The New Prophets of Capital

by Nicole Aschoff

  To ameliorate market inefficiencies, the Gateses set up a foundation with the resources necessary to change market incentives and rechannel “economic signals.” Their donations, along with Warren Buffet’s annual contribution of about $2 billion, have created a foundation with an endowment of more than $40 billion, triple the size of the Ford Foundation, the next-largest foundation. Having this much money enables the foundation to “make bets on promising solutions that governments and businesses can’t afford to make.”6

  These bets are risky and sometimes fail, but the Gateses say that their projects are always guided by a simple principle: every life has equal value. As Melinda Gates says: “We don’t think that everybody has the same chance to grow up and live a healthy life and yet we think they ought to have that. We think there’s something that our foundation can do about that …”7 Bill Gates told the graduating class of Harvard that “humanity’s greatest advances are not in its discoveries but in how those discoveries are applied to reduce inequity. Whether through democracy, strong public education, quality health care, or broad economic opportunity—reducing inequity is the highest human achievement.”8

  In a world characterized by an unprecedented divide between rich and poor, this might sound daunting. But the Gateses are optimists. In their 2014 annual letter, they say that “[b]y almost any measure, the world is better than it has ever been.”9 They believe that people are beginning to recognize the need to tackle social problems and that for the first time in history we have the tools—biotech, computers, the internet—to make lasting social change.

  NGOs, Foundations, and Civil Society

  Nongovernmental organizations (NGOs) have been an important part of American civic life since the nineteenth century. Their numbers have waxed and waned, but beginning in the post–World War II era, many countries, including the United States, saw a huge increase in the number of NGOs. The spread of internet technology in the 1990s gave NGOs an international presence and helped to solidify their power and influence.

  The growing importance of international NGOs (INGOs) is a story intimately linked to the economic and political changes resulting from the collapse of the Bretton Woods system in the 1970s and the 1980s debt crisis. As rural sociologist Phil McMichael argues, in the 1980s the “development project”—in which poor countries implemented national development strategies geared toward economic self-sufficiency and political sovereignty—was replaced by the “globalization project”—an ideological turn that encouraged states to lower their trade barriers, privatize resources and services, and embed themselves in global value chains.10 In this climate, national states lost legitimacy and, during the debt crisis, structural adjustment programs forced developing countries to dramatically curtail spending on health, education, and food subsidies. To ameliorate the human crisis that resulted, international governing bodies (UN, IMF, World Bank) encouraged poor states to outsource welfare provision to Western INGOs, which were considered more efficient and knowledgeable than local institutions. Today, NGOs are a central part of global governance networks. They carry out aid work, conduct research, write policy reports, serve as experts, and act as conduits for development aid.

  International NGOs are able to carry out these tasks because many of them are extremely well funded. Amnesty International, for example, has a bigger annual budget ($295 million in 2012) than the UN Human Rights Council ($177 million in 2012/13).11 Big INGOs, like Médecins Sans Frontières and Oxfam, receive public monies for many of their activities, such as fighting global poverty and providing humanitarian aid. But most NGOs rely on sympathetic individuals and money from large philanthropic foundations to fund their organizations.

  Foundations, like NGOs, have historically played an important role in capitalism. Bishop and Green think we are actually in the midst of a fifth golden age of philanthropy:

  Since the birth of modern capitalism in Europe during the Middle Ages, rich businesspeople have consistently played a leading role in solving the big social problems of their day, often adapting the innovations of capitalism to make their philanthropy more effective. Indeed, to go further, it seems to be a feature of capitalism that golden ages of wealth creation give rise to golden ages of giving.12

  Philanthropy booms, triggered by rapid increases in inequality during periods of massive wealth expansion, serve as a kind of release valve for capitalism by ameliorating some of its worst excesses. Joan Roelofs, a political scientist and expert on the (former) giants of the foundation world (Rockefeller, Carnegie, Ford), notes that the tycoons of the early twentieth century sought to “dole out their benevolence in a systematic manner. They also hoped to extract influence over social progress and public opinion, which was intensely anti-capitalist at the time” by working behind the scenes to shape movements and policy. The National Association for the Advancement of Colored People (NAACP), founded in 1909, was funded with money from numerous foundations, including Rosenwald, Peabody, and Rockefeller, and served as a crucial counterweight to the growing appeal of the Communist Party for black Americans during the 1920s. New Deal legislation of the 1930s was written by the Social Science Research Council, a Rockefeller organization, while Lyndon Johnson’s Great Society programs were developed from the Ford Foundation’s “Gray Areas” experiments—urban renewal programs designed to curb urban unrest and political organizing.13

  The story today is similar. The consequences of skyrocketing inequality are of increasing concern, particularly to the super-elites. They worry about the long-term economic impacts of inequality, in terms of growth and innovation, and the political consequences of inequality—social unrest and demands for redistribution, particularly from the middle and upper-middle classes who believe in meritocracy. Philanthropy and public/private partnerships are once again being touted as ways to manage those risks and solve social problems.

