A welcome public row about donor effectiveness

Well done Malcolm Gladwell. On Wednesday this week, Harvard announced its biggest gift ever, $400m from the American hedge fund manager John Paulson for its school of engineering and applied sciences. Gladwell ridiculed it: ‘It came down to helping the poor or giving the world’s richest university $400 mil it doesn’t need. Wise choice John!’ Various other financial overlords sprang to Paulson’s defence: ‘My first thought was: ‘Wait a minute, pal, how much have you given?’’ said one; ‘Would they criticize him if he just sat on his wealth and ‘compounded it’ like certain others?’ said another; and a third said ‘Who the f— can criticize a guy who donated $400 million to his alma mater?!”… What’s to criticize? Extremely generous and he is to be applauded.’

Opportunity cost, that’s what to – well not criticize but to question – and effectiveness along with it. Charities vary wildly in how effective they are: with the same amount of resource, some achieve results, some achieve nothing, some achieve masses, some make things worse. The choices which donors make – like the one Gladwell is calling out – are highly consequential.

Yet media coverage and public discourse around giving are almost entirely about inputs: cooing over the sums given. This is the first public ‘row’ I can remember about whether a particular gift is any good, and it’s about time. Donors are rarely (ever?) asked to explain their choice of organisation or what the donation might achieve, and never challenged on what that money could have achieved elsewhere.

This matters not only for the public good. A chunk of the donation will be tax-relief so the US taxpayer is chipping in – involuntarily – and might wish to know that their money is being well-used. [One hedge fund manager defended Paulson with the common response that ‘it’s his money’. Assuming that Paulson pays tax, that just isn’t entirely true.]

So well done Malcolm Gladwell for questioning whether a particular gift is sensible. To see whether it is sensible, let’s think about the opportunity cost. Antimalarial bednets are famously cheap and effective, costing about $3 to buy and saving a life for about $3,340 (including distribution and the fact that not every single net saves a life). If Paulson’s $400m had gone to Against Malaria Foundation, it could have saved nearly 120,000 lives. To see the opportunity cost, we need to subtract from that the ‘value’ of everything which Harvard will achieve with that gift – and that of course we don’t know. But we can see that the bar is pretty high: Harvard has to benefit the human race as much as saving those lives in order to simply ‘break even’. To be clear, I’m not arguing against funding universities or research – far from it, I have argued that research can be hugely valuable and its uncertainties make private donors and foundations uniquely important for enabling it, but am asking donors to be aware of the height of that bar and of what their money might achieve elsewhere. [A note on Harvard. Though $400m is a lot to you and me, Harvard could fund that nearly 100 times over from its endowment of $32.7bn.]

Other financiers seemed to say that any donation was beyond challenge: ‘I have a hard time imagining anyone being critical of a charitable gift’ and ‘he doesn’t have to give it away at all if he doesn’t want…. I can’t imagine criticizing that’. Well what if it went to an organisation which is harmful? What if it had gone to Homeopaths Without Borders, dubbed ‘one of the worst charities in the world’ because it encourages people to use homeopathy which we know often makes people stop taking or seeking treatments which do work. Surely we should criticize that. And what if a donor supported an organisation which delivers bednets expensively when they could have found one that did it cheaper? Surely, criticizing gifts like those is perfectly right and proper.

Hence the ethicist Peter Singer does. Last month he tweeted: ‘For the love of God, rich people, stop giving Ivy League colleges money’. He should know, since he works at one (Princeton), and co-founded the effective altruism movement which encourages people to give where they can make most difference, where the opportunity cost is minimal.

Donors’ choices matter. We should welcome this debate about them, and thank Malcolm Gladwell for starting that debate.


This article first published in Alliance Magazine

Vox had a much more critical article: “There is a special plaque in philanthropist hell for John Paulson…made a fortune betting against the subprime mortgage market in the mid to late ’00s, and he’s given big chunks of it away to the least worthy charitable endeavors he can find… [On Harvard] If you want to make the world a better place, your dollars are better spent literally anywhere else…Giving to Harvard is not an act of altruism. It’s a gigantic, immoral waste of money, and it’s long past time we started treating it as such.”

Jeff Sachs unearthed where that $400m came from: “taken from the good people of Dusseldorf through an infamous swindle… When Securities and Exchange Commission got wind of this , it charged Goldman Sachs with financial fraud…Goldman settled by paying a fine of $550 million… The whole sordid experience reminds one of a Soviet-era story.”

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