"Do something like donating to charity, but the donation should go to charities that promote capitalism somehow, or be an investment in companies doing charitable things (impact investing)"
One interpretation of this is that donating to the Grameen Bank is better than donating to the Heifer International.
Capitalism can't beat charity, which is why it must have taxation. And the desire of the top-most capitalistic winners to avoid taxation is, in my opinion, just evidence of this.
I do think you're saying "couldn't we just vote with our dollars" and while we can, if those dollars are funneled into an investment / holding for a rich person the effort is moot. These winners still get the dollars to tip the vote however they wish.
IMO the only way capitalism works is if the money moves around, and currently we have a lot of people keeping the money in big puddles. A stream only works when it's flowing. Same with capitalism. Again, IMO and IANAD(octor or economist).
As the resident Objectivist bore, I'll just note that Scott's completely right here.
The real criticism is that we have a society that thinks charity is superior to production. But you cannot give away anything that hasn't been produced. And capitalism is the only system that allows production, so it is the only system in which charity can flourish.
> Compare this to a good charity, like GiveWell’s pick Dispensers For Clean Water. If I understand their claim right, per $1 million they can give 50,000 people clean water for ten years, which would probably save about 1,500 lives.
Honestly surprised by the lukewarm thoughts on strategy 3. I haven't done a tenth of the charity research Scott has, but I remember reading about efforts like the Gates foundation basically acting like a super generous bank for small farms in developing countries. Offering loans with good terms, and making a commitment to buy grain at a certain price to protect the burgeoning market from price shocks. That sounds like a good way to set up a much needed industry in the absence of credible local banks and other institutions. Is there some bit of research that indicates this isn't very effective?
I don't know about supporting capitalist charities (and I don't think I feel quite as bullish on capitalism for various reasons) but I think a different strategy to consider is 'investing' in (or donating to) charities that also operate in the market economy. Nonprofits make up 6% or so of GDP and there are many interesting nonprofits that have sustainable revenue, allowing them to re-invest in more work 'for good.'
The value of capitalism isn't the "second order effects" so much as the cascading-indefinitely effects. It's the "give a man to fish" vs. "teach a man to fish" principle. While I in no way wish to denigrate the value of saving lives with better water... once you do that, then what? You have people who are alive, and still in the same situation they were in before.
The value of capitalism is that it elevates entire civilizations to a higher state of living. There's a reason why stuff like water dispensers to save lives are going to developing countries with no market economy: *in capitalist nations, there is no need for such things in the first place.* The equivalent work was baked into our basic infrastructure long ago.
Seems to me that one of the best places to invest, then, would be in research to figure out why the "charities that send economists (or other professionals) to developing countries and advise them on how to do more capitalism" were ineffective and how to do it better.
The obvious way in which personal market spending could do more total good than charity but charitable spending could do more good on average would be if charitable spending were much less than market spending. As charitable donations make up only 2% of US GDP, the conclusions here aren't at all surprising.
Comparing capitalism to charity seems like comparing chocolate to Mozart? They're not comparable. One is an economic system, the other is a personal choice. Capitalism applies to a society - you live in a capitalist system, or a non-capitalist system, and your personal ability to choose which system to operate under is pretty limited (short of moving to another country). As for charity, you can choose whether to give, and how much (and, of course, where), independently of the choices of anyone around you.
So I don't really understand how "does capitalism beat charity?" is even a well-formed question. To put it more sharply: on *what metric* are we asking whether capitalism beats charity?
I suspect the "right answer" is to provide capital to the malaria pharma company or well builder which are just below the point where they would be profitable enough to get investment.
I have no idea how it would be possible to evaluate that.
This fails to engage with the actual argument of the social enterprise movement. The argument is that there is an irrational aversion to profitable activity among people who seek to do social good. Largely, in my opinion, due to ideological anti-capitalism. It is not that maximizing returns is the best use of money at all times or that we need to go around preaching the gospel of capitalism.
To give you a simple example, Foodhini is a for profit company that takes various refugees and has them make their regional cuisines then sells them in an Instacart or Uber Eats like model. It's a profitable company but it also does significant work to help these people get on their feet. Whether that's services to make sure the work is legal or helping them set up restaurants (which in turn profits Foodhini in various ways).
The argument is this is better than just giving them money or funding classes to help them integrate and that you should direct money toward this type of cause rather than charities that rely on constantly receiving a stream of donations. The model of constantly asking for money or grants to sustain the charitable activity is (according to the argument) supposed to be a last resort, not a first resort.
If that's not third world enough for you there's companies that help deploy limited resources to repair potholes in Central Asian roads (which the government is happy to pay for because it saves money), a company that makes water purifiers that it sells in Africa (while donating a significant number to poorer villages), a company that provides cheap industrial milling into certified gluten free flour for poor farmers, and so on. You also have non-profits that are 'profitable' in the sense they make enough money from standard business to operate like Ten Thousand Villages.
These are often not strictly the most profitable thing that people could be doing with their time but they both serve a social good AND they're profitable and therefore self-sustaining, able to raise investment, and don't need to spend nearly as much time asking for funds. That's the argument.
To be honest, I haven't heard a good counterargument. Which is one of the main reasons I'm backing this horse instead of EA.
I always thought the capitalist argument was that, thanks to compound interest, if you invest your $1 million now, in 30 years it will be $1 bajillion, and thus will fund much more charitable activities. To put it in terms of your #2, invest in companies that produce the highest rates of return, and this will produce more surplus value in our national economy, and in the long run will create a wealthier society that can spend more on philanthropic pursuits, some of which will be determine by you, since you now have more surplus, too. You have to balance that against whatever discount rate you want to apply, obviously, which, ya know...starving children probably have a pretty high discount rate, so I don't consider this an easy question to answer.
Why don't the villages have clean water dispensers? Is there an issue preventing their inhabitants from prioritizing clean water? If they don't care about it, fix that. If they do care but can't afford it, fix the problem where they have no jobs to earn enough money to buy clean water dispensers by investing in local companies to those villages.
"And it saves its customers time, which they can spend on productive economic activity." - I think this is close to the actual reason why Capitalism is Good. Expanding and generalizing a bit: capitalism creates material abundance, by allocating scarce resources extremely efficiently.
You write "On the other hand, saving people’s lives allows them to engage in productive activity too." But the question is how much productive activity? People abject poverty are for most part deeply unproductive (in the capitalist sense, not in any moral sense). It is at least plausible that saving an hour of some silicon valley engineer's time today via Instacart creates more total economic surplus than the result of saving some poor kid from malaria (after applying some discount rate to future value). Arguably, the fact that morally neutral hypercapitalists seem more interested in investing in Instacart than in saving poor kids from malaria is evidence for exactly this claim.
Fortunately, I'm not a utilitarian, so I have no problem just donating to charity.
Instacart's service isn't free after the $100 subscription - while you may no longer pay a per-order delivery fee, they continue to extract value through upcharging you on the cost of the groceries themselves (an item which costs $2 in-store costs $2.10 or $2.50 on Instacart), charging a percentage of the revenue to the retailer itself (so even if the price is equivalent in-store and on Instacart, Instacart charges a few percentage points of revenue to the retailer for the customer traffic), charging the retailer directly for providing services (most notably with smaller retailers, where Instacart may pick the products from the shelves, provide the back-end of the ecommerce platform, etc), or some combination of all of the above.
In all cases, the value extracted by Instacart far exceeds the stated fee that they charge you (either per-order or as a subscription), and you end up bearing it in one form or another at the end of the day. It's an interesting experiment to buy the same basket in-store and on Instacart at a retailer where the prices are NOT equivalent - often you'd surprised at the premium they're charging you for convenience. Certainly worth it for a segment of the population and a segment of retailers, but there's a reason that most retailers of scale are moving towards bringing the services formerly provided by Instacart in-house and figuring out ways to monetize it themselves - it's a frighteningly expensive proposition when you lay out all the costs end-to-end.
Obviously capitalism is the dominant mode of production in our world so it has a much stronger effect on things than charity. So when compared to charity it has some very big positives, but also some very big negatives. By all accounts the US seems like very unpleasant place to live for a large proportion of the population, undoubtedly for someone who is forced to take a “job” (or are they a self-employed contractor with no benefits) for instacart. Doesn’t instacart also contribute to social isolation and all the problems that causes?
