Letter re: the Failure of Imagination in Bill Gates' "Creative Capitalism"

What Gates described was mostly a high powered version of a worthy but old cliché: "doing well by doing good". He described the opportunity in identifying markets that business has missed, and acknowledged that creative capitalism is already underway in the form of telecommunication companies finding new markets for cell phones in developing countries, and pharmaceutical and software companies making products available to the poor at deep discount. Derived from his experience in business, Gates vision reflects an uncharacteristic failure of imagination when it comes to the potential of the nonprofit sector.

As we know, a new generation of nonprofits have been demonstrating their own form of creative capitalism, through earned income strategies and community wealth creation, as well as the kind of social entrepreneurship that has driven the growth of innovative nonprofit organizations. Wealth creation is not limited to the corporate sector. Nonprofits create wealth too. The difference is that they reinvest it in social mission rather than personal enrichment, so it becomes a kind of community wealth.

A diversity of strategies to stretch the reach of market forces has already emerged from the new breed of nonprofits. Examples include

• Fee-for-service: College Summit helps talented low income students navigate the college access process. Valuable to school districts that compete for best ratios of college-going graduates, this national nonprofit created a model in which philanthropy covers national costs but fee-for-service paid by schools covers local variable costs. This market mechanism enables College Summit to grow without spiraling dependence on charitable gifts.

• Creating community wealth: More organizations are leveraging their assets to generate earned revenues. In Baltimore the Caroline Center that provides job training for women runs a furniture reupholstering business. In New York the Greyston Bakery trains and employs transitionally homeless men and women to bake the brownies for Ben and Jerry's ice cream and uses the proceeds to support community activities. Each generates new revenues to support their nonprofit mission.

• Investing in entrepreneurs: The Acumen Fund invests philanthropic dollars in business enterprises that deliver affordable and critical good and in poor countries. Investments include the A to Z Textile Mill in Tanzania, a privately owned company employing 1500 people, that produces insecticide treated bed nets to prevent malaria, and Kashf, a commercially viable financial services company making small loans to women in Pakistan.

Each attempts to redress the fact that the philanthropic marketplace is not responsive to performance in the same way that capital markets are responsive. Therefore other mechanisms must be developed to "stretch the reach or market forces" to address social needs and support sustainability. The most important recent developments in philanthropy - from the adoption of venture capital practices by organizations like Venture Philanthropy Partners, to the development of equity-like investments pioneered by the Nonprofit Finance Fund and Seachange Capital Partners – aim to address these issues.

Gates recommendations for advancing creative capitalism include having CEO's devote a percentage of the time of their top innovators to issues that affect people who have been left behind, more visible public rankings of socially responsible companies, and more active consumer choice to rewards socially responsible companies.

But to advance creative capitalism where it is most vibrant, in the nonprofit sector, there are other specific strategies Gates can help advance. They include:

• urging more corporations to purchase goods and services from nonprofit vendors
• Providing technical assistance in business planning, marketing and sales to nonprofits
• Providing equity capital or loans to community wealth enterprises

It is a big plus when one of the world's most successful businessmen champions enlightened corporate community engagement. But creative capitalism needs to reach farther to include not only business but those institutions that devote themselves full time and single-mindedly to creating social change.

Having stepped down from his day-to-day role at Microsoft, Bill Gates will soon be spending more time in the nonprofit sector. We can look forward to him reaching his own conclusions about how creative capitalism can be advanced there as well. I hear he's a pretty smart fellow.