Political Entrepreneurs

The Economic Engine of Political Change

Bill Gates and “Catalytic Philanthropy”

December 22nd, 2012 by Wayne Leighton

Continuing with the story on Bill Gates, Warren Buffet and other billionaire philanthropists in the Forbes 400 issue, the richest person in the United States adds a commentary on opportunities for philanthropic investment. Gates begins by observing that the market will not provide goods and services without earning a return, which explains why the poorest people on the planet cannot get access to life-saving medicines and other essentials. Investment will focus on innovation that is likely to earn a profit. Gates observes:

In this gap government plays an important role. It can offer services where the market does not and thus provides a safety net. To some extent it also fills in where the market leaves off in funding innovation… But government faces its own obstacles to funding innovation. It generally does not take the long view, because election cycles are short. Government is averse to risk, given the eagerness of political opponents to exploit failure. Unlike the private market, government is good not at seeding numerous innovators but at backing only the ones that make progress.

So when you come to the end of the innovations that business and government are willing to invest in, you still find a vast, unexplored space of innovations where the returns can be fantastic. This space is a fertile area for what I call catalytic philanthropy.

In short, Bill Gates is looking for opportunities to earn big returns in changing the world–to make it a better place.

In chapter 7 of Madmen, Ed and I provide a more formal approach to engaging these exact issues. We argue that:

Whether one tries to change the world by investing one hundred dollars or one hundred million, whether one dedicates an hour of labor or a lifetime, these allocations — like every other aspect of human action — involve tradeoffs. Simply put, choosing how to effect political change is an economic act because it is a decision about how to devote resources among competing alternatives.

Whether implicitly or explicitly, anyone who gives one hundred million dollars to [the Children’s Scholarship Fund or some other big endeavor] has a theory that such an investment will yield a better return than the alternatives. It is this theory that drives home the practical implications of our framework. Because, if they are wrong, then these generous philanthropists will  not have simply wasted their money, they will have foregone the chance to succeed elsewhere.

Or to quote Jim Morrison: “No eternal reward will forgive us now for wasting the dawn.”

 

 

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.189, ch.7)

The most successful entrepreneurs know what they do well, they know the market and the opportunities within it, and they choose those activities that create the most value. This is true in economic as well as political markets.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.178, ch.7)

[W]hen the right elements come together at the right time and place and overwhelm the status quo, it is because special people make it happen. We call them political entrepreneurs.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.176. ch.7)

While we started this book with Danny Biasone saving basketball, we end it with Norman Borlaug saving a billion lives. These stories are not that different. Both faced vested interests, which were reinforced by popular beliefs that things should be a certain way—that is, until a better idea came along.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.174, ch.6)

Because there was a general belief that homeownership was a good thing, politicians found the public with open arms.... Everybody was winning—except Alfred Marshall, whose supply and demand curves were difficult to see through the haze of excitement at the time, and except Friedrich Hayek, whose competition as a discovery procedure was befuddled... In short, once politicians started getting credit for homeownership rates, the housing market was doomed.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.166, ch.6)

Everyone responded rationally to the incentives before them. In short, the rules that guided homeownership changed over time, which in turn changed the incentives of these actors. And bad things happened.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.153, ch.6)

They understood the economics. The ideas had already won in ... the regulatory agency itself. All that remained to be overcome were some vested interests and a handful of madmen in authority.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.146, ch.6)

If the idea for auctions of spectrum use rights had been part of the public debate since at least 1959, why didn’t the relevant institutions change sooner? What interests stood in the way?

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.121, ch.5)

When an academic scribbler comes up with a new idea, it has to resonate well with widely shared beliefs, which in turn must overcome the vested interests at the table. Many forces come together to explain political change, even though it may seem like coincidence of time and place.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.120, ch.5)

It’s the rules of the political game that deserve our focus, not politicians’ personalities or party affiliations.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

Buy the Book
From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.119, ch.5)

In short, ideas are a type of higher-order capital in society. Like a society that is poor in capital and therefore produces little consumer value, a society that is poor in ideas and institutions will have bad incentives and therefore few of the desirable outcomes that people want.

©2018 Wayne A Leighton & Edward López • Web Design by Barrel Strength