  Creative Capitalism

  One can never be sure why someone goes to the trouble of making billions of dollars only to turn around and give them away. Some say it’s the tax breaks, or perhaps a sense of civic duty. Others take a more ideological approach and argue that wealthy people want to decide what gets done with their money rather than leave it up to the state. Why Bill Gates decided to give his money away is anybody’s guess. David Banks calls Gates’s contributions “the antitrust dividend,” noting that while Gates had given a few hundred million dollars to charity before 1998, his contributions in 1999 and 2000—the years of the federal antitrust trial against Microsoft—were staggering. Between October 1998 and January 2000 Gates put more than $20 billion into the foundation. Gates told an interviewer at the time that “he would gladly give up his fortune to make the antitrust trouble go away.”14 Gates himself says that he always planned to give his money away after he retired from Microsoft, but that his mother’s persistent urging to give back pushed him to speed up his philanthropic aims following her death after a long battle with breast cancer in 1994.

  Regardless of their motives, when it came time to choose what to spend their money on, Bill and Melinda followed their gut. Travelling around Africa in the 1990s, the Gateses were horrified by the fates of poor people, particularly children. They were also distressed that US students seem to be falling behind their international peers, and in particular, that poor students of color weren’t getting the skills they needed to succeed in the new technology society. They asked themselves why, in an era of global abundance, were children dying or failing to reach their potential?

  For Bill and Melinda Gates, the answer to both questions is inefficiencies in capitalist markets. “In a system of capitalism, as people’s wealth rises, the financial incentive to serve them rises. As their wealth falls, the financial incentive to serve them falls, until it becomes zero,” Gates remarked at the World Economic Forum in 2008. “Why do people benefit in inverse proportion to their need? Well, market incentives make that happen.”15 Even though poor people need more than wealthy people, there is no incentive to meet their needs because th
e needs are not coupled with the ability to pay. Thus, the Gateses contend that poor children are dying from disease and malnutrition, or not succeeding in school, because capitalist markets are not serving them.

  The Gateses don’t stop at identifying the problem. They have a solution: creative capitalism. They think businesses, NGOs, foundations, and governing organizations like national states and the UN, need to 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 world’s inequities.” As Bill argues:

  As I see it, there are two great forces of human nature: self-interest, and caring for others. Capitalism harnesses self-interest in a helpful and sustainable way, but only on behalf of those who can pay. Government aid and philanthropy channel our caring for those who can’t pay. But to provide rapid improvement for the poor we need a system that draws in innovators and businesses in a far better way than we do today.16

  The Gates Foundation wants to lead the way in creating this better system by using its power to convert economic need into economic demand. To facilitate this transformation, the foundation spends billions of dollars annually in four program areas: Global Health, Global Development, US Programs, and Global Policy and Advocacy. Within these areas it has twenty-seven specific projects nested within a huge international network linking state actors, business, NGOs, and other foundations. The foundation’s projects on vaccines and education demonstrate how creative capitalism works.

  Vaccines

  The Gates have gone in big on vaccines—so big that people avoid Bill at cocktail parties, afraid he’ll drag them into a macabre conversation about tuberculosis.17 In many low-income countries diseases such as malaria, rotavirus, and pneumonia remain killers. In the United States, these diseases are a spectre of times past: Swamp drainage, pesticide spraying, and massive sanitation infrastructure projects to supply clean water and safely dispose of waste have essentially eliminated these diseases from wealthy countries.

  The foundation is pursuing a faster, potentially easier, route to eradicating disease in poor countries. The Gateses argue that with advances in biotech and logistics we can develop vaccines for these diseases instead of getting tripped up on the bigger hurdles of providing clean water, sanitation infrastructure, and nutritious food. But the pharmaceuticals industry, concentrated in wealthy countries, has not developed such vaccines and is not particularly interested in doing so. As Bill Gates has wryly noted, they are more interested in cures for baldness than in cures for malaria. Why? Melinda Gates argues that there is simply no “rich world market” for products like diarrhea or pneumonia vaccines. Their solution is to use the Gates Foundation to create such a market in poor countries:

  [If] we could stimulate the pharmaceutical companies through public private partnerships to … create vaccines. If we could guarantee them a market of millions of children getting this vaccine and then being paid for it in the developing world. If we could commit to a market and we knew that the demand would be there, we could incent them with the right research dollars to actually create those vaccines.18

  So how does this initiative work? First the foundation funds the research to develop the vaccines. It channels money into organizations like PATH, a Seattle-based group that runs the Malaria Vaccine Initiative and other groups like OneWorld Health, which works on antiparasite drugs. The foundation then tries to change the economic signals that guide market formation in developing countries. It does this by leveraging its money to put pressure on governments to buy vaccines for poor people, thus guaranteeing the market. Their deep pockets grease the wheels and convince governments and businesses to play along. (Even before Buffet’s donation, the foundation had a bigger health budget than the World Health Organization.) The foundation also relies on other, smaller foundations like the Rockefeller Foundation and the David and Lucile Packard Foundation for institutional and logistical support. To date, the Gates Foundation has successfully brought both malaria and pneumonia vaccines to market. Through its Global Alliance for Vaccines and Immunization (GAVI), it has also vaccinated millions of children in the developing world against polio and other diseases.

