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For-profit charities?
Google is walking down this path:
The ambitious founders of Google...have set up a philanthropy, giving it seed money of about $1 billion and a mandate to tackle poverty, disease and global warming. But unlike most charities, this one will be for-profit, allowing it to fund start-up companies, form partnerships with venture capitalists and even lobby Congress. It will also pay taxes.
One of its maiden projects reflects the philanthropy’s nontraditional approach. According to people briefed on the program, the organization, called Google.org, plans to develop an ultra-fuel-efficient plug-in hybrid car engine that runs on ethanol, electricity and gasoline.
Here is the full story, and look for more of this model in the future. As wealth grows, and many large benevolent ventures do not need to fundraise, their will opt for more flexible organizational forms. Of course if these activities turn a profit, Google shareholders can take the profits home as dividends. So some of these activities will be normal corporate investments, dressed up as "for-profit charity" for public relations purposes. Here is Eric Posner on for-profit charities.
Posted by Tyler Cowen on September 14, 2006 at 12:59 PM in Economics | Permalink
Comments
eBay has been doing this sort of thing for years. Look at it's microplace and ruralartisan products. These are essentially for-profit charities.
Posted by: Andrew at Sep 14, 2006 2:01:00 PM
The article states clearly that there will be no "blow-back." That is, any
profit from Google.org *won't* return to Google. So it's incorrect to say
that Google shareholders will profit from this new for-profit charity.
Posted by: Cardinal Fang at Sep 14, 2006 2:56:03 PM
George Will has a good article today setting out the facts about Wal-mart's contribution to the poor. Wal-mart's customers, primarily low-income, save $200 billion a year by shopping there. This is more money than any charity or government program provides to the poor. Of course that government largesse is provided at others' expense and at the expense of the economy as a whole. And Wal-mart makes money. Lots of it. So Wal-mart is living proof of the most compassionate and effective mechanism possible for getting money to the "underprivileged" and helping them live better - capitalism.
Posted by: Robert Speirs at Sep 14, 2006 3:41:37 PM
Having been involved in the startups of both for profit and non-profit enterprises, I think a for profit charity is a good idea if it's controlled by an individual (not a public company) that is absolutely committed to maintaining it as a charity.
The three biggest tax advantages that non-profits typically have may not be worth the disadvantages of operating an enterprise as a non-profit.
Income taxes are not much of an issue- you can simply run your for profit charity at a break even point. Not having exemption from property taxes would not be that significant as this sort of charity would probably tend to have untaxed financial assets rather than taxable real assets. And donors could probably still get their deductions in the form of operating losses as limited partners in specific ventures rather than as charitable donations.
The big downside is the integrity of the owner. Craig of list fame has so far declined his opportunities to cash in on his creation, but how many and for how long can others do that? Any person or entity that controls a successful for profit charity will always face constant temptation to cash it out.
It would seem a public company like Google should have to lay all of its cards on the table about this plan and should possibly even put it to a shareholder vote. Not necessarily as a matter of law but as a matter of equity. If they want to run a different kind of company with objectives other than maximizing shareholder value, that needs to be fully disclosed.
It could enhance overall profitability for a company to fund a for profit charity- just in the PR value, but it could also make for some of the most convoluted legal battles ever as the motivations of the shareholders and other stakeholders become as varied as the activities the "company plus charity" engage in. This is probably a disaster waiting to happen as the company will lose focus trying to save the world and lead in business at the same time.
If Brin and Page are ready to save the world, they should quit Google, fund their for profit charity, and get on with it. If they want to farm it out so they can continue to focus on Google- they can find someone they trust with their money. I would trust the venture much more if funded and led by an individual than I would trust in Google or any other public corporation. The success of the charity venture is ultimately dependent on gaining the trust of people to get involved with it at every level, not the legal detail of profit or non-profit. The big problem with a for profit charity is that people, with good reason, do not trust for profit enterprises.
Posted by: Tom Kelly at Sep 14, 2006 9:55:20 PM
Tom Kelly-- It's safe to say that if Larry Page and Sergei Brin want to do something,
it would easily pass a Google shareholder vote-- because between the two of them,
Larry and Sergei control well over 50% of the votes. When Google went public,
they made it so the initial shares (owned by Larry, Sergei and other Google
employees) were class A shares with 10 votes each, but when a share got sold
it was converted into a class B share with 1 vote.
Posted by: Cardinal Fang at Sep 14, 2006 10:03:11 PM
There is no such thing as a for-profit charity. If its profitable, its not a charity, its a business. Its just that these left wing nuts are selling do-gooder feelings, and nothing really tangible or productive at all. The word charity is just standard misleading advertising jargon. Selling feelings, sort of like the religions of old (and some new).