My point is not to say capitalism is wholly bad and we should stop producing hospitals and vaccines and clothes and live in the woods, but that although it’s the main form of production currently it could be changed and improved, and money could be better spent doing that rather than blindly reproducing the current system
Scott, I'm not sure your comparison between charity and investing in companies is a good one.
For investing, I would pick an exchange traded index fund. For the charity equivalents, I would pick whatever top charity GiveWell suggests.
I think the charity you did pick is very similar to what my method would suggest. At least in terms of impact.
But the investment is different. Mostly because it's much easier to load up a S&P500 portfolio with leverage than to do that for a single stock.
If our goal is to have the biggest economic impact, we should use the amount of leverage that maximises something like the Kelly criterion, I guess. As a rough guess, it's probably 2x to 2.5x. (Diversification allows more leverage. Leverage doesn't create more capital to invest in the economy. But it sort-of transforms risk-averse capital into at-risk capital. The latter can be a lot more impactful.)
About the impact on jobs: you are right that in a reasonably well functioning economy, Instacart doesn't create jobs.
It's all about opportunity costs and substitutions.
Without Instacart people would still be able to buy groceries, just slightly less convenient.
Similarly, without Instacart the people now working their would have slightly less nice jobs on average. Instacart also bids up the wages all across the economy. It's all about equilibria.
(It's the same as when you explored a few years ago why Switzerland has more expensive haircuts than Turkey, even though hairdressers are presumably just as productive in both places. It's all about who else is competing for their labour.)
The charitable version of capitalism is GiveDirectly. It's just like buying things for yourself but the first person to spend the money is someone else.
It seems to me that you are confusing donation vs investment.
Yes, you try to address that in your Return on investment point, but this:
> ... but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so.
Definitely isn't correct.
There is no "amount you donated" in the Instacard example. You made money! In the case of charity you lost money! Discounting this with VC discounting rate doesn't solve anything?
Is there anything preventing you from investing into Instacard, making wagons of money and then donating into charity? How do you know that this is worse than just donating to charity?
There is a way to know. In theory, at least. The correct approach would be:
1. Take Instacard and calculate discounted cash flow + discounted externalities and come up with ROI.
2. Take your favourite charity and do the same. Yes, there is no cash flow but you are presumably making up for this on the externalities front.
I think this argument is nonsensical because money donated to charity eventually ends up back in the capitalist economy anyway the difference is what gets consumed along the way. If I donate $1 million dollars to the charity that builds wells that charity will then spend that on things like the materials to build wells, the capacity to ship those materials to the locations they need them, paying the people who build the wells etc. all the supposed second order benefits you would get from the money being spent in the capitalist economy would still happen since its still getting spent.
Would be interesting to run through the thought experiment with investing in options with huge asymmetrical upside. Put the 1m in a vc fund. Maybe that all gets lost in a crypto scam. Or maybe you marginally help research for a vaccine that saves millions. Not sure what that tradeoff look like.
Charities are only possible because existing systems of production/management (Capitalism being a piece) allow excess resources which can be donated. Charity outside the family is rare in resource constrained environments. Proponents saying "Capitalism is better than Charity" are right when it comes to outcomes but that doesn't really help short term decision making if you want to send money to one of those options. If I had to choose a society with no Capitalism but with Charity or vice versa I would obviously pick the latter but that isn't the question here.
If your goal is to maximize lives saved then the water charity will clearly be better than the Instacart option. The water charity cheaply saves lives while the Instacart option furthers and improves the current Capitalist system but its effect is so diluted it is impossible to measure the incremental benefit.
Also, there are several economic misunderstandings in this post but the most prominent one I will point out is when you say, "...existing rich countries will out-compete them ..." - it is pretty common knowledge that in global capitalist systems less developed countries have a competitive advantage when it comes to wage demands which encourages companies to go there and set up production...ultimately raising the living standard in said country. See China, India, Vietnam, Taiwan, Mexico, etc.
Whereas I agree that capitalism is somewhat better than charity, I don't see the world as black-or-white.
What I miss among your list of options is:
4. Start / invest into a business that will (profitably) solve the problem your charity is trying to address.
If the problem is real and can be solved by a business, then a business solution will be permanent and self-sustainable, whereas charity will be just a sink-hole relying on more and more charitable donations every year.
The thing that immediately jumps to mind for me is not your #1-3, but an obvious #4:
4. Start or join a company that provides or improves upon the good or service about which you most care.
Your 1-3 all work via aggregate effects, rather than directly. But there's no reason to limit your thinking to such aggregate effects when thinking about capitalism. One can engage in direct action to bring about targeted effects. That's what founders and early employees do all the time.
Possibly relevant: One of the amazing things of capitalism is that it works (relatively) well despite the involvement of many selfish and/or ignorant actors.
You are intelligent and well meaning. It would not surprise me if you outperform the "charity market" (for example by giving to GiveWell). The majority of charitable donations of course go to things that aren't even clearly a net positive. (I.e. promoting a favorite sport/church/political party etc.)
The question I think deserves engagement is whether you should give money to GiveWell top charities or just give money to poor people via something like GiveDirectly. For the most part, the former appear to be producing private (i.e. rival, excludable) goods for very poor people, and then using spreadsheets to argue that those goods do much more "good" per dollar than the things those very poor people would buy ("from capitalism") with a marginal dollar. These arguments are usually somewhat plausible at the object level, but the poor people in question are probably the experts on their own needs (but don't have so much time to make spreadsheets to pitch charity evaluators). And they seem to often have very high return investments available (e.g. buying a cow or a metal roof that doesn't need to be replaced every year), at least according to the spreadsheet-mongers on the GiveDirectly side.
Isn't it kind of plausible that the best way to spend money to make a particular very poor person better off is to give them that money to spend however they want? That capitalism works well enough to provide for their needs once they have money to spend? Isn't that the approach that treats them with the most dignity and respect? Are the object level arguments of the "good charities" sufficiently convincing to overcome this presumption, when you take into account the "multiple comparison" problem that in picking the "best" charities you are magnifying any sources of error that went into evaluating them?
Change my view, it might redirect $1M or so this year.
The problem is that you're looking for charities when, conceptually, what you are talking about is development finance institutions (e.g., the U.S. International Development Finance Corporation).
There are all sorts of mission-oriented specialty financial institutions, including not-for-profits, which issue loans at below-market rates for 'good causes'. On the domestic side of things (in the US), you could be talking about CDFI Fund lenders or green banks. These get their funds from grants, government programs, and traditional banks which are incentivised to provide capital at below-market rates courtesy of things like the Community Reinvestment Act.
> but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so.
What discount rate are you using? This is probably the single most important question when comparing your options.
If you pick something low (like a 2% real rate), the expected multiplier of getting an S&P500-historical average return diverges to infinity the longer you keep doing capitalism with the plan of donating later (even if you assume the companies capture literally 100% of the value they create in the meantime and have no net positive effect on the rest of society).
If you pick something high (like 8%), you avoid that problem, but you also invalidate much of the reasoning for caring about long-term climate impacts of CO2 emissions (which is based on low rates in the 2%-5% range), and other similar issues. And there's now a question of whether you should borrow against all your future donation spending at $DISCOUNT-1% in order to spend it now and do more good by your own metric.
> Compare this to a good charity, like GiveWell’s pick Dispensers For Clean Water. If I understand their claim right, per $1 million they can give 50,000 people clean water for ten years, which would probably save about 1,500 lives.
Suppose the charity does not invent the equipment to purify water themselves, which I presume is the case, they must buy it from a for-profit company who can offer it at price X only because of innovation and market competition, without capitalism none are possible.
Without capitalism the basis of wealth creation, effective charity will not be possible.
I actually think it's not your Instacart example choice that's bad for this thought experiment, but your clean water charity. I myself donate to water charities because they seem to me to provide the same kind of benefit that capitalism does -- so it's not a good example of the ways capitalism can be superior to charity. The water charity allows more people to live in a place, which is one of the preconditions for "people consensually doing useful things for each other" -- which is the inner Venn lemon of both charity and capitalism. (Modify it to "people consensually doing useful things for each other, out of the goodness of their hearts" and you get charity. Modify it to "people consensually doing useful things for each other, in exchange for money, according to market price signals" and you get capitalism.)
