How the rich should do with their wealth

From here:
http://www.vox.com/2015/8/12/9140477/google-alphabet-larry-page-charity

"You know, if I were to get hit by a bus today," Google co-founder Larry Page once reportedly said, "I should leave all of it to Elon Musk."

That's admittedly an unorthodox way to handle one's estate. Most wealthy individuals leave their money either to heirs or to a charitable foundation. But as Page later explained, he thought the Tesla Motors/SpaceX CEO could do more good with the money. In an interview with Charlie Rose, Page mentioned Musk's idea of "backing up humanity" by creating a parallel civilization on Mars as an example of an effective way to improve the world through business. "That’s a company, and that’s philanthropical," he said.

In retrospect, now that he's founding Alphabet as a way to keep researching big moonshot ideas, Page's comments seem less like idle musings and more like a coherent theory of how to best use his money to change the world: not by giving it away, but by investing it in projects he thinks could be truly revolutionary.

As the above chart shows, the main factor in whether a country escapes extreme poverty is whether its economy grows. You can see an animated version of the graph covering many years here.

Page's career is premised on the idea that advancing technology through a for-profit company can meaningfully improve people's lives — and indeed, there's a decent argument to be made that, historically, profit-motivated technical advances have helped people more than charity has.

If you look at the major forces of progress in world history, philanthropy isn't high up there. Scientific research and technological innovation, however, are. The most important force in lifting people out of extreme poverty has, at least since the Industrial Revolution, been economic growth, which is boosted by scientific discovery but not by charity. Improvements in life expectancy have been driven both by increased wealth and by medical advances, which are often funded and backed by pharmaceutical companies and other for-profit actors.

Even major charitable success stories stand on the backs of technological and medical innovation. The eradication of smallpox was a major humanitarian undertaking, but one that required the invention of readily deployable vaccines. The Green Revolution — which dramatically increased crop yields in Mexico, India, and elsewhere — was sponsored by the Ford and Rockefeller Foundations, but worked by spreading existing technological improvements in farming to poor countries.

 

Ken Thompson (left) and Dennis Ritchie, who invented UNIX and C at Bell Labs. (The Jargon File)

So let's suppose you're Larry Page. You have billions upon billions of dollars. You feel, as any decent billionaire would, an urge to give back to the world. You could do that by starting a foundation and giving away your money, or you could join Warren Buffett and dedicate your money to someone else's foundation, so you don't have to worry about setting up a totally new one.

But you're not necessarily good at running a foundation, or even at picking the best one out of the existing options. What you are good at is making consumer products. It seems like if you want to do some good for the world, that's a useful skill set to draw upon. Things like Google Maps and Gmail and Hangouts and Android have already made life better for millions of people. Why not do more of that — and do it bigger?

This may not be the most profitable path for Google. But then again, AT&T didn't reap most of the benefits when its Bell Labs researchers invented the laser, or the transistor, or UNIX or the C programming language. Those advances trickled out and made the whole world better. Same goes for Xerox, whose Xerox PARC researchers invented the graphical user interface, which made widespread computer ownership and usage possible, and then saw companies like Apple and Microsoft profit from it while Xerox got little back.

Google's self-driving car; if these go to market, they could save thousands of lives, help end congestion, and improve the world in countless other ways. (Google)

Alphabet gives Page the freedom to pursue those kinds of bigger projects. The reorganization's main purpose is to cleave the core functionality of Google — search, Maps, Docs, Gmail, YouTube, etc. — from the company's more far-out research projects: self-driving cars, giant wind-energy-collecting kites, attempts to radically extend human lifespans, balloon-based wifi provision, etc. By placing those initiatives as subsidiaries of a company, just like Google, Page is signaling that he regards them as peers of similar importance, and suggesting that Alphabet's focus as a company will be just as much on exploring those kinds of moonshots as on improving Google's core business. The self-driving cars aren't a fun hobby supported by the search engine business, in other words. They're an equally crucial part of the business.

Page also frees himself, and Sergey Brin, to focus on those projects rather than on Google qua Google. Page and Brin's time and attention are scarce and valuable resources at Alphabet, and by committing them to moonshots, Page improves their likelihood of success on the margin.

He's also suggesting that he's going to use his own money to enforce a vision of Alphabet/Google as a company that invests in ambitious, crazy-seeming ideas. Page and Brin have purposefully structured Google such that not all shareholders have equal voting power — and so that the minority of shares (only about 14 percent) owned by Page and Brin wind up having a majority of votes. Because Google sells "Class C" stock that has no voting power, it can still raise money from investors without giving up any control.

Page wants Google to be doing more to aggressively change the world. And Alphabet is set up to enable just that.

This releases Page and Brin from any need to pursue share buybacks, pay out big dividends, or otherwise appease investors. Instead, profits can be plowed back into investments, including the long-shot projects Page is so passionate about. This only works, though, if he and Brin hold on to their stakes. If they were to sell them off and give the money to a foundation, they'd lose their ability to force Alphabet to invest in ambitious ideas. But by holding on to the roughly $30 billion apiece in Google stock they own, they can raise many more billions from investors to spend on self-driving cars, wind energy kites, and defeating death itself. They're leveraging their money to get even more money for the charitable cause Page thinks is most important: major, revolutionary innovation.

Page said as much in his interview with Rose, arguing that using his money to influence and benefit his own company was the best method he had for doing good. "You're working because you want to change the world. You want to make it better. Why isn't the company that you work for worthy not just of your time but your money as well?" he asked (emphasis mine). "I mean, but we don't have a concept of that. That's not how we think about companies, and I think it's sad, because companies are most of our effort. They're where most of people's time is, where a lot of the money is, and so I think I'd like for us to help out more than we are."

Page wants Google to be doing more to aggressively change the world. And Alphabet is set up to enable just that.