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September 18, 2006
Frugal Google
Russell Roberts
When Warren Buffett made his massive donation to the Gates Foundation, my father was perplexed. Why would a man who had spent his life understanding the power of the profit motive entrust his money to non-profits who might be more profligate? I suggested that perhaps he was trying to burnish his reputation, that his success as an investor was viewed by some as tawdry. By giving money to a charity, he would look like a nice person, regardless of the outcomes. People would judge him by his motives.
Google is taking a different path, as the New York Times reports:
The ambitious founders of Google, the popular search engine company, have set up a philanthropy, giving it seed money of about $1 billion and a mandate to tackle poverty, disease and global warming.
But unlike most charities, this one will be for-profit, allowing it to fund start-up companies, form partnerships with venture capitalists and even lobby Congress. It will also pay taxes.
Google probably understands that as Milton Friedman points out, people spend their own money more carefully than they spend other people's money.
Posted by Russell Roberts in Charity | Permalink
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Exactly. In fact, from the weekend's NYTimes, John Tierney writes:
""…It's smart of Google's founders to try using capitalist tools to save the planet; the market's discipline should keep their philanthropy from backing too many lost causes."
"...If you read Adam Smith's famous passage about the invisible hand causing capitalists to unwittingly serve the public interest, you might conclude that Google's founders are better off investing their time and money in improving their core business. As Smith wrote, ''I have never known much good done by those who affected to trade for the public good.''"
"But I don't think Smith would have any problem with Google.org. He also realized that humans are motivated by more than self-interest. He wrote a long book on moral sentiments. If compassionate capitalism is a more appealing brand, if Google and Whole Foods are using philanthropy to strengthen the invisible hand, even Smith would say they're doing good."
http://select.nytimes.com/gst/tsc.html?URI=http://select.nytimes.com/2006/09/16/opinion/16tierney.html&OQ=_rQ3D1&OP=705c0f21Q2FVQ60Q25pViqQ2AjjiVIkkvVk7VnvVjhQ7E_Q7Ej_VnviQ7EQ25Q2A_Q25aYfiQ5CQ5B
Posted by: Pienso | Sep 18, 2006 9:13:09 AM
"Google probably understands that as Milton Friedman points out, people spend their own money more carefully than they spend other people's money."
While true, I'm not sure this line touches upon the intent behind the Google founders' actions. They chose not to form a 501(c) non-profit because they did not want to be bound by the onerous restrictions that the tax laws place on the activities of such organizations.
To my mind, however, they *haven't* tackled the fundamental problem of non-profits, which is what your Friedman paraphrase captures. Perhaps the most fundamental problem with non-profit organizations is the absence of that profit motive that provides incentives for efficient investment. I might form a non-non-profit (but not necessarily a "for profit") organization intended to promote the addition of trees to urban areas in the country. It's all well and good that my actions are not limited by federal tax rules; but the question remains as to how, other than my taking pride in being an efficient investor, we can be sure that the money that will be invested by this organization will be put to good use.
Posted by: JMP | Sep 18, 2006 12:09:58 PM
"Why would a man who had spent his life understanding the power of the profit motive entrust his money to non-profits who might be more profligate"
Maybe Buffett thinks it is not his money anymore once he is dead and gone? or maybe the Gates foundation according to Buffett is not profligate and "won't back too many lost causes"?
Frankly, Gates' foundation is not any different from Google's foundation (except that they have a lot more money) and it'd be very difficult to convince me that Gates will blow all this money on bad projects.
Posted by: Jav | Sep 18, 2006 12:41:54 PM
I've been thinking that Buffet's dump of all his worldly gains before he dies is actually another big piss at the small investor he so greatly despises.
By donating all of his money, he avoids the estate taxes he supports for everyone else. It's great news for the Gates foundation and their charity works, but it is several billion dollars in taxes avoided.
Posted by: Xmas | Sep 20, 2006 5:14:25 PM
Posted by: laptop battery | Oct 13, 2008 12:08:52 AM
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