For a clearer thought experiment, use a charity that just does something useful, instead of one that does something useful and also creates the preconditions for people to do useful things. Then the contrast with capitalism (and with the State) will show up more clearly. I actually think charity is usually superior to capitalism, but for completely separate reasons.
The Copenhagen Consensus Group of economists rates various charitable and miscellaneous initiatives and intriguingly has a runaway first place item that breaks the charts. They say money spent on free trade negotiations pays off at 1000-1 with the larger proportional benefit recieved by the lower income countries involved
However it's difficult to personally spend money on free trade negotiations, and might rather be a bigger focus in terms of political capital and in the opportunity cost of not promoting freer trade in some way while doing other charitable or capitalistic things
Folks have mentioned business-aligned charities, but another option if you want to "give money to capitalism" in a way that would theoretically be helpful to folks in poor countries, you could just buy in some emerging markets mutual fund and continuously re-invest the profits. Similarly, you could lower the cost of borrowing by buying up corporate bonds from similar markets.
I think you are too quick to brush aside the criticism that instacart is a bad example. Capitalism works because it incentivizes production and innovation. It also incentivizes corruption and rent seeking which is unfortunate but seems to not be significant enough in most societies to cancel out the good from production and innovation. Instacart does have a little innovation, but it doesn’t look profound to me and so I’d mostly call it rent seeking.
"Charity vs. capitalism" is indeed a category error. You make various consumption choices with your income (and also have a savings/consumption margin). Apparently one of your favored consumption attributes is utilitarian/EA (I don't keep up that closely with all the inside baseball, here, I'm afraid), so you like to donate to things that you believe help lots of people a lot per dollar donated.
It's entirely possible that there are hidden "altruistic" or "benevolent" impacts from your non-donation consumption choices that do more good to more people than direct donations. Quite likely, however, is that these are perverse "Fable of the Bees" type effects that run counter to what most people think of as "altruistic." For example, if you buy products that include imported cobalt (lots of electronic stuff has this element), it is often mined by desperately poor children who queue up and even pay for the opportunity to go into open pits and scoop it up with their bare hands. The fact that they are willing to queue up and even pay strongly suggests that their next-best option is truly horrible. An incremental increase in demand for cobalt will probably raise the incomes of desperately poor children in the aggregate, so your purchase of an item containing cobalt is a contribution toward their welfare.
On the other hand, ostensibly benevolent charitable endeavors, even when pursued efficiently rather than wastefully, often make matters worse in the long term via perverse incentives that they create. A number of serious thinkers and observers (Bauer, Easterly, etc) have noted that the on-the-ground effects of foreign aid are often destructive of local markets and local governing responsibility. One needn't look at extreme situations such as the Gaza Strip, where foreign aid propped up a vicious and oppressive terrorist "government" that was able to ignore the productivity of its society because of this inflow of external resources. There are third world governments all over the place that have been relieved of all responsibility to allow for a flourishing economy because they don't need to extract surplus via taxes from their population, instead battening on charitable giving from abroad. In that sense, a piteous population that can attract foreign aid is a version of the "resource curse."
Since we like prediction markets so much, why don't we allocate charitable giving according to prediction markets? But one of the big challenges of prediction markets is phrasing the questions correctly. In this case, the most difficult question is what recipients actually consider most beneficial to themselves. We might think that charity should be judged according to lives saved or homes built or whatever, but isn't that a very paternalistic approach? Shouldn't the recipients get the main say here? So maybe the recipients should run a prediction market to decide what would be best to receive, while we should run a prediction market to decide how best to give it. But it doesn't make sense to have two separate markets, so let's combine the markets or let them predict each other.
And that super combined prediction market for allocating charity already exists. It's simply called "the market". That's what the market system is meant to do. It lets us most efficiently spend and invest resources toward production in the way that consumers communicate (through their spending) is most valuable to them.
This isn't about "capitalism", which is separate from markets. (Communist and socialist countries also have markets for goods and services, they just refuse to use them for *investment* because they believe the resulting means of production should not be privately owned.) It's purely about the power of markets to elicit, communicate and process information about the preferences of consumers and the limits of producers in the most efficient way. If you think prediction markets work better than other ways of aggregating information, then you should think that just spending your money as the market naturally incentivizes you should also work better than other ways of deciding how to benefit others with that money.
Magette Wade says that Africa is poor because of bad business laws, which kill capitalism before it can generate prosperity. She wants capitalism for Africa, instead of charity. see: https://magatte.substack.com/p/why-is-africa-poor So perhaps investing in her is a good idea.
The casual mention of the dairy industry as a core type of capitalist enterprise hints at another key drawback of capitalism: it doesn't necessarily promote absolute welfare, but the welfare of citizens with money (weighted by how much they have). The welfare of this subset can often be increased by arbitraging away the welfare of others, like dairy cows and their prematurely separated calves forced into ever-tinier pens and more-miserable conditions by capitalist farmers competing with each other to provide consumers with ever-cheaper milk.
If you believe the world is on a trajectory towards more and more of the world living under systems resembling rich countries' capitalism, it's a smart move to work on stably improving the total welfare of all human and nonhuman creatures (weighted by speciesist bias if you insist) under systems like these: animal welfare regulations when they outweigh the marginal interest of consumers in cheap animal products, social safety nets when the outweigh the marginal utility of money to the relatively rich, etc.
Suppose Instacart had never been founded. Then people would spend whatever money they now spend on Instacart on something else (let’s say booze and porn), which would also create jobs (for brewers, bartenders, and porn stars). There’s no particular reason to think spending the money on Instacart creates more jobs than spending it on those other things would.
If you believe this, then you don't believe any economy can ever grow, barring the introduction of some kind of utterly disruptive consumer good/service that doesn't have any conceivable substitute.
I was glad to see the EA Intervention Report on Charter Cities but it was limited by the fact that it was written by non-expert outsiders. Mark Lutter's response is much better informed than was their write up.
Regarding the widely varying success of SEZs - Read Lotta Moberg's, "The Political Economy of Special Economic Zones." Tl;dr privately financed zones are more likely to be successful than are crony capitalist, politically-motivated government financed zones, plus a lot more nuance worth reading for serious SEZ students. Moberg and Lutter are two of a handful of scholars who have done dissertations on zone related issues. The EA report was not informed by Moberg's research, thus they did not understand the political economy dynamics of different types of zones.
Insofar as one of the core conclusions of the "Intervention Report" was "economic development and reform zones," the actual work done by Charter Cities Institute and others in this domain do, in fact, work on a variety of zone-based reforms. The Romer-esque version of a "Charter City" was to some extent a straw man for what should have been a deeper dive into the global movement of zones with distinctive law and governance.
Thus several of their conclusions were sensible - but should have led you to increase your support of the Charter Cities Institute (CCI) rather than question it:
"Charter cities are expensive to build and take a long time to come to fruition, so if your focus was on the value of information, it seems likely that you could more cheaply and quickly generate this by focusing on alternatives which do not require you to build a new city, such as economic development and reform zones."
Hello? Much of CCI's work is towards what are de facto reform zones rather than grandiose Romer-esque Charter Cities - and that is the way they should be working.
There is a global movement towards zones with distinctive law and governance (precisely because it is widely recognized that bad institutions limit economic development). The Charter Cities Institute is indeed a leader in this movement, and should be supported, but the issue of better law and governance in zones is broader than their work alone. The most successful example is the Dubai International Financial Centre, where a common law legal system was placed in a 110 acre zone within UAE sharia law. It led to Dubai becoming a top global financial center in twenty years.
Zone based reforms are a hack around the public choice challenges of nation-state reforms. Bob Haywood, former director of the World Economic Processing Zones Association, makes the case that zones address Doug North's "natural state" of oligarchy preventing liberalization because export zones don't immediately threaten the rent-seeking structures. In his experience, usually zones were adovcated by the peripheral elites - not the core elites, but the son-in-law, cousin, younger brothers, etc. who had access to elites but were not currently benefiting from rent-seeking themselves. Without zone solutions, however irregular their success, most nations tend to be stuck in the "natural state" of oligarchic rent-seeking. Haywood makes the case that zones led to broader economic liberalization in Mexico, China, Mauritius, Ireland, and elsewhere. If the benefits of zone-based reforms includes broader economic liberalization then the returns are much greater.
