Philanthropy - will the boom change the world?

Article source

All shall have prizes

Mar 1st 2007 | NEW YORK
From The Economist print edition


Will a boom in philanthropic prize-giving change the world?

[image=http://economist.com/images/20070303/0907IR1.jpg]

TYCOONS gathering this weekend at Google's Silicon Valley headquarters will be giving money away, not trying to make more. Larry Page, one of the search firm's founders and, with a personal fortune estimated at over $14 billion, one of the world's richest 33-year-olds, is holding a fundraiser for one of his favourite charitable causes, the X Prize Foundation. The foundation is a force behind one of the most intriguing trends in philanthropy: promoting change by offering prizes.

It has worked before. The chronometer was invented to win an 18th-century British government prize. Charles Lindbergh flew the Atlantic to win $25,000 offered by Raymond Orteig, a hotelier. That inspired Peter Diamandis, the X Prize's creator, to offer $10m for the first private space flight, won in 2004 by SpaceShipOne.

In October the foundation launched its second prize, for genomics: $10m to the first inventor able to sequence 100 human genomes in ten days. In the same month Mo Ibrahim, a Sudanese mobile-phone entrepreneur, endowed an annual prize of $5m plus $200,000 a year for life for former African leaders reckoned to have governed well. Last month a British entrepreneur, Sir Richard Branson, launched the Virgin Earth Challenge, offering $25m to the inventor of a commercially and environmentally viable method of removing greenhouse gases from the atmosphere.

The Rockefeller Foundation has recently formed a partnership with InnoCentive, an entrepreneurial website, to offer financial rewards to people who solve specific social challenges posted on the site. The $1.5 billion Advance Market Commitments, recently put up by a group of rich states and the Bill and Melinda Gates Foundation to stimulate the production of vaccines, is a prize of sorts.

And if this weekend's event goes well, the X Prize Foundation plans to add to the boom by announcing a further ten prizes worth $200m over the next five years, in areas ranging from space and medicine (again) to education, energy and entrepreneurship. This spring, a further X Prize for the creator of a super-efficient car is likely.

Matthew Leerberg of Duke University, points out* that prizes are more commonly based on recognition of past achievement (such as the Nobel awards), or promote awareness of causes favoured by the donor. ?Incentivising? prizes, by contrast, stimulate achievement of specific goals. That has big attractions for businesslike philanthropists such as Mr Page. This new generation of donors believes that traditional philanthropy is hugely inefficient. On past experience, Dr Diamandis reckons that a prize means ?ten to 40 times the amount of money gets spent?. Transatlantic fliers spent a combined $400,000 to win $25,000 from Mr Orteig; the 26 teams competing for the $10m spaceflight prize spent $100m.

Dr Diamandis says Mr Page's fundraising efforts offer even greater leverage: ?Larry says that if he were to give to a university, he'd get about 50 cents on the dollar of value, maybe $2 if there are matching funds. But he gets ten-times leverage by launching a prize, and 100-times leverage by supporting a prize-giving organisation.? Prizes may also stimulate those whom old-style grant-making processes fail to reach, such as people outside mainstream research institutions and corporate life.

It can go wrong: prizes, such as that for honest government in Africa, may be too small, given other incentives. The criteria need to be clear and sensible?easier in science than in woollier areas such as social policy. The efficiency of a car engine can be defined in terms of a miles-per-gallon equivalent. But, as the X Prize Foundation may soon discover, coming up with a clear, testable and useful challenge in, say, education is tricky. Deve

 

... Nah.

 

Nah, it won't last; nah it's not reasonable to expect governments to handle it; nah what?

And why?



E_S

 

Nah, as in, trying to get on E_S's nerves with an impossibly short response to his long post.

 

I once killed a man for less, Gonk. Now, I'm not proud of that fact, but I will do it again if needs be...



E_S

 

Now this is what I'm talking about! No, not killing a man, but the private sector taking on challenges. While government can and has helped start companies such as 3M with it's programs (NASA in that case), nobody creates products and then creates market demand like the private sector.

Yes, there is little demand for for eco-friendly cars. But the situation is common. There was very little demand for DVDs when they hit the market as most were satisfied with VHS. But marketing created the demand and a new home video standard was adopted. When a company, moved for whatever reason, makes a revolutionary product they can package and market it in a way to create demand.

