(Note: This article was originally published on Medium).
On December 1, Mark Zuckerberg and his wife, Priscilla Chan, announced the birth of their daughter Maxine (known as Max). They also revealed their plans to give away, over the course of their lifetimes, 99% of the Facebook shares they own (which carry a value of $45 billion) to the Chan Zuckerberg Initiative (legally structured as Chan Zuckerberg LLC, referred to henceforth as CZI), centered around two broad themes: Advancing human potential, and promoting equality.
Along these lines, Chan and Zuckerberg noted the importance of reducing poverty and improving access to healthcare, the benefits of inclusive communities, the tremendous utility of personalized learning, as well as the need for strong civil rights protections.
CZI set forward several different strategies for achieving these goals. These included making long-term investments in projects with extended time horizons, developing and improving technology to better solve humanity’s most pressing challenges, and engagement with a variety of matters of public policy.
Not surprisingly, CZI has attracted quite a bit of attention, not all of it flattering. One widespread critique focuses on the tax benefits which Zuckerberg and Chan will enjoy through their contribution. As tax attorney Robert Wood noted in Forbes, by donating appreciated Facebook stock to CZI, Zuckerberg will successfully avoid taxes on billions of dollars in stock appreciation and income. These are monies which will never make their way into the public purse.
Jesse Eisenger of Propublica also wrote about this tax treatment critically, noting that if some of Zuckerberg’s billions were collected in taxes, society, through the elected officials who run various levels of government, would decide how to allocate these funds. On the other hand, with CZI, Zuckerberg alone would control fund allocation.
Additionally, Eisenger argues that charitable organizations often fail to direct their money or efforts towards everyday needs like healthcare or infrastructure (usually addressed by government); what sort of impact might Chan and Zuckerberg’s money have if used to solve problems in these areas, rather than the particular issues which Chan and Zuckerberg have the greatest interest in?
Jason Farbman of Jacobin raised similar concerns about CZI, arguing that placing billions of dollars outside of public control “presents real problems for democracy,” as it “gives even more control to capitalists” and places them in “positions to….shape public life for all of us.” Farbman, like Eisenger, also pondered how CZI funds, if collected in taxes, rather than held privately, could impact vital programs like public education.
Writing for the Washington Post, Jeff Guo quoted the German billionaire Peter Krämer, who argued that tax-exempt giving by the wealthy was really “a bad transfer of power from the state to billionaires.” Guo also observed that public spending on social support in the United States was relatively low, while private expenditures, as a percentage of GDP, were rather high. Like Eisinger and Farbman, Guo wondered how such substantial spending and decision-making power by billionaires might lead to “too much power to the rich, whose decisions may not align with what’s best for society.”
These critiques largely overlook the many potential benefits of CZI’s unique approach. By placing a large amount of money in private hands, combined with a long-term outlook and flexible structure, CZI can focus on important undertakings which might not otherwise enjoy sufficient support from either government or private investors, and make crucial contributions towards a better world for all of us.
Let’s consider renewable and alternate energy. Through it’s Loan Program Office, the US Department of Energy has disbursed more than $30 billion in loans to a variety of clean energy projects. Despite prominent, highly politicized failures like Solyndra, it has proven profitable. Still, this initiative was in large part a brainchild of the Obama administration, and at times fiercely opposed by some Republicans. What happens if an administration with other priorities takes office, and decides to scale back on these programs?
Unreliable federal support isn’t an issue just for clean energy ventures. Since 2003, thanks to budgetary wrangling in Congress and the White House, funding for the National Institute of Health (NIH), has been rather stagnant,leading to a 22% drop in the agency’s purchasing power. This situation has grown so dire that more than a dozen medical school deans recently warned that financial challenges, in particular unpredictable federal funding, poses a major threat to the continued viability of “high-risk, high-reward research” and will lead to a “smaller biomedical research enterprise and slow clinical advances.”
CZI, and other similarly structured funds, can provide an additional, extra-governmental structure, in order to ensure some level of basic funding for impactful scientific and medical research. Since just a few people will make ultimate funding decisions for CZI, this organization can provide cover from the ever-shifting winds of funding battles in Congressional committees, which are a constant feature of today’s political landscape.
What’s more, since CZI’s structure as an LLC allows it to make equity investments in for-profit firms, it will enjoy the flexibility of using several different methods for backing a venture (either debt or equity investments), something which government and traditional nonprofits can’t really do. This could, in some cases, lead to profits which CZI could reinvest in it’s general funds, growing it’s base, and supporting additional worthwhile endeavors.
Given their stated interests, there is considerable reason to believe that Zuckerberg and Chan will fund the types of initiatives normally backed by the NIH, Department of Energy, and other government agencies. As ever more wealthy people give to philanthropic avenues (in part thanks to the The Giving Pledge), we can reduce the impact of governmental gridlock on technological progress.
