Making Capitalism More Creative

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Naturally, if companies are going to get more involved, they need to earn some kind of return. This is the heart of creative capitalism. It's not just about doing more corporate philanthropy or asking companies to be more virtuous. It's about giving them a real incentive to apply their expertise in new ways, making it possible to earn a return while serving the people who have been left out. This can happen in two ways: companies can find these opportunities on their own, or governments and nonprofits can help create such opportunities where they presently don't exist.

What's Been Missed
As C.K. Prahalad shows in his book The Fortune at the Bottom of the Pyramid, there are markets all over the world that businesses have missed. One study found that the poorest two-thirds of the world's population has some $5 trillion in purchasing power. A key reason market forces are slow to make an impact in developing countries is that we don't spend enough time studying the needs of those markets. I should know: I saw it happen at Microsoft. For many years, Microsoft has used corporate philanthropy to bring technology to people who can't get it otherwise, donating more than $3 billion in cash and software to try to bridge the digital divide. But our real expertise is in writing software that solves problems, and recently we've realized that we weren't bringing enough of that expertise to problems in the developing world. So now we're looking at inequity as a business problem as well as something to be addressed through philanthropy. We're working on projects like a visual interface that will enable illiterate or semiliterate people to use a PC instantly, with minimal training. Another project of ours lets an entire classroom full of students use a single computer; we've developed software that lets each student use her own mouse to control a specially colored cursor so that as many as 50 kids can use one computer at the same time. This is a big advance for schools where there aren't enough computers to go around, and it serves a market we hadn't examined before.

Cell phones are another example. They're now a booming market in the developing world, but historically, companies vastly underestimated their potential. In 2000, when Vodafone bought a large stake in a Kenyan cell-phone company, it figured that the market in Kenya would max out at 400,000 users. Today that company, Safaricom, has more than 10 million. The company has done it by finding creative ways to serve low-income Kenyans. Its customers are charged by the second rather than by the minute, for example, which keeps down the cost. Safaricom is making a profit, and it's making a difference. Farmers use their cell phones to find the best prices in nearby markets. A number of innovative uses for cell phones are emerging. Already many Kenyans use them to store cash (via a kind of electronic money) and transfer funds. If you have to carry money over long distances — say, from the market back to your home — this kind of innovation makes a huge difference. You're less tempting to rob if you're not holding any cash.

This is how people can benefit when businesses find opportunities that have been missed. But since I started talking about creative capitalism earlier this year, I've heard from some skeptics who doubt that there are any new markets. They say, "If these opportunities really existed, someone would have found them by now." I disagree. Their argument assumes that businesses have already studied every possible market for their products. Their attitude reminds me of the old joke about an economist who's walking down the street with a friend. The economist steps over a $10 bill that's lying on the ground. His friend asks him why he didn't take the money. "It couldn't possibly be there," he explains. "If it were, somebody would've picked it up!" Some companies make the same mistake. They think all the $10 bills have already been picked up. It would be a shame if we missed such opportunities, and it would make a huge difference if, instead, researchers and strategists at corporations met regularly with experts on the needs of the poor and talked about new applications for their best ideas.

Beyond finding new markets and developing new products, companies sometimes can benefit by providing the poor with heavily discounted access to products. Industries like software and pharmaceuticals, for example, have very low production costs, so you can come out ahead by selling your product for a bigger profit in rich markets and for a smaller profit, or at cost, in poor ones. Businesses in other industries can't do this tiered pricing, but they can benefit from the public recognition and enhanced reputation that come from serving those who can't pay. The companies involved in the (RED) campaign draw in new customers who want to be associated with a good cause. That might be the tipping point that leads people to pick one product over another.