The most important work being done by CCI is not necessarily creating Charter Cities - Prospera alone has a much more sophisticated platform than anything CCI has. But they play a crucial role in mainstreaming these ideas so that development economists, multi-lateral institutions, media, and well-intentioned Westerners pay more attention and are more likely to support reform zones. Prospera's technology is ready to replicate - we need this greater mainstream support to close the deals.
I've been involved in selling these ideas in multiple nations, and being able to point to the growing mainstream credibility achieved by CCI is definitely a factor leaning towards adoption. Conversely, without CCI's leadership, developing world government "reforms" are driven by a combination of venality, corruption, populist or leftist ideologies, World Bank banalities, and the occasional McKinsey analysis. CCI is a big positive step in the direction of concrete, actionable reform zones that are likely to improve institutions incrementally. If we can get to the point at which zones with their own law and governance become a routine technology of economic development, then the value of these institutional experiments is likely to become high.
Most people have no idea how much harder it is to do legal business in developing nations. The upside of making Prospera-quality law and adjutication available in zones in Africa will be significant over time. My wife, Magatte Wade, is working to bring Prospera to Africa because of this. She also writes and speaks about the ridiculous over-regulation of business in Africa that makes it necessary - she has first hand experience of what it is like to do business in the US vs. in Senegal. The fact that African nations are ranked at the bottom of the Doing Business index is not an artifact of measurement.
So by all means support CCI. The work it does is much more important than the EA Intervention Report acknowledges.
Have you heard of microloans and microfinance? They are in my opinion the cleanest example of "donating to capitalism". The actually donation is not getting any interest, and you taking on the default risk/lack of due diligence of making a loan to to e.g. lend $500 to Nain Isai in El Salvador to buy animal feed for his livestock, or lend $1,250 to Hương in Vietnam for school supplies and tuition for her children. It's essentially giving a bit more oomph to the invisible hand for these people to use on what they feel is the best use of the money.
Givewell seems to have a largely negative view of microfinance, though these may be outdated, stating that it "is not among the best options for donors looking to accomplish as much good as possible", but if you're looking to make a more developmental donation than non-capitalist mosquito nets, you might be interested in it. To the best of my knowledge the biggest player is Kiva, which makes it very easy to match with microborrowers across the world (my two examples above are from there), Givewell doesn't like them either from what I can tell.
tl;dr If you'd like to make a donation to capitalism, go to Kiva and you can immediately find a fledgling capitalist to lend an arbitrarily small amount of money, and consider the default risk and interest opportunity cost a donation.
Educating people with high value skills is capitalism-charity that seems to have good trickle down and helps countries get rich (programmers in India).
I think when most people say 'capitalism makes the world richer' they're saying investment spending and research make the world richer. You can trade coconuts and bananas all day, but at the end of the day you'll still only have coconuts and bananas. I think a similar thing can be said about any consumption spending, including Instacart.
I can't quantify any of this but here are some systems-oriented charities that would improve capitalism a lot:
- Improve the incentives of the arena by producing more deeply informed product reviews. Information is a non-excludable good, so the market wont do this very well. Do this well enough and you will obsolete the FDA.
- (Edit: Industry-government partnerships actually seem to be doing okay at this today, so idk, but it's an example of the kind of thing that *could* be needed) Thinktank to develop better interoperability standards. Governments preserve competition by requiring competing products to be interoperable, apple must use USBC (this is a real act that the EU passed), Mastodon can access Threads (happened without regulation though (confusing)), the user can get their data out in a standard format (used to happen without regulation but seems endangered today), that kind of thing, but designing these regulations is genuinely difficult. If they get it right, it supports a lot more competition and innovation than the market otherwise could (*competition and capitalism are antonyms*), but if they get it wrong it can forbid progress in standards, or burden projects with standards that're antiquated and complex, which stifles innovation. Getting it right is *expensive*, it requires deep expertise and consideration. Governments can't reliably do this job. Charity is needed here.
- Decentralized finance system development actually has suffered a lot from the lack of charitable investment. We could've had systems with unlimited global transaction rates and negligible transaction costs (built around a P2P approach that allows the user to earn enough gas to get by without even knowing that there are transaction costs). It's called Holochain, it's been in development for a long time, it's still not complete because having these qualities prevents them from extracting rent on the system later on and that very fact means they make relatively little from token presales and can't hire enough R&D. They haven't had the manpower to develop ZK-rollups and they're going to have history bloat problems.
(And the fact that these systems are all open source should be a clue that they're not going to be capturing much of their value.)
It's worth mentioning that american FOSS funder FUTO actually are charitably funding Freenet (2), which afaict is at least adjacent to the genre of Holochain.
Isn't the argument simply that capitalism creates a powerful system of incentives for people to be productive - in the broadest sense of the word - which in aggregate results in economic growth and rising living standards? Perhaps the greatest reduction in poverty in history was China over the past 4 decades (770 million people brought out of poverty is the number the CCP used in 2021) without having any significant domestic charitable sector and without receiving any substantial foreign aid. The country simply pivoted away from Maosim in favor of a more capitalist approach.
I think the humorous irony of using marginalist reasoning (the basis of modern capitalist theory) to argue against capitalism has to be noted (of course, in this case I think it's legitimate, but funny nonetheless).
I think rather than using money to "promote capitalism" the more appropriate alternative would be to use money to promote the conditions that capitalism, at least the successful style of rich-world capitalism, requires -- which mainly comes down to rule of law, education, good (generally less) regulation, less corruption, and good (generally more) antitrust enforcement. This doesn't really solve the "how do I do that" problem, though, since it largely becomes a "how do I accelerate political reform" problem. Then again, given the dictator book club series, maybe you can figure out how to do that? Incidentally I think the challenge of solving these antecedent problems (especially corruption) are what really makes it difficult for countries to get richer. I kind of suspect western countries mostly had an easier time getting rich because they'd already solved many of those problems. The United States took, what, a hundred years to get from patronage to civil service exams and antitrust law? And we had a very free press, very good courts, and a lot of luck.
One alternative to charity worth considering might also be more science funding: there are a number of private bodies that give grants to scientists, though their scale is far smaller than the federal programs.
Imagine, for a moment, you have a magic box, the contents of which grow by 5% a year. You have a rare and expensive medicine that will save lives.
What do you do with this? Do you save lives, or put it in the box to save lives later? When should you take it out of the box?
That's sort of like investing. You get a return on investment; you can then use this to save -more- lives, -or- you can invest it and save even more lives later.
Now imagine that as long as the medicine is kept in the box, random improvements happen. People get slightly better cell reception one year. The next year, everybody's computers get 1% faster.
Now how long do you keep it in the box?
What if, by keeping it in the box, sometimes the world production of rare and lifesaving medicine slightly increases?
That's what capitalism has to offer. As long as you keep the medicine in the box, and let some people die this year - next year you can save a few more people. But also things randomly just kind of get better in small ways.
Now - if you're going to consume the money instead, charity is probably the better option. The real question is whether you direct your share of market consumption towards single events - getting a motorcycle or saving a life - or whether your direct your share of market consumption towards making the market better/bigger in the future.
Most people want things better now; they want the hungry fed, the homeless housed, the sick healed. And this is quite fine, if the alternative is consumption. But where the alternative is to forestall consumption for another year, to leave the rare medicine in the box, and both have more medicine in a year and ALSO food delivery gets slightly more convenient - the choice looks a lot more in favor of "investment" than I think a lot of people actually think it does.
One problem with capitalism is that it is predicated on perpetual growth, that growth ultimately consumes Earth's biosphere, and therefore capitalism will eventually destroy life on Earth. So "donating to capitalism," in whatever sense, contributes in the long run to destroying life on Earth.
Givedirectly seems like a pretty solid option for "investing in capitalism itself." You give poor people money, figure out some way to keep them from losing it to corruption or criminal shakedowns, and then those people use that money to buy things they need, which results in the businesses that provide those things succeeding, and so on.
If capitalism is a very good system for giving people with money what they want, then the problem might just be that people don't have money and that means they aren't getting their needs met.
