World's Richest Man: 'Charity Doesn't Solve Anything'

If the political system over there ever became really functional, his empire would be broken apart and much of his wealth would contract.

I had coffee in an NGO-operated cafe in Siem Riep, Cambodia. All profits went to running a small school for 10 kids.

I did the quick math on a napkin, and realized they were doing far worse as an NGO/charity than they would be to help people as a for-profit business.

Observe: With a 20% net profit after all expenses (which I think they had, if not higher), they'd be able to have enough of a downpayment to open a second cafe within less than a year. A year after that, they'd have 4-5 cafes opened. In three years total, they could be around 8-12 cafes.

At that point, they'd be producing 12 times as much income. They'd also be employing 12 times as many people, and working in a cafe is a really good job in Cambodia. (Air conditioning, pleasant working conditions, friendly client base, regular hours, not dangerous - unlike most Cambodian work).

But by paying it all out right away, they have much less impact. What they're doing is good, yes, but they might be being a little shortsighted if their goal is to do the greatest good. Currently, they were employing 10 people or so (plus the people who did construction, installation, painting, decoration of the cafe, etc) If they reinvested profits for 4 years, they could be employing 120 people who all get better wages and working conditions who can help their families, and they'd be generating 12 times as much in profit. At that point, if they started getting 1/10th of what they were making to charity, they'd be giving more than they are with one cafe.

Consider that. As a charity, they operate one location, employ 10 people, and educate 10 children. If they ran it as a business, in only four years they could run 12 locations, employ 120 people, and with only a fraction of their profits could educate 12 children. Plus, they'd still have the other 90% of profits to open more cafes, or other businesses, or to help more people, or to open hospitals, or whatever. I've heard similar critiques from a local Khmer businessman and an Indian engineer/restaurant owner I met there. NGO's, while well intentioned, might be stifling development in Cambodia. Maybe. At the very least, running that cafe for-profit and reinvesting profits would've produced a hell of a lot more good very quickly.

Charities funding research, and especially insisting that the research be published in some open-access and not-patent-encumbered form, can provide that raw material that new companies need. Charity-funded medical research can also directly produce treatments that improve conditions in a region long-term. And, although it runs into a bunch of political controversy, same for charity-funded research on things like new crop varieties.

Amazing how his opinions have changed now that he is the one who despite his best efforts is struggling to just barely get by. He still feels you should make your own way, but now realizes it can be much harder than it sounds.

The "go get a low paying job" safety net is not what it once was. People these days really need to get creative and find new ways to generate income.

The vast majority of people are inherently capable of meeting their own needs, figuring out the needs of others and trading with them for mutual benefit...if they are allowed to do so.

He amassed such a huge fortune by building walls around his software, limiting people's potential in a way.

Was it necessary? Did proprietary software need to happen to spur innovation? What about his uncompetitive practices?

I end up wondering what the balance of 'good' would be in the world if instead of taking everything he could, he had allowed others to grow and shared his source more. We wouldn't have the Gates foundation's fight against malaria, but we might have a more innovative and open global computing culture, and who knows what that would have meant.

But, I think he's on to something here. From the article:

It is the 21st century billionaire version of the old adage, “give a man a fish and he eats for a day, teach him to fish and he eats for a lifetime

I think all he's saying is that one can't throw money at problems and expect them to be fixed. That's an opinion I'll agree with.

If we want to spend money and give to charities, that's valid...but if we're really looking for long-term fixes (see: ending poverty, world hunger, etc) then that's not the way to go about it. We'd need to really create a system behind the charities; when you give money, that should go into investing for the future and creating future solutions to fix problems, rather than simply repairing something in the now and here.

Look at natural disasters. A typhoon occurs and the world pitches in and sends hundreds of millions to the troubled country. That's fine. But what we tend to forget a month after the hurricane is that the reason the countries got hit so hard might just be because of poor infrastructure or inadequate technology or systems. Those things still stay in place long after the world sends money; if they tragically get hit again, nothing has changed and the world will (yet again) be expected to simply send more money.

