can best focus their creative capitalism projects
on a locally empowering, economic development theme.
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Corresponding author
Thomas Hemphill can be contacted at: thomashe@umflint.edu

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