“A market system has not worked in terms of poor people,” is the quote from Warren Buffett that the New York Times used yesterday in reporting his donation of his billions to the Bill and Melinda Gates Foundation. If Mr. Buffett really believes that, he should put his $30 billion plus dollars somewhere else, because the Gates Foundation itself has been careful to credit private companies as its partners and to use market-based mechanisms for making improvements in its priority areas of public health and education.

The first page of text in the Gates Foundation’s 2005 annual report is a letter from the foundation’s CEO, Patty Stonesifer, saying “to solve the problems we’re all tackling, governments, non-governmental organizations, other foundations, and private industry need to work together.” Note the reference to “private industry.” The rest of the annual report says the Gates Foundation worked with the MTV network to reach young people about education and with Glaxo-SmithKline to test a malaria vaccine. A Gates Foundation “case study” on confronting AIDS in Botswana, a Texas-sized country where 33% of people aged 15 to 49 are infected with HIV, says a Gates Foundation senior staff member “came to know and respect Merck through his work with the firm on the anti-river blindness campaign.” On AIDS in Botswana, a Merck plan “was the surprise hit of the meeting,” the case study says. “The presentation showed clearly that Merck was serious – and thinking big.”

Smaller firms than Merck, Glaxo-SmithKline, and MTV are also part of the Gates Foundation’s work. The Gates Foundation has put at least $9 million into schools affiliated with a teacher-run cooperative called EdVisions, which touts a model of “educational entrepreneurship.” The Gates Foundation’s April 2003 education policy paper says “States should remove existing limits on the number of new charter schools” – are you listening Sheldon Silver? – and what are charter schools but an effort to create more of a market of schools competing for students?

Indeed, much of the progress in fighting poverty over the past 20 years has come as a result of the recognition that what “has not worked in terms of poor people” were government programs that kept the poor out of the market economy. Here we speak of housing projects that prevented homeownership among the poor, welfare programs that provided incentives not to work and not to get married, and social security and pension programs that prevent the poor from taking risks and passing along savings to their heirs. The poverty in countries that have embraced capitalism, such as America, is much less than in places that have tried other systems. As Warren Buffett surely knows better than anyone, markets are a remarkably efficient way of allocating capital.

That doesn’t mean that within a market, people can’t sometimes make erroneous choices or have bad luck and wind up poor. Nor does it mean there is not room within capitalism for private philanthropy, which we applaud. But as the Gates Foundation appears to recognize – even if Mr. Buffett in that quotation sounds as if he does not – philanthropy aimed at helping the poor can be more powerful if it works in concert with market forces, rather than as if the poor are so different from everyone else that markets somehow don’t apply to them.