Honestly feels like a category error of a question.
Capitalism is what keeps us in the game without everything going completely to hell.
"Charity" such as we refer to in terms of EA or give well or such, are just providers of a good under capitalism.
Walking back a step - Whatever people are willing to pay for, Capitalism will provide.
If people value assisting people in the third world, capitalism will (and does) lead to the creation of firms whose mission is to accept money from customers in exchange for making water safe for 10 people or giving two families mosquito nets or whatever.
At a previous time, what most people who wanted to "do charity" actually wanted to buy was the feeling of having given to charity in a personally satisfying way. The firms capitalism created were numerous, existing in fractally obscure philanthropic niches such that an individual could easily find something personally satisfying to them (and even make it part of their identity), and then have slick marketing to make the sale feel as good as possible. Because that was what was being demanded and supplied, these firms didn't optimize for outcomes.
When people began demanding outcomes, capitalism created charitable firms that carefully evaluated and tracked their outcomes and made different kinds of charity compete with each other, so that now people who value assisting others can get the most bang for their buck - all of the good that something like GiveWell has done is ultimately the totally expected and excellent result of capitalism. People wanted effective altruism - firms entered the space to sell it.
"Capitalism" and "charity" aren't alternatives. If someone says capitalism does more good than charity - it's like saying capitalism does more good than cars. Sure? Almost by definition? what does it even mean?
But are you suggesting we should do away with cars and instead have more capitalism?
If they are specifically making the claim that charitable interventions for the preservation or support of capitalism are better uses than for any other kind of charity - first make sure you agree you want to buy the same thing (effective altruism in your case)
If they are making that claim that it's more _effective_, well, that can be at least approached empirically, but I think it's extremely likely pro-capitalist interventions will be much less effective. Much of the low hanging fruit has already been picked, and we don't know how to make there be capitalism in places that don't already have it.
The normal operations of capitalism do a lot of work towards the end of preserving capitalism - but they never ever provide things nobody is willing to pay for. The normal operations of capitalism do not lead to good things by accident, but by purpose.
If you specifically want to altruism most effectively, capitalism will sell it to you, but it won't provide it on it's own.
"If you invest in Instacart, various good things happen and you get more than your original amount of money back (which you can then spend on something else). I agree this is an important distinction, but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so."
As long as investment growth rate > discount rate (which it is), this actually changes things by a factor of infinity.
One way to consider this would be consumption-charity (make things a little better now) vs investment-charity (make things much better later).
Suppose there are thousands of people chained up in a terrible prison. You have enough time and energy to unchain one of them every month. Who should you unchain first?
It's not whoever is suffering most in the prison.
It's not whoever is most sympathetic.
It's whoever will be able to unchain someone else once you unchain them.
For the sake of argument, suppose you believe that humans are causing a problematic amount of climate change via CO2 emissions. Elon Musk shares that belief. He could have donated the vast majority of his PayPal fortune to some kind of charity. Instead he's using it to build the industry-leading electric vehicle company, whose 18-wheelers stand poised to electrify the highway freight market. Effectiveness of altruism is positively correlated with the amount of care, attention, proximity and self-motivation that you can put into your altruism. Care, attention and proximity are maximized when you do something yourself. Self-motivation is maximized when what you are doing is so valuable to other people that you make money by doing it.
Charity is great at saving lives by providing people with the basic necessities of survival. Capitalism (or rather, a mixed economy like the one we have in the US and Europe) is great at creating a world where charity is unnecessary because the basic necessities of survival are so cheap (or, if you prefer, the people are so rich) as to be ubiquitous. Both charity and capitalism are useful; and in fact the key reason for the success of EA (before they went off the rails) was to introduce a form of capitalism into the machinery of charity, thus creating a hybrid approach that was the best of both worlds.
1b. Same as #1, but whenever you can, buy versions made by a company owned & operated in a poor region, especially complex, capital intensive goods & services with high skill required. If you have to take a hit in quality or price, consider that your donation.
In other words, if you want to support a poor region in undergoing capitalist development, support their capitalists. It's important that the company be operated in the poor region, circulating money locally via wages. It's even more important that the company be owned locally, so that profits also circulate locally instead of being siphoned off to a capital city or rich foreign country. It's most important that the purchases be high in the value chain, so that the revenue supports the whole ecosystem of producers in previous stages.
Of course the central point of the article was that charity still seems to do orders of magnitude more good per dollar. If #1b can compete on that measure, it's because it makes the donation orders of magnitude more sustainable, since you get goods you need.
"There’s one thing that confuses me here, which is that Instacart has 10 million customers and makes $2.5 billion in revenue per year, suggesting each customer spends $250. But you can get a yearly subscription to Instacart for $100, after which the service is free. So either customers are overwhelmingly being stupid, not buying the subscription, and paying much more than it should cost - or I’m missing something here and the numbers are wrong."
Iiuc, Instacart often charges a markup on grocery items in addition to its official fee.
It seems obvious to me that this is just a question of scale. Yes, the countries that have become nice places to live have done so through capitalism, but how much more money has capitalism been working with than philanthropy? US GDP is ~$25T, and US charitable giving is ~$500B. Most of that charitable giving is for things like teaching poor children to play the flute and mailing books to homeless people, so I would guess 'real' charity is ~$50B at most. It seems easy to argue that $1 to charity will do more good than $1 to capitalism, but also that capitalism has done more good overall because it's been much more successful at obtaining dollars.
Re "giving to capitalism," what about (4) Build a business based on fulfilling a need/desire that other people in society have? This seems to me to be the most obvious way that capitalism drives prosperity. Trillions (quadrillions?) of trades, every single day, each of which involves net wealth creation (otherwise presumably the trade wouldn't happen) is what makes capitalism "work." You could argue that this is encapsulated in your point (2), but investment in existing businesses is distinct from the creation of new businesses.
More succinctly, simply living your life in a capitalist society by engaging in mutually beneficial trades, at all levels, is the capitalist version of "charity." This is something everyone can do. Intensifying this would simply be either increasing the number or magnitude of trades. The more "charitable" you feel, the more you should let your counterparty accrue the benefits of each trade.
But Moloch. I haven't made peace with Moloch yet. The energy and spirit of money/capitalism colonizes mind and world. I notice sadness and mourning for what Wendell Berry called "the Peace of Wild Things." Perhaps I need stronger psychic defense mechanisms or perspective/framings when faced with narratives of mass extinctions, climate change, rainforest burning, microplastics, and floating oceanic garbage islands.
Moloch-capitalism makes everyone happier and sadder, safer and more insecure. How to abide Moloch/Mammon/Money?
But as is being said, Moloch is over charities now too.
It seems like this discounts the value of instacart, with respect to jobs, while overstating the value of Dispensers For Safe Water.
The million dollar investment in water doesn't save 1500 lives by itself: those people still need food, shelter, medicine, etc.. By contrast, the jobs instacart creates give people a large fraction of what they need to procure all their survival needs (or all of what they need and then some).
Isn't the biggest difference between instacart and the water charity, that instacart is operating in a wealthy country and serving a luxury good to relatively wealthy customers, while the water charity is operating in a poor country? If you instead chose a company making an important necessity, like shelter or clothing, in a developing country, and compared it to, say, the Make a Wish foundation in the US, which would come out better in a similar comparison?
Actually, what does it even mean to "donate money to capitalism"? You derive your costs for instacart based on investment money spent on the company... but the whole point of an investment is to make a return. If you invested 1 million dollars in IC back in 2012, then you would have provided delivered meals for 2,000 people, *and* you would have 1 million dollars * the rate of return of the IC investment. But that's not really right either, because the latter is money that people paid you for the delivery service; you didn't give them food for free. Which gets at the whole point of investment (to be worse off *now* and better off *later*, so of course it looks like a bad idea, and similarly, you'd be warmer now if you burn all your clothes than if you wear them) and makes this whole comparison very confusing, in my opinion.