There is a great way to redistribute wealth that the left wing is simply ignorant of. Its called work. Productive work. But I guess for the innovators of nothingness and feelings, that's too close to reality for comfort. They are sooooo left wing, but they don't want to lose any money! Hahahahahaha! Typical liberals.
Let the real automakers invent the cars, guys. Stick to kissing the Chinese communist censor's asses and peddling your increasingly worthless software ephemera. Leave the real work for the real engineers.
Posted by: B at Sep 14, 2006 10:20:00 PM
B is right. Gee, Google's creating a business to make a car. What losers--they think they are going to be good at making a car. Uh huh.
The "for profit philanthropy" as described by N Y Times has, it appears, zero to do with the "for profit charity" that Eric Posner wrote about.
Posted by: anonymous at Sep 14, 2006 11:13:59 PM
H.L.Hunt once said, "If this country is worth saving, it's worth saving at a profit."
Posted by: Bill Conerly at Sep 16, 2006 12:29:41 AM
I'm glad google is trying an experiment. But "for-profit charity" probably won't quite work, because of the competing claims on the bottom line.
I suggest an alternative:
An Employment Maximizing company. Set up like a normal company, to pay taxes on profits -- but using all revenue to constantly hire new people.
With the managers in charge of the firm being incentivized by higher pay for hiring more workers (hire pay!).
"Poverty ends when everybody in the world has a job. People and jobs are countable. To reduce poverty, hire a poor person."
Posted by: Tom Grey - Liberty Dad at Sep 20, 2006 12:55:10 PM
I operate my business, My Misfiring Mind Inc., for-profit, but I have charitable motives. I write, tutor college students and advise businesses on how to produce effective and ethical publications, (newsletters, magazines and such.)
My Misfiring Mind Inc. pays me nothing. I get an $890 per month pension. Out of that, I pay for my one-bedroom apartment, groceries, et cetera. Frugality makes for simplicity and more free time.
I let the profits accumulate inside the business for expansion. From that, the company gives micro grants to local entrepreneurs to start small businesses. Most recently the company invested $1000 in a local man's food vending cart that sells killer tri-tip sandwiches, ribs, fried catfish, and so on in front of an incredibly busy DMV office. Again, simplicity. He now has a profitable business and a good living. A hot dog stand wouldn’t stand a chance there now. My Misfiring Mind Inc. also donates money to local charities that I feel make the most impact in the community.
My point here is that a for-profit business with charitable ambitions can get a lot more done by simply being a profitable business without the restrictions placed on non-profit, tax-exempt organizations. My company has never asked for a donation; I never ask for money for nothing. If someone gives me money, it is because they bought something worth the price. The profit generated from that sale gets passed onto local causes that I trust, such as the group home that I lived in when I was a delinquent teenager. As for tax-exempt status, to hell with it. It’s way too complicated, and I wouldn’t be able to get much done if I had to keep track of it. Also, I don’t want to share the decision making. I have no need for the energy-sucking political egos that come with running a non-profit that has a board of directors.
Posted by: David at Dec 9, 2007 10:09:01 AM
The concept of doing business for social purpose has existed informally for centuries. A decade before this Google initiative an American by the name of Terry Hallman distributed a whitepaper advocating the total abandonment of the nonprofit model in favour of profit for purpose. It was written during his time as an honorary researcher for the Clinton re-election committee and a synopsis will be found on www.p-ced.com.
In 2004 a similar model was adopted in the UK as the Community Interest Company.
In the world at large it is often misunderstood, sometimes creating a hostile response and in one case, a politically inspired smear campaign which ironically is hosted anonymously by Google on their blogspot medium.
Google will not act against the defamation and have censored me from revealing the identity of the author.
Between 2000 and 2005 with Hallmans own funds being used to leverage US funding this model was applied to create a successful micro credit bank in Russia and it now forms the basis for Hallman's latest work entitled "Micreconomic Development and Social Enterprise: A 'Marshall PLan for Ukraine".
To my knowledge, this is the only 21st century 'Marshall Plan' for which a plan actually exists. It proposes a radical reform of childcare at nil overall cost over 5 years.
Jeff Mowatt
Posted by: Jeff Mowatt at Jan 4, 2008 7:00:00 AM
I am a relief worker of over 10 years experience and in all the projects i have worked with in NGO. NNGO, IGO the vicious cycle of dependence on donor funding to sustain community or social projects is nowhere near in sight.
Thus this approach to social business enterprices or FOR PROFIT Charities is the answer to self reliance of many of these projects.
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