Bill Gates, Indexing And Capitalism
By Jim Wiandt | January 24, 2008

Bill Gates is coming out with a plea for a new, kinder, gentler capitalism just as indexing enters "frontier" markets.

There is a story in this morning's Wall Street Journal (paid wsj.com subscription required) underscoring Bill Gates' forthcoming announcement essentially making a plea for a thinking and caring man's capitalism. Is it just me who remembers when Bill Gates was endlessly criticized for doing nothing charitable with his great wealth? Isn't he the same Bill Gates who ruthlessly crushed all competitors in his way to become the world's richest man?

Well that was then, this is now.

Obviously now, the Gates Foundation is the global behemoth of visionary development work in Third World nations. Gates is saying that large corporations should have some care and vision thrown into the mix of making the world a better place instead of just throwing the token PR dollars to some pet charity. If the world's top companies dedicate just some of the time of their top people to looking for opportunities in Third World countries and aiming directly at problems in poverty-stricken areas, he says, it could make a huge difference—AND everyone could make a lot of money.

Not many of you may know this, but I served in the Peace Corps in West Africa—in Niger, one of the poorest countries in the world.  My time there taught me a lot of things, but the biggest thing I came away with (reinforcing the some views I'd gained while living in Japan) is that there are HUGE cultural "inefficiencies" globally. In a nutshell, people in one part of the world, amazingly, don't even have the most basic understanding of people from another part of the world. I mean, they are shockingly, mind-numbingly CLUELESS. Small world, indeed.

And there are very darned few people who have ever been in the position I'm in to be in the very center of Western capitalism while having at least some rudimentary understanding of, say, the Songhai or Fulani cultures of West Africa. And here's what I know— people there are every bit as complex as people here, they just don't have our stuff. And I remember thinking very clearly there that a little investment, a little real engagement from people with resources to actually build something there, could make a huge difference. But the fact of the matter is, there's almost no one who lives or has lived in those two worlds, and there's an almost tangible disdain of one for the other.

So Gates' words actually resonate with me. And I think the reason he's reached some of these conclusions is simple: He's spent a lot of time in poor regions and put a lot of effort into actually trying to understand the cultural issues and put some vision and money into trying to find some solutions. I mean you've got HUGE problems with infant mortality (overwhelming proportions of death from dehydration through dysentery, and easy and cheaply prevented or treated diseases) and basic disease prevention and microfinance principles that large parts of the world have zero access to. On those issues, the world is in a shameful state, and in terms of actually doing business, we're practically nowhere.

So I was delighted to see the index world (inadvertently, I'd say) take a shot at the issue itself. I'm afraid the new "frontier market indexes" are all about getting a bit more bang for the buck as returns become more scarce. First MSCI then S&P have taken a shot at these markets, and many others are on the project. But there's nothing wrong with making a little money. And I do strongly believe that the investing opportunities are largest where people have the most room to run in terms of improving their situation.

Of course there is no black and white, and some of the wealth concentration can even at times exacerbate the worst tendencies of unsavory dictators and warlords. But as China will show the world once more, resources are the ticket to education and ultimately greater freedom. It's the secret sauce of the United States of America (wave of poor immigrants replaces last wave of poor immigrants) and it makes the sometimes anti-immigrant tendencies in the U.S. laughable. Still, Americans have long been criticized for their racism, but Europeans are in the dark ages on immigrant integration. That's why the U.S. economy has been whooping on Europe for so long (though not just lately). That rejuvenating dynamism is built into the U.S. culture, and I hope continues to be.

But back to frontier markets. You can see the POWER of indexing by which countries gain or lose emerging markets status or graduate to or are demoted form developed market status. Whole economies can turn on those trillions of U.S. pension fund assets. So it's about time that not only corporate America, but also U.S. pension plans (who are politically inclined that way anyway), start making some bucks in the Third World, and putting some thought into the right way to do it.

As a side note to today's blog, ex-IndexUniverse.com writer John Spence (we've since got back at Dow Jones by hiring two DJ people away from them) has a nice analysis of the Amex/NYSE deal running in today's Wall Street Journal. You can see the uncut version that originally ran on DJ Marketwatch for free right here. (here’s the edited-down WSJ.com version for those curious about that and with access. Matt Hougan has quotes in both versions, BTW. You can also check out Matt's blog and my blog on the deal for a bit of texture. I believe we're also working on a detailed feature covering the deal, so keep your eyes open for that as well.