If you ask the question, "what is the present discounted value of 1 million dollars given to a water charity vs invested in a basket of startups?" If we take your number for the ROI of the latter as 7.5% per year, with 2% inflation, then in 10 years our 1 million dollars is worth the equivalent of about 1.7 million dollars today. If we then converted this back into a water charity donation, we would break even at a discount rate of about 5.4% per year. Or in other words, the investment is a better option if discount the value of future water at less than 5.4% per year, and a worse option if we discount more strongly than that. (I think all secondary benefits should be incorporated into the relevant rates of return and discount, but maybe I messed something up).
Scott, I think you slightly misunderstand the argument for working on spreading capitalism. It goes something like this:
1. If enough of us buy malaria nets, we could potentially prevent all malaria deaths in the nation of DR Congo, which would save ~80k lives/year.
2. But if the people saved by malaria nets still live in very poor conditions (albeit with clean water and maybe some micro-loans provided by charities), that's still a far shot from living as good as the median American.
3. We can very roughly compare the quality of people's lives by looking at GDP/capita. For the US that's $76k/year, for DR Congo it's $600/year or 150x lower.
4. Saving 80k people/year is very much noble but on a GDP/capita basis that's only equivalent to saving 80k/150 = 530 Americans/year.
5. If instead of malaria nets we fund projects that try to bring capitalism to the poorest nations, we have a chance to make a *huge* impact. DR Congo has a population of 111m, and if we manage to bring proper capitalism to the country, it might reasonably 3x the country's GDP/capita over the next two-three decades, which would in turn create 111m*1,200 = $130B/year of additional economic prosperity or be equivalent to saving $130B/80k = 1.6m Americans/year.
6. So how good of a chance of bringing capitalism to DR Congo must a project have in order to have a bigger value than eliminating malaria? Roughly 530/1.6m = 0.03%. Can any project reasonably achieve that? Very hard to say, I would definitely bet that the Belt and Road initiative had a much higher chance than that in the beginning.
7. Can we reasonably identify projects which a) Accept donations or investments and b) Have a chance of at least 0.03% of tripling DR Congo's GDP/capita? I don't know but I would arguably that might be something worthy of EA's time.
> This kind of development aid has been roundly criticized and did especially badly in Russia.
The perspective I've heard is that Yeltsin had to implement radical capitalist reforms like this to secure the transition away from the soviet system. If he had embraced more gradual reforms, enough of the soviet state apparatus would persist to allow communists to return to power in the next election cycle.
In other words, economic prosperity was not the goal of shock therapy, the goal was to root out entrenched political opponents. Given that the communist party consistently remained popular in post-soviet Russia, this doesn't strike me as incorrect.
If it costs $1 million for a charity to provide 50,000 people with drinking water, it will also cost $1 million to provide them with drinking water the next time they need it. And the next time. And the next time. Before you know it you've spent a billion dollars on water and people are still thirsty. A functioning economy will provide them with drinking water *forever*. Invest a million dollars in something that will employ those people and let them pay for their own water from the proceeds.
Shouldn’t the argument be that Instacart provides a service which increases economic activity and therefore taxable income at the company as well as for its employees and gig workers? Some economists somewhere said that each dollar in the economy changes hands 7 times in a year, so capitalism creating new economic activity like Instacart increases that velocity of dollars, which are taxed wherever yet are spent, which (in theory) goes to support the government services that the charities are trying to replace.
In other words, if they had tax revenues supporting competent governments, those governments would provide clean water and the charity wouldn’t be necessary
Blithely, capitalism gives wealth to people who deserve (in some very specific sense) it, and charity gives wealth to people who don't deserve it.
("Deserve", in this sense, means "capable of producing value for others, due to a combination of internal attributes and the surrounding environment". This may or may not match up with your personal definition of desert, in particular for those whose inability to produce value is caused by their environment rather than their own attributes.)
Developed countries don't need safe water dispensers. In order to develop, underdeveloped countries need to join the capitalist system. It's by no means clear how you can get them to do that, but it's something to think about. Meanwhile, the anti-capitalist mood affiliation that shows up in other comments does not do anyone any good.
I’ll always support Scott and the rationalists taking a silly argument seriously and deconstructing it. But let’s be real: the people saying “capitalism is the most effective charity” are just saying “yay capitalism” and are looking for a way to have their cake and eat it too (i.e. buy and spend however they want while being able to wave away drowning child type thought experiments).
There are two meanings of capitalism. One is descriptive. "What happens in Capitalism." Another is proscriptive. "What should happen in Capitalism." I'd argue that capitalism requires some measure of altruistic investment in order to function. An example of this would be something like LOVE (Let Oro Valley Excel) which was a group in Arizona which was unusually successful fighting some shady rent seeking on the part of Walmart. Basically, Walmart got a huge tax break on their property taxes, as they tend to lobby for wherever they go. The governing board that gave it to them swore it wasn't for a Big Box store. And then it turned out to be for Walmart. All but one of the board members were voted out.
I'm not sure how to quantify the value of this kind of behavior, which requires time and altruistic punishment, or to compare it with donations which save lives. I suspect that it has strong second-order effects in terms of promoting competition and preserving choice for workers and customers.
But if you can save lives that wouldn't otherwise be saved, it makes sense to save lives.
I'm curious about your use of the discount rate. I'm not an economist, but wouldn't we prefer some kind of discount rate that assumes 0% growth and 0% inflation? Having a lower value for future money due to a high growth rate makes sense in investment, but makes less sense in regards to charity.
"Return on investment. If you donate to charity, various good things happen. If you invest in Instacart, various good things happen and you get more than your original amount of money back (which you can then spend on something else). I agree this is an important distinction, but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so."
I don't quite track the argument here.
To take an extreme example, If you have a dollar 200 years ago that you invest at a very conservative 4% interest rate investment then that dollar will be worth over a million dollars after 200 years. There's a chance, of course, of losing that dollar over that span of time. But I'm not confident that "act now" is always better than "invest now and act later." Probably, this comes down to a matter of trust, where there are considerable benefits related to spending one's charitable dollars as one chooses within the span of one's lifetime, which nets considerable personal utility for the individual.
Isn't charitable giving just letting governments abdicate their responsibility to administer a bountiful, equitable, and just society, and enabling free riders to exploit the compassionate/gullible? Of course it's your money, do with it as you will. Perhaps it is a good idea to bribe the downtrodden and otherwise unfortunate not to destroy civilization, such as it is, but I'd prefer to address the issues at their root rather than relying on "the kindness of strangers" to paper them over.
So, if charity provides lots of value per dollar but doesn't incentivize people to spend much, and the market provides far less value per dollar but incentivizes people very strongly, then it could both be the case that the market is expected to create more value overall, but also that choosing to spend on charity is better. Once you've made the choice to spend some amount, how incentivized you were to do so is no longer all that relevant.
Forgive me if someone else made the argument in the comments already, but the comparison at the margin is not between a million dollars to capitalism versus philanthropy. Rather it is between competing philanthropies.
Suppose we have a million dollars to allocate. Do we give it all to the clean water nonprofit or a pro-life pregnancy crisis center? Do we give some of it to the pro-life center and some to a pro-choice center? What about the adult literacy center down the block, or the at-risk youth program downtown?
There is no way, ex ante, to determine who should get the million, or a portion of it that meets a standard of rationalism or justice.
What capitalism does, however, is permit the emergent order of philanthropy. I'll give what I can when I can, you'll do likewise, and so will everyone else. And the system of profit and loss, the 'market pressures' incentivize the nonprofits to do the most good with the money they have. And indeed, because it not a choice between the pro-life pregnancy center and the pro-choice one, but between several of each, each with different managers, budgets, and quality of staff. In short, capitalism, or the market, allows philanthropy to thrive the same way for-profit firms thrive.
But capitalism does something else. It allows the wealthy and corporations to give. As major donors or corporate donors, they can give back to causes in their local or national communities. (This, of course, relies on a clear tax system that gives them the write-off.) Even a great many small nonprofit firms are supported by corporate giving.
>There’s one thing that confuses me here, which is that Instacart has 10 million customers and makes $2.5 billion in revenue per year, suggesting each customer spends $250
Instacart has a lot of other things they could make money from. This includes partnerships with grocery stores, advertising of specific products, providing data and analytics on spending and shopping habits, etc
It's not necessarily a false dichtomy, but I would model capitalism as a social structure of which purpose **can be** to enable charity by making the humans run around, building the pumps. Communism then is like a dildo that penetrates both ways, since it makes you to run in one wheel of charity in order to get resources from the others.