  Global health activism has a steep learning curve, but the Gateses are happy with the progress they have achieved. Global child mortality rates, despite the lost decade of the 1980s, have slowly, but steadily, declined since the 1970s. However, during the past two decades the declines have been much steeper. Total deaths of children under five dropped from 12.6 million in 1990 to 6.6 million in 2012. The annual rate of reduction between 2005 and 2012 was three times faster than between 1990 and 1995. The Gateses credit the foundation’s efforts for the sharpening decline.

  Education

  The issue of education, while perhaps not as dire as childhood death from disease, is as close to the heart of the Gateses as any. Neither Bill nor Melinda Gates went to public school, but they argue passionately that the American school system is broken. Bill says that when he looked at the statistics for high school and college completion for US students he was “pretty stunned at how bad things are.”19 According to the National Center for Education Statistics, in the 2010/11 school year only 79 percent of high school students graduated on time. Minority, low-income, English-as-a-second-language speakers, and students with disabilities fell well below this national average. Over the past thirty years, a growing divide has emerged between those with a high school and those with a college degree. The earnings gap between high school and college graduates has doubled, while those without a high school degree can expect to earn a median annual income of $23,000 for their entire adult lives.20

  The Gateses are not alone in decrying the failings of US public education. Thomas Friedman asserts that our public education system is “now outmoded for a flat world” and that “our love of television and video and online games” has made us complacent to the fact that other countries (China and India) are “racing us to the top”—and that we’re losing.21 A 2012 special taskforce, convened by the Council on Foreign Relations to assess the state of US primary and secondary education and its impact on national security, argued that “human capital will determine power in the current century, and the failure to produce that capital will undermine America’s security … Large, undereducated swaths of the population damage the ability of the United States to physically defend itself, protect its secure information, conduct diplomacy, and grow its economy.”22

  Thus, it’s not surprising that a quarter of all foundation money gets channeled into education reform. Hedge fund do-gooders started Democrats for Education Reform, and the Business Roundtable has its own Education Working Group. Billionaires like the Waltons, the Broads, and the Fishers have spent hundreds of millions on education reform, and the Gateses are at the center of it all. They argue that we need to completely re-envision public education if we are to prepare children for a high-tech future.

  There are varying opinions on how to do it. Some, like the Waltons and the Broads, want school vouchers (government-issued certificates of funding that enable parents to send their children to private schools instead of public ones) and complete privatization. The Gateses think that vouchers have “some very positive characteristics” and praise the efficiency of parochial schools, but they think the public is too invested in public education and thus resistant to these kinds of sweeping change.23 Instead, the Gates Foundation is pursuing incremental change through the increased application of market mechanisms to public schooling.

  The idea is that by applying a market logic to the public school system, educational entrepreneurs will want to get involved, creative people will get interested in education, and the resulting competition will force all schools to do a better job. As one reformer put it, by treating schools the same way we treat companies we can create a system where “every public school will have a performance contract where [the] people running it will have the freedom … to manage it well, hire and fire based on performance, [and] design their
schools in a way that is successful … If they’re not successful, they should be closed.”24

  The Race to the Top (RTTT) contest—President Obama’s multibillion-dollar initiative to replace Bush’s No Child Left Behind program—is a central part of this marketization strategy. The contest is designed to spur innovation, “scale-up entrepreneurial activity” and “encourage the creation of new markets for both for-profit and nonprofit investors” by forcing states to compete for education funding. Joane Weiss, former director of RTTT, says:

  The development of common standards and shared assessment radically alters the market for innovation in curriculum development, professional development, and formative assessments. Previously, these markets operated on a state-by-state basis, and often on a district-by-district basis. But the adoption of common standards and shared assessments means that education entrepreneurs will enjoy national markets where the best products can be taken to scale.25

  The best way to “scale-up” reforms and educational products is contested and prone to dead ends. The Gates Foundation initially focused on reducing class size. In the early 2000s it spent billions opening 2,600 small high schools in forty-five states, but the project did not improve test scores, so it was abandoned and many of the new schools were closed down.

  Undeterred by this experience, the Gateses changed horses and are now focused on teachers. The foundation argues that some teachers are very effective at raising test scores, and that these “top quartile” teachers are the key to improving student performance, especially for disadvantaged students. The Gateses believe that emphasizing poverty as a barrier to educational attainment is empirically wrong and excuses bad teaching. One in four US children might live in poverty, but as Bill Gates told the National Urban League in 2011: “We know that you can have a good school in a poor neighborhood, so let’s end the myth that we have to solve poverty before we improve education. I say it’s more the other way around: improving education is the best way to solve poverty.” As a bonus, if we keep only the good (top quartile) teachers, Bill thinks that “the entire difference between us and Asia would go away. Within four years we would be blowing everyone in the world away.”26 Powerful education reformers like Michelle Rhee, Joel Klein, Wendy Kopp, and Arne Duncan agree.