My favorite example of "throwing money at a problem" is something that happened a few years ago:

Some clothing company (Gap, I think, but I'm not 100% sure) had a huge surplus one year that they decided to give away to some village/s in an impoverished South Asian country. All they did was take their extra clothes [money] and throw it at the problem of horrible poverty in the place.

What ended up happening? It was an amazing two year fix. The clothes were so much (in quantity) that they lasted for a few years before running out. During that time, the fact that Gap sent all these free clothes made the entire industry that used to make clothes for these parts go out of business. At the end of the two years, they were in a position that's worse off than what they were a few years back. No local clothes makers; no free Gap.

"Charity doesn't solve anything" might be a bit strong. But he's on to something. Throwing money at a problem doesn't fix anything in the long-term; the way to do it is to invest in the future, not throw money at the present.

Just my (albeit a bit long) $0.02

Charity != giving people money.

In a way, Google is a bit like this. Sergei and Larry setup the company in such a way that they have far more voting rights than the non-founders and thus use Google to pursue aims that are more social, for instance developing new energy technology or cars that drive themselves, etc.

Buffett and Gates specifically focus on the former. Trying to reduce extreme poverty, provide healthcare, and educational opportunities. They also believe every life is of equal value. So the challenge then becomes helping the most people per dollar invested.

Some of the most well developed medical technologies/ solutions exists because their's a lot of wealthy people with those problems. A lot of male baldness and not so much malaria.

Malaria is a treatable disease. Millions die because they don't have access to care. You can't say these people would be better off employed, as if their health is not a factor in their economic output. Hence, the goal of trying to eliminate malaria is a valid philanthropic activity.

Buffett also donated through one of his children's foundations, to help solve/minimize the potential for a nuclear event. His view is pretty grim: the information is already out there, getting into more hands, and so the probability approaches 1 that an event will occur at some point in the future. What other natural funding exists for trying to solve this? It might be futile, it might be incredibly hard, but you need smart capable people working on this.

Furthermore, helping the rest of the world become a little bit more prosperous might reduce hostility, and violence that desperate people can be induced into. While businesses have had a great history of introducing wealth into the world, its always done with a profit motive. Where there is no profit potential, there is no interest of a business to be involved. A lot of these problems don't have those profit potentials. Hence, charity works in these areas.

The gist of their company is that for every pair of shoes they sell, they give a pair away to children in impoversihed countries. Seems like a really nice thing to do.

That said, I've always thought they would be better off helping would-be entrepreneurs in those countries to make and sell shoes of their own. IE, perhaps they could use their resources to help people in those countries learn how to make the shoes, provide some assistance in sourcing the materials, etc.

As it is today, if someone in those areas where they give shoes away has any aspiration of making shoes, they have no chance because they won't ever be able to compete with someone coming in and giving away free shoes.

When the kid who received the new pair of free shoes inevitably needs another pair, there is infrastructure in place for him to get those new shoes, rather than waiting for Tom's to show up again with more free shoes.

I'm not knocking Tom's because I think their intentions are simply to help people. But I do think they're missing the target - I think that is what Senor Slim is referring to.

It doesn't do any good to teach a man to fish if he dies of starvation while waiting for the fish to bite.

On the other hand a failure in employment only leads to higher demand for charity. So they're both equally important.

It surely can't be seriously argued that wealth is better channelled through a single person's business empire representing nearly half of the country's stock exchange and 90% of its telecoms provision...

Like most aging industries, the "making the world better" industry is definitely in need of some disruption. We see newer entrepreneurs talking about this space more and more, so I wonder how long it will be before the richest entrepreneurs start looking at new ways of solving these problems.

But charity probably does a lot more for the giver. I imagine giving $10 billion makes you feel about as good as making the $10 billion in the first place. Society will certainly admire you more.

