Why it makes sense for Larry Page to donate his billions to Elon Musk
Three years ago, with a post entitled “philanthropy isn’t for profit”, I expressed the hope that we had finally reached a turning point, and that people would “do good to do good, rather than simply declaring that the best way they can do good is to chase profit as zealously as possible”. And maybe I was right. That post was directed in part at Matthew Bishop, who had written a silly article asking whether IBM had done more good for the world than the Carnegie philanthropies. But this evening, when I ran into Bishop at an event for rich people in a swanky midtown club, he couldn’t bring himself to defend Larry Page, who said something similar at TED:
Rose asked him about a sentiment that Page had apparently voiced before that rather than leave his fortune to a cause, that he might just give it to Elon Musk. Page agreed, calling Musk’s aspiration to send humans to Mars “to back up humanity” a worthy goal. “That’s a company, and that’s philanthropical,” he said.
Page’s comments have already been attacked by Kevin Roose, and, as I say, they’re not going to be defended by Matthew Bishop. But here’s the weird thing: Page’s ideas aren’t nearly as dumb as they might seem at first blush. In fact, even I can defend them — and I’m the kind of person who generally hates the way that rich people give away their money.
Page, with his unorthodox idea, deftly sidesteps most of the mistakes that rich people make with their charitable donations. Most importantly, there’s nothing self-serving about Larry Page giving his money to Elon Musk: there isn’t any ego boost involved, and there isn’t even a tax deduction. Instead, Page is simply trying to work out how his money is most likely to have a positive transformational effect on the world.
The fact is that private philanthropy almost never has such an effect: big-picture changes to the world come from commerce and from government, not from gifting. Exxon Mobil has changed the world; Phillip Morris has changed the world. Apple and Microsoft and Cisco and Intel have changed the world. Monsanto and Cargill and ADM have changed the world; Pfizer and Roche and Novartis have changed the world. Certainly Great Britain and France and Russia and China and the US of A have changed the world, many times each.
And, as Page knows better than anyone, Google has changed the world.
Page is convinced (I agree with him on this, but I’m not going to argue the point here) that Google has been a positive force in the world. Indeed, it has been a more positive force than at least 99% of philanthropies. A philanthropist with $100,000 in 1998 who wanted to make the world a better place could hardly have done better than Andy Bechtolsheim, the first funder of Google — even if you ignore any good that Bechtolsheim might end up doing with the billions that investment ultimately became.
Of course, it’s impossible ex ante to know which startup is going to be the next Google. But Page is someone who has already changed the world once; he knows that there’s a 99% probability that his philanthropic activity will end up being orders of magnitude less effective and less important than his tenure at Google. It’s important to put philanthropy in perspective: for all that very rich people are indeed very rich, they generally aren’t rich enough to really move the needle on a societal level. Page is worth about $30 billion; the budget for the New York City department of education is almost that much per year. Famously, Bill Clinton has said that he will never be able to achieve, over the entire lifetime of his charitable foundation, the same effect that he could have with a two-second stroke of the pen while he was president. Or, to take a slightly more controversial example, look at the amounts of money pledged in the wake of natural disasters like the Haiti earthquake or Hurricane Sandy. The public is invariably extremely generous when such things happen — but government money always dwarfs private contributions.
Page is also smart enough, and hangs out with enough very rich people, to know that philanthropy is hard — and that there’s absolutely no reason to believe that the luck and skill he has demonstrated founding and running Google would read across to similar philanthropic success. There is exactly one technology billionaire who has put an enormous amount of personal time, effort, and money into running his personal philanthropy; not everybody can be Bill Gates, and it’s unfair to expect that other billionaires should be Bill Gates.
In other words, Page probably lacks both the ability and the inclination to create some world-changing philanthropy on his own — as we can see by the way in which Google.org and the Google Foundation have had relatively little impact. Let’s assume that he’s self-aware enough to know that. And now, in that light, let’s revisit the “idealistic vision” of his TED interview:
It’s a vision that includes everything from widespread artificial intelligence to self-driving cars to high-altitude balloons that bring internet access to the far reaches of the world…
Rose also asked him about his fascination with transportation systems, which Page said started while waiting in the snow for the bus at his alma mater, the University of Michigan. That fixation has led to Google’s self-driving cars project, which Page hopes will someday transform the world’s cities…
Page had words that sounded harsh even in his soft voice for businesses that lacked the same lofty goals of an Elon Musk or a Google. “Most people think companies are basically evil. They get a bad rap. And I think that’s somewhat correct,” Page said. “Companies are doing the same incremental thing that they did 50 years ago, 20 years ago. That’s not really what we need. Especially in technology, we need revolutionary change, not incremental change.”