The government can't.

 

The government certainly can create demand. Thats why building tanks and missiles is profitable. This boom in prize money is, IMO, just another form of the traditional government defense contract. The government is actually doing it better than the wealthy because they are offering long term profits instead of a lottery prize. Lockheed-Martin (I think thats who made it) saw way more profit on SR-71 than 25 million dollars. Even the competition for the contract is the same; build the best idea and get money to mass produce it. And of course, sell it to the government that supposedly wants peace, freedom and liberty for everyone. I'm sure those companies making money are counting on progress through peaceful means.

No, this will not change the world. Lindbergh did not cross the Atlantic to claim 25,000 dollars. The real prize, is having your name in the history books. If you can't invent the next solution, then be remembered for funding it. That, is priceless marketing material. What it will do, is ensure people recognize the brand name for the next 200 years.

Lets imagine someone offers 100 billion dollars for a non-polluting, free energy source that powers everything from cellphones to semi-trucks. So what? Actually developing such a technology, and selling it for over 50 years is worth a sum that makes the prize money seem like little Joey's piggy bank.

In short, its a drop in the bucket done to make the rich people feel better. But would any of them give up something meaningful? The Gates foundation is doing wonderful, if not contradictory things. I wonder what it could do, if Bill Gates sold his castle on Lake Washington? Isn't that one more project that could be funded?

 

If governments can do it, then why aren't they?

You ignore that military contracts for the most part are a huge chunk in the US economy at that the outcomes not only see jobs created but allow the state to exert influence on other states for resources etc. Totally different ballpark.

But Tre, if the state could do this, why doesn't it?

E_S

 

I'm saying they are doing it. Yes, the national economy is very much tied to defense contracts. So its not really in the national interest to resolve conflicts without a need for more weapons, therefore foreign policy creates demand. It creates demand while offering the prize at the same time. Jobs are maintained at home so long as there is a need for tanks, missiles, carrier groups and spy satellites.

Even your opening post has this element in it. The chronometer being used primarily for oceanic navigation, the British Government had a HUGE interest in seeing it developed. And the real prize was selling the item back to the government so it could outfit all the ships in the fleet, which at the time were holding together an Empire.

Perhaps a modern example. Hybrid engines, and corn-oil diesel fuel have been around for a little while. Corn and soy oil engines are as old as gasoline engines. Do you think it coincidence that they only start coming into mass production when its a matter of US national security? Perhaps in some backward fashion, the endless war in the middle east helps to generate enough demand to make Hybrid and alternative fuels profitable. How's that for a conspiracy theory?

No. Philanthropy won't change the world, because its been operating like this for some time. I'm hesitant to call it philanthropy; it smacks to much of marketing and...glory. A truly philanthropic company/person would develop a cure for AIDS, or some disease, and give it away even at the expense of the company's bottom line. To my knowledge, that hasn't been done. I'd love to be proved wrong.

 

I think it is very positive that the richest have rediscovered some sense of Noblesse oblige. People with more money than small countries who see that there might be something more important than making more money is a good thing in my book. What would be better would be for everyone to realize that those who reap the profits of our current political and economic system not only should make the world a better place for everyone, but have a duty to do so. A duty which in some cases might need to be enforced upon them by progressive taxation. If all the rich were true philanthropists giving away their money on worthwhile endeavors, then we perhaps wouldn?t need so much government involvement, but men are not angels. In government defense spending is seen as a federal jobs program. I think that is a different issue than trying to solve the world?s problems.

I think looking to solve problems in an economical way is incredibly useful. Bill Gates I think said that basically spending money on global warming is a waste because you have no idea how effective a dollar spent on it is going to be, and what cost there is for not spending that dollar. If you want to spend your money in the best way possible, you go to Africa and for very little money you can solve the real problems of Malaria and starvation. There the costs are known and the outcome is certain, so from a utilitarian standpoint it makes much more sense to do that, then to throw money at some ephemeral problem like ?global warming.?

 

I don't know it's accurate to say the wealthy re-discovered noblesse oblige; they always had it and always gave money to charities and causes. That, I can guarantee first hand. No, it's that what they discovered was they could mesh their charity with their entrepeneurial spirit for a huge return for the planet.

E_S

 

I just said that because giving away on the scale Bill Gates does seems like something that hasn't been done since the Rockefellers.