1755, a full 21 years before writing his classic book on growth theory, The Wealth of Nations:
"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical."
In both Adamsmithia and Charitia there is demand for clean water. In Adamsmithia clean water is supplied by Instawater which supplies clean water to all, and makes $500M a year and is self-sustaining. In Charitia clean water is supplied by donations from donors from Adamshithia. This situation is self-sustaining. InstawaterCharitia is never funded or developed.
Answering the question in footnote 1: the accounting for Instacart is that they report revenue from the transaction fees, not from the whole size of the order (I'm not an accountant, but I believe technically what's going on is that the grocer is selling to the customer and Instacart is a delivery/ads/other stuff company that intermediates, so it's analogous to Google reporting the $2 someone paid for an ad click and not the $10 of revenue they got from whatever they sold. This revenue number also excludes the payout to the shopper). Instacart's gross transaction value last quarter was $7.1bn, compared to $670m in revenue. So, round numbers, the amount people spend on Instacart is very roughly 10x the company's reported revenue. This is a moving target because the revenue take rate will change, but gets you directionally there.
I think it is helpful to make a distinction between the effects of dollars given at the individual level (lives saved, textbooks bought, meals distributed) and *systemic* solutions to large scale problems. Charity exists, as I understand it, to address the individual level of impact--but it is a very ineffective approach for addressing systemic issues. It just doesn't do that very well: not enough money is donated per year, there is very poor system wide coordination on spending priorities, and there is no public forum or governing structure to debate or determine what those spending priorities should be. What kind of social impact do we, as a global or national public, want charity to have? I know of no consensus on this, nor any method of producing such a consensus.
Capitalism (more accurately, pro-business economic policy) is, to my understanding, designed and intended to work maximally efficiently as the systemic level. Individual participants and businesses might lose money or suffer, but in the long run (years, decades, generations) the market is supposed to deliver sustainable economic growth and make modern civilization possible. As for public consensus, the market at least provides a forum by which people can vote with their dollar--any good or service which is seen as unnecessary or unwanted is eliminated.
Of course, "sustainable" is a term with many meanings and distinctions. The market provides what people want to those who can afford to pay for it, but that doesn't mean that it always serves the interests of society as a whole. The poor are left behind, and global warming is the poster child for the consequences of ignoring externalities.
Government is meant to provide for the common good, the public interest. It may not be as effective at that as we would like, but, well, "Democracy is the worst form of government except for all the alternatives", and so on. No one has come up with a better one yet.
So I think it depends on what your priorities are: fulfilling the economic needs of the majority of individuals (Capitalism), addressing social issues at a systemic level (Democracy), or satiating a need to provide assistance a small number of needy individuals (Charity).
I think it obvious that some balance is necessary. As for how one should invest one's charitable donations, this analysis seems to indicate that it's really just a matter of personal opinion: what needs, which people and how many of them to assist is probably best seen as a subjective opinion. Go with your gut. As long as you are contributing to a problem that neither the market nor public opinion is addressing, it's good.
1 million given to water dispenser will not stay with charity but trickle down to capatalism. Charity will need to buy water dispenser from a company. So, water dispenser company will get part of 1 million too which in turn could create jobs. Giving dollars to capital intensive project that saves lives and trickles money into the hands of people who need money will be good.
You can certainly find many instances where a charitable donation does more societal good than an investment or act of personal consumption. You can cherry pick so as to make any given claim on your next $100 seem absurd. Of course 200 mosquito nets > than a bottle of Krug.
But there is no arguing that washer / dryers, dishwashers, cipro, tractors, genetically modified crops, cars, iPhones and other byproducts of investment in new tech and the production of that new tech at scale, all financed via the selfish pursuit of profits (i.e., "capitalism"), have done far, far more good in the world, for both rich and poor, first and third world, than any charity has ever done, or that all charities combined have ever done or could ever do.
Which is why I've always been skeptical of EA wanting to move money and expertise away from the efficiency and discipline exerted by market forces and instead give it to projects that don't do much R&D, don't operate well at scale and are often mostly about moral preening. It's like diverting money from Microsoft or Amazon and giving it to the DEI department at the DMV.
Scott, you already made the argument that maybe we don't understand how to jumpstart development as well as we think we do, and I think that extends to development of capitalism. However, I'd like to extend this a little farther and make the claim that capitalism and democracy aren't even the first rungs on the ladder of development, which is why attempts to charitably jumpstart capitalism often don't work out.
Why do I suspect democracy isn't the first rung on the development ladder? While Japan had democracy forced upon them after WWII, other countries that also developed economically didn't see their democratic reforms until much later. For example, South Korea didn't see democratic reforms in that country until late in the 1980's. Meanwhile, they experienced multiple decades before then with annual per capita GDP growth well above 5% (https://ourworldindata.org/grapher/gdp-per-capita-growth?tab=chart&country=USA~KOR~JPN~PHL). The same story can be told about Taiwan, which didn't see democracy until the early 1990's. (Democracy/autocracy is easier to recognize. It's harder to point to a country as 'capitalist' vs. 'non-capitalist', but I'll get to that in a minute.)
We see autocratic regimes and think, "Why can't they just get rid of the dictator and go democratic already? What's the Special Sauce that allows this to happen?" But this ignores the underlying economic reality that most people in low-income countries live in a kind of feudalism, where landowners derive most of the profits from agriculture, even though that's often not the way those landowners actually make most of their money. Just because they own farmland, doesn't mean they're farmers. It's more of a passive income stream for them. So you might have an economy where a small percentage of the population is able to meaningfully engage in 'capitalism', because only a small percentage of the people actually own capital. Everyone else is subsistence farming, typically paying ~50% of their increase to the landowner.
What South Korea and Taiwan experienced right before their catchup period was a successful land reform movement. Effectively, the government forced large landowners to transfer their land titles to the farmers who actually work the land. (That's oversimplifying, of course.) Incidentally, Japan also had a major land reform movement right before they saw dramatic economic development. Even the US gave away massive amounts of land to individual farmers right before experiencing massive GDP growth.
Meanwhile, many countries tried land reform but couldn't make it stick politically (rich oligarchs tend to have lots of political sway - especially in an autocracy) and didn't see significant GDP growth. (Russia, the Philippines, Mexico, etc.)
Before you can 'encourage' capitalism in low-income countries, you have to find a way to dismantle feudalism so the majority of the population can meaningfully engage with the capitalist system you want to set up. Trying to skip this step is a futile effort.
You can try all day long. Let's say you come up with a plan to give chickens to all the farmers. You reason that the chicken will wander around and eat bugs, so they don't have to waste money on feed, plus it will lay eggs nearly every day. Shouldn't this be a permanent increase in standard of living for these people (so long as the poultry shall live)? Make enough of these small changes, and the farmers will eventually be prosperous! Except the farmer doesn't own his farmland. In many cases these farmers live in the nearby village and walk 3-5 km to work the fields every day. They don't have a farm for the chicken to roam in. They live in a tiny shack. What would you do if you lived in < 500 sqft and someone gave you a chicken? Dinner, I guess, but no permanent improvement to your standard of living.
Or say you set a target of 'farm mechanization', trying to copy what works so well in high-income countries. Again, this ignores the effective serfdom most of the world lives under. What good is a tractor to a landowner who works a desk job in the city and monitors his farm by paying for satellite updates? He doesn't want a tractor, or even to be a farmer. Meanwhile, the farmhands don't want to all get replaced by a machine.
I would argue that the reason we've failed to develop many low-income countries in a meaningful way is that we engage with them as though we can just gift them capitalism. But that will never work so long as they're living inside a feudalist system.
(Yes, I recognize that 'feudalism' isn't exactly the right term, but it's colloquially accepted as a shorthand for an oligarchic land ownership model so I'm using it that way.)
I'm surprised that the few comments I've read don't mention two things:
1. Difficulty of value capture (free rider problems, diffuse gains, etc.)
2. Market inefficiencies/failures
Market solutions do not work in these circumstances, so charity/government is superior.
Let's take the water example. If it were profitable for a capitalist to _capture_ the gains of the clean water, it would be done! The gains are diffuse and hard to capture, so a market solution doesn't work here.