That may be an easy thing to say when your company’s stock is trading near $1,200 per share and your main business of selling ads makes tens of billions a year. But Page certainly seems like someone for whom those ads are only a means to an end, and that end is not making himself rich. Page wants to build the future that we all may very well end up living in.
The point here is that Page’s ambitions are vast: they require vision and also the kind of resources which can be marshaled only by massive corporations, rather than any individual. And the question then arises: what can Page do with his personal wealth which could play on the same playing field as the ambitions he has at a corporate level?
The answer, surely, is help create another Google — another company which can change the world for the better. And if you look around for someone capable of pulling off such a feat, Elon Musk is always going to be at the top of the list.
Does that mean, pace Roose, that Page considers buying stock in Microsoft to be a credible alternative to giving money to the Gates Foundation? Of course it doesn’t. For one thing, the chances of Microsoft transforming the world again are pretty low. And for another, who said anything about buying stock?
If your philanthropic intent is to help Elon Musk change the world, there are lots of things you can do which are better than simply going out into the market and buying stock in Tesla. That stock has already been issued; the money Musk raised by selling that stock is already in Tesla’s coffers. If you buy the stock from some hedge fund, all you’re doing is transferring money to a hedge fund, you’re not particularly helping Elon Musk.
On the other hand, the glory of corporate capital structures is that they allow your money to be leveraged many times, in a way which is very difficult in traditional philanthropic contexts. (Indeed, if you give money to a foundation and then the foundation gives away just 5% of its capital every year, then you effectively have substantial negative leverage on your donation.)
So let’s say that Elon Musk issued a new class of stock. In the UK, such things are often called a golden share. Such stock would have voting rights and possibly quite substantial voting rights at that; it might even come with one or more board seats. But it would represent a negligible economic interest in the company: it would have no right to dividends, for instance. (For an example of how such a structure might work in the event of an acquisition, take a look at how the Reuters Founders golden share still has an important role to play within Thomson Reuters.)
The money used to buy the golden share would go straight onto the asset side of the corporate balance sheet, where it could support the issuance of more equity and more debt: it would punch well above its weight. It could help Musk’s company to grow faster, to be more ambitious, to be less beholden to common shareholders and/or bondholders. It might not, ultimately, make any difference at all — but, on the other hand, if the sum of money involved were in the multiple billions of dollars, it might make a very large difference indeed. In short, Page would have ended up buying the possibility of changing the world — again.
At that point, Page just needs to start comparing probabilities. What is the probability that he would change the world through traditional philanthropy? What is the probability that he would change the world if he bought a golden share from Elon Musk? If the latter is greater than the former, that’s a pretty strong reason to choose Musk over some tax-exempt foundation.
One of the big problems with contemporary philanthropy is that it’s obsessed with results: everybody wants to ensure that their money is making a real difference. In the case of unconditional cash transfers, for instance, which are pretty trendy these days, you know with certainty that after you give $1,000 to a poor person, that person is $1,000 richer. It’s a clear and unambiguous outcome, and there’s a lot of evidence to suggest that making poor families richer does wonders for their quality of life.
From the point of view of someone like Larry Page, however, it’s easy to see how the idea of simply giving his money directly to the poor might not appeal. The short-term effects would be wonderful, but also limited; the long-term effects would be relatively slim and hard to discern. Certainly the outcome would be minuscule compared to the long-term effects of, say, the invention of the printing press.
Which means that if you’re a person with Page’s ambitions and Page’s wealth, the trick is to take risks, rather than try to engineer a certain outcome. Better a small chance of creating a permanent and positive change to the way the world works, than a much larger chance of making a much more limited intervention. It’s a reasonable stance to take.