Political Entrepreneurs

The Economic Engine of Political Change

The New, Young Philanthropists

December 30th, 2012 by Wayne Leighton

In previous posts (available here and here), we recommended the December 3, 2012 issue of Barron’s for its thoughtful book review of Madmen. Here’s another reason to pick up the issue (and, in general, to be a regular reader of that publication). Check out “The Giving Generation,” which profiles some of the new, young philanthropists who are thinking critically about how to “invest” their wealth to promote change.

The individuals interviewed for this article are in one sense quite different from those at the Forbes Philanthropy Summit, where Bill Gates, Warren Buffet and others in this league talk about their strategies to give away many billions of dollars. These individuals are much younger and are giving away much smaller sums. Yet in aggregate, their philanthropic investments make a huge difference. Here’s the opening paragraph of the Barron’s article:

Unlike in days of yore, when folks waited until retirement before turning into tea-and-biscuits philanthropists, many newly wealthy Americans today are rolling up their sleeves and starting small- to medium-size charitable foundations when they are in midlife transition. Of the 80,000 family foundations in America, 39% are now in the hands of people aged 40 to 49, according to Foundation Source, a major provider of services to smaller foundations. These new philanthropists, the firm says, control a charitable war chest worth some $83 billion, roughly double the firepower of the giant Gates and Ford foundations combined.

What’s most interesting about these new philanthropists isn’t their age or wealth, it’s their approach to finding a philanthropic niche — a place where they can truly make a difference — combined with how they work to be effective in this particular area.

 It’s not the size of the philanthropic assets in question that makes this age group so important; it’s the little-seen intellectual capital its members are building that will be so crucial to tomorrow’s society. As these 40-year-olds keep working, they continue to build their foundations’ endowments, learning by mistakes and fine-tuning their philanthropic objectives as they go…

They are, in short, building efficient and effective platforms that will magnify the impact of their late-in-life largesse 20 or 30 years from now, traditionally that time in the hourglass when individuals let the largest amounts of charitable dollars flow from their estates. For them, the philanthropic sector has become a kind of research-and-development laboratory for workable ideas that can bridge deep social problems with a modernizing economy.

Perhaps it should come as no surprise that a younger generation is placing great emphasis on learning, research-and-development, and trial-and-error to increase their odds for success. Yet as this article makes clear, the world of philanthropy has not always been so innovative.

The questions these young philanthropists are asking tie directly to the issues that Ed and I raise in chapter 7 of Madmen. In short, resources are scarce, even for the wealthy, and there is an endless supply of opportunities to change the world. Figuring out where to invest to do the most good requires thinking like an entrepreneur.

Madmen, Intellectuals, & Academic Scribblers

The Economic Engine of Political Change

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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.

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