That said, the majority of economists would probably more or less agree with Slim. Buffett, Gates, and Slim could amass wealth faster than pretty much anyone else on earth. Just leaving the money invested in the global economy is not a priori worse than giving it all to charity. Compound growth is obviously self-sustaining growth. The HOPE is that charity can do the same.

Giving away tens of billions of dollars is an ENORMOUS informational problem. Good luck allocating it all even the least bit efficiently. The real answer is that no one can possibly know what the best use of all that money is.

What would I do with the money? Probably put it all in a Vanguard Total Market fund, or the closest fund imitating the true world economy.

We can create 5,000 jobs today. Simple workers with $10/hour pay. 100 years later and the country won't move. The workers don't understand the power of education, they won't teach well their children and in a third-world country, it's very unlikely they'll get a decent one.

I don't mean by education, an MBA, Ph.D... or all the buzz-words. I mean HN culture, real programmer, self motivation to work and exploit your full potential, mind openness to read and accept the other...

Comparing myself with my other peers, I'm a lot in a better condition and I feel proud of myself, doing something useful instead of spending my time on cafés and playing/watching football.

http://www.bbc.co.uk/news/world-latin-america-11472874

Countries that are addicted to American "financial" aid don't go anywhere, but countries that create an environment, enforcable rule sets and standards that attracts foregin direct investment from businesses around the world prosper and raise their standard of living.

Charity is a bandaide and not a solution. Constant free aid kills inniative, inntiative creates economic prosperity, wealth, etc.

What people need is security in employment and compensation, and protection against unavoidable risk, like fire and sickness. Without exploiting the weakness and insecurity of workers, you can't really amass the kind of cash this guy has, so I'm not sure about the quality of the jobs he's creating if he can skim that much value off of the top. The profit margin on fairness is a lot lower than the profit margin on slave wages, monopoly, and legislative arbitrage.

That's not to say that he couldn't, though. If he created a lot of good jobs for people with fair wages, and charged fair prices, that's a massive good and can't be denied. He won't, though, because when things are done fairly, there's not a lot of profit to be made. Sorry, rant over:)

The goal of capital is to create capital. Diverting capital for the purpose of job creation is charity (when done by individuals) or welfare (when done by governments).

Sims approach helps some of the unemployed, but few of the unemployable people in the world.

My point here is that most people are not Bill Gates, Steve jobs, Warren Buffet or Mr. Slim. Simply put most people if given money do not spend it wisely and often find themselves in similar situations within short periods of time because they feel entitled to something being given to them.

Now this is not to say that there are exceptions to that rule, I truly believe there are. I think the bill and Melinda Gates foundation has done tremendous work, as have other organizations like the scoff Tiger Woods organization. But these examples focus on the betterment of communities and are not the benevolent "Robin Hood" type charities which indeed exist to this day (some with very little practical accomplishment) While one commenter was right that the Rockefeller's donated VERY significant amounts of their money to charity I think they have an important oversight. the Rockefellers ruled the world through their "charity" essentially having every company and political pundit in their back pocket. What Gates and Buffet do with their charitable contributions are significantly more benevolent than most figures of the past. Though again there are some exceptions (Corneilus Vanderbilt comes to mind) to that rule as well.

Then again we all have opinions, and that is just mine. :)

So without dragging this on too much what i am meaning to say is maybe we're all right. And by Mr. Slim donating fair amounts to the Gates foundation he may even be saying he agrees, in the end the truth is that even the most intelligent and business savvy people in the world have radically different views on this, its my opinion that we need both of those views and types of people for society's continued evolution

Unfortunately, some people cant even afford fishing equipment. So a mix of both is very important. Why throw tonnes of money? Throw some jobs with that too.

http://www.nytimes.com/2010/10/06/business/global/06khosla.h...

While the love of profit can be evil, if a business is actually creating value (eg. a windmill saves the labour of hand-milling flour; division of labour; technology in general, including methods of organizing labour), there's an opportunity for the bigger pie thereby created to benefit everyone.

Just shifting money around (which includes theft as well as charity) doesn't help except in temporary emergencies.