CZI also opens up funding for the sort of innovation and discovery which can take decades, and offers at best uncertain payoffs. In recent years, the interval between an initial venture capital investment in a company, to a successful exit (that is, an IPO, or acquisition by another firm), has averaged around 7–8 years. What’s more, a large portion of these investments have been heavily concentrated in areas such as software, media and Internet-specific businesses, which sometimes carry a relatively shorter investment horizon.
Yet, private investment in areas like clean technology, with it’s greater technical uncertainty, and longer timeframe, has often been rather anemic. Venture capital firms, which are judged on the basis of annualized returns to investors, are understandably hesitant to commit large amounts of capital to technically challenging, sometimes decades-long propositions, especially if more conventionally attractive opportunities are at least sometimes available.
What’s more, not every socially valuable undertaking is financially profitable. Can we really expect profit-driven private investors to pump billions of dollars into funding long-term innovations which assist poor farmers, or to back large-scale, decades-long efforts to fight disease in impoverished regions?
As noted earlier, government funds, which are disbursed solely at the discretion of elected officials, are at best a questionable source of stable funding, for long-term initiatives with uncertain final outcomes. Much of today’s US Congress will look askance at directing taxpayer dollars towards such efforts.
This leaves us with organizations like CZI, which has stated it’s intent to support extended-horizon, high-impact investments, which carry some degree of financial risk. Chan and Zuckerberg view such endeavors as a vehicle for solving our greatest challenges. There is much good that could come from backing ambitious, lengthy initiatives in bioengineering, renewable energy, global health and farming.
Eisenger, Farbman and Guo all seem to fear that the creation of a private entity like Chan Zuckerberg LLC could lead to concentration of power; that is, just a few rich people (Zuckerberg and Chan) would decide how to allocate their organization’s billions, as compared to a democratic government, where elected officials collectively decide how to direct public monies. Over time, the theory goes, this would allow CZI and similar organizations to gain more and more clout, often at the expense of elected officials, who were chosen by the American public.
Rob Reich of Stanford University offers a compelling counter to this line of thinking. Reich notes that private, profit-driven firms aren’t very effective in providing public goods (that which any member of society can potentially use and benefit from, whether or not he or she individually paid for it, including parks, public education, national defense and the arts). Government, which marshals considerable financial resources, and facilitates collective action, is often far more effective in this arena.
Yet, Reich argues, production of many public goods tend to reflect the preferences of voters. As an example, if citizens tend to favor funding for police over the arts, then more dollars will flow towards the FBI and local law enforcement, and less towards the National Endowment for the Arts, or smaller creative organizations. Yet, foundations can counter this trend, by providing alternative public goods, which are of particular interest to a fund’s backers.
An individual philanthropist who backs research into a particular disease, or who cares about supporting modern performance artists, or agitates for the expansion of a promising, creative approach to math education, can fund such causes, even if government lacks interest. As a result, an increasingly diverse array of public goods will be produced, which, as Reich puts it, will “decentralize the definition and production of public goods” and help ensure “pluralism” and temper “government orthodoxy.” CZI can play an important part in this process.
We can find examples of this idea in today’s philanthropic landscape. Elon Musk, Sam Altman and several other prominent Silicon Valley investors recently announced the creation of OpenAI, a nonprofit venture which will direct as much as $1 billion in funding towards transparent, open-source artificial intelligence research, with a goal of preventing artificial intelligence from being exploited by those with ill intentions.
It’s difficult to imagine such an undertaking receiving much government support at this time, however beneficial it might turn out to be in the long run. Yet, the presence of nongovernmental sources of funding,, helps make such ventures possible, and creates a range of approaches to understanding and addressing the needs of society.
To be sure, the United States, like every nation, needs a functional, effective and fair government. This demands sufficient tax revenue, allocated equitably amongst the nation’s population. There are clearly aspects of the US tax code which disproportionately benefit the very wealthy, and so ought to be reformed, in order to function more equitably. Inequality is at historically high levels, and while it’s causes are hotly contested, Neo-feudalism is hardly a promising path forward into the future.
Yet, in a world where American corporations hold over $2.1 trillion in offshore tax havens, and Warren Buffett apparently pays a smaller portion of his income in taxes than his secretary, should the tax implications of Mark Zuckerberg’s philanthropic efforts really be the focus of such ire? Large-scale ventures like CZI can have a substantial positive impact on our world, often treading where government and private industry won’t. Viewing CZI and it’s counterparts as simply lost tax revenue is shortsighted. If favorable tax treatment encourages the growth of such ventures, that’s a worthwhile price to pay.
CZI offers a new, important source of backing for many promising initiatives that often don’t enjoy enough support. It compliments, not undermines, the role of a democratic government (and some private, profit-driven firms) in building a more livable world. We should stand behind such endeavors, and be supportive of their growth and success.