Instacart is highly profitable. A charity to connect workers to deliver food would suck. A market solution is substantially better here.
(Another thing to note is that the vast majority of charity dollars goes to places like... Harvard. Might as well set your money on fire. The average dollar spent on "capitalism" is substantially more effective than the average dollar spent on charity even on your metric. You're comparing apples to oranges.)
Even the staunchest (non-insane) libertarians I know don't believe markets can solve literally every problem. The right tool needs to be used in the right situation.
Outside of the actual point, I think your 10 million "happy customers" is flawed, as it's just a single point in time. You need to think instead of the number of total customers, ie number of people who have gotten value from instacart since it's inception. If you don't, the comparison with "number of people saved by clean drinking water" doesn't make sense, it would need to be "today's number of people drinking clean water from our system."
Additionally, I was a gig worker, specifically for Instacart and Shipt, and I think it's fair to put all (or at least a fraction) of the 600,000 gig workers in the "gained benefit" column. (Or should I say, the total number of workers who gained benefit since it's inception)
I feel like this post misses the fundamental difference between expenditures and equity. If you invest in a company, you have the option to donate (or otherwise reallocate) your capital in the future. For example, if you invested $1 million in Instacart in 2012, you have the option today of selling your stock and donating the proceeds to GiveWell.
So the question of whether to invest in Instacart or donate to GiveWell more or less corresponds to the question of whether you'd rather build 100 wells this year or 107 wells next year. (Assuming 7% real returns relative to the cost of building wells.)
Seems like this list is missing the most obvious pro-capitalism form of charity, i.e.,“Give the money directly to someone who needs it more than you do, and then let them spend the money on whatever they personally want, since that’s the normal engine of capitalism and encourages companies to provide desirable things”
I think a "charitable" way to interpret it might be (not sure if it has been covered already) is that to have sprawling successful charities one needs a lot of capitalism to begin with, to make the money to donate to charities. Once there is enough money floating around, some will donate. If there is not enough, very few will.
> And Instacart has gotten better return on investment in the past few years than the local utility company…
Note that PG&E is not an example of "capitalism", or at least not one that you should be able to give with a straight face. Their policies must be approved by the government of California.
"I’m nervous about this because of China’s Belt and Road initiative, which did this at huge scale for infrastructure, but doesn’t seem to have done much good (and might have done some bad)."
If the US & Japan got rich through capitalism then indeed it would seem to be a priority for poorer countries to follow a similar path. Donating to the Charter Cities Institute might not accomplish much (how many charter cities have they actually made?) but Tyler Cowen donates money to entrepreneurs in places like Ethiopia rather often. It is actually something of a puzzle in economics that poorer countries, which have a shortage of capital, aren't receiving large influxes of capital for the higher marginal returns, and the common explanation is that political problems makes people suspect they won't receive such high returns from investment. So one is arguably providing more social benefit by investing in such places at risk to your personal returns, although it would still be better to incentivize the stationary bandits in such countries by investing in places with the least avaricious/most pro-growth bandits.
I'm glad you blogged about this, but I think the actual problem is a lot simpler. Clean water, mosquito nets, and giving money directly to poor people all lead to guaranteed measurable improvements right now. Spending money and effort on a vague plan to somehow get non-capitalist countries to start being more capitalist is what we should theoretically be doing to fix the world in the long term, but it would probably go nowhere. I absolutely believe we should spend some money and effort doing that (I insert economic soliloquies into my YouTube videos and decorate my leather jacket collection with the principles of economics for this very reason), but I also accept that it's much more of a gamble as far as effectively spending our altruism goes.
Instacart belongs to a handful of San Francisco techbros. I don't know if any of them are Effective Altruists but they might be. If they are, shouldn't that (or even the possibility they might be} count in favor of capitalism? The standard EA claim being as I understand it that if instacart customers walked to the store they would either not donate the money saved to charity or give it to an animal shelter.
(Where "externalities" capture all the facets not accruing to the investors - be they positive or negative).
And this is why investors prefer capitalism over charity - they get another $10B ;)
(yes you do pay lip service to this in one of the latter sections, but the whole calculation still appears completely off)
(Also sounds like a classic problem of incentives - most people are mostly interested in the returns that accrue to them, not to the externalities, hence "privatize the gains, socialize the losses")
For centuries some people have been asking why a diamond is more valuable than water. Water is fundamental for life whereas a diamond is not. Nowadays some ask why porn stars get paid better than a schoolteacher. Basic education is more important than sexual entertainment. Today we ask, why we give money to Instacart instead of this wonderful charity?
Maybe the answer is silly. If Instacart disappears, is Dispensers For Safe Water going to bring the groceries I want to my door? If whateverpornvideos.com disappears, what charity is going to provide that sexual entertainment to people instead? Are charities better in that, arguably, more relevant sense?
If the metric to establish that charity beats capitalism, is that we have to frame life as just a set of very basic human needs that can only can only satisfied just to keep alive the greatest amount of people, in a very efficient manner, then you might be right. The problem is that even in that framing, capitalism and government also got there first.
Don't forget that NGOs also create jobs, to perform their activities, and you can create more jobs in poor countries, with the same money.
(some money monsters like the UN offer excessive salaries for basic jobs like chauffeuring their expats, which drains the local economy of qualified employees, but you weren't thinking about giving to the UN, were you?)
I think you missed what I'd consider to be the most obvious/intuitive way to "donate to capitalism": voting for politicians, funding campaigns, and other actions to increase the number and level of pro-capitalism policies passed in the world.
I expect most people who say things like "Why give to charity when capitalism is better?" are right-libertarians or pro-market Republicans. From their perspective, the marginal best altruistic uses of money may well be trying to get the more pro-market party in office (or voting/promoting the most pro-market candidates within each party).
To be clear, I'm not saying that donating to economically right-leaning political campaigns is a) net positive, b) more cost-effective than GiveWell top charities even if you have typical right-libertarian beliefs, or c) even worth putting a lot of research into.
I'm just saying that the most obvious way to promote capitalism with money probably involves politics ("money is speech" etc etc).
So the pro-capitalism argument can be rephrased as an emh thing - if you can cheaply create more wealth in Africa with public health investment, why don't investors just do that instead of investing in Instacart? I think there's three explanations for this (two pro and one anti charity):
First , it could be a value capture issue. Maybe you create a lot of productivity in Africa by investing in clean water, but Africa doesn't have the financial infrastructure to let you charge everyone 10% of the extra earnings they get from being healthy, so you have no personal incentive to do it. This is a problem directly solved by some people being altruistic and not doing things purely for profit.
Second, corruption - maybe extra investment in public health don't actually make the country richer, since there's inevitably going to be dictators who skim everything off beyond basic living standards. Your foreign investment just goes to displacing the minimum investment they otherwise would have had to make. In this case the charity really is useless or worse, going to empower terrible people (leaders of terrorist groups generally become incredibly wealthy through similar means).
Third, "value" might be fundamentally unsharable. If you make Kenyan workers twice as healthy, that might still be less total productivity gain than saving a silicon valley employee the time it takes to go grocery shopping, because most of the gains are just in that Kenyan workers feeling better, and even after that he doesn't have enough spare resources to pay you what it's worth. This one is mostly a pro-charity take (at least, assuming you value people's internal experiences and not just their economic productivity), but it can also mean economic growth isn't impacted much by charitable investment, which boosts the argument that it's net negative because it creates dependency.
Overall I find (1) here most convincing, but I do worry about (2), which is why I'm generally more supportive of long term public health projects than other ideas like givedirectly.
There isn't really a competition - the two address different issues. Capitalism has lifted masses of people out of poverty, and continues to do so. However, in any system, some people will fall through the cracks, and charity offers an opportunity to catch and help those people. That is the situation within a functioning society with capitalism.
The situation across international borders is different. Charity from wealthy countries, given to poor countries, nearly always results in unintended side-effects. IMHO it is counterproductive more often than helpful. Just as an example: food aid for Africa, where the free food drives local producers out of business, making the country even more dependent on food aid.
Rather than bet on a specific value proposition, why not invest in those who support them? It's a painfully inefficient market as money tends to flow toward to the most entrenched, not the most effective. Efforts to assess the ROI for business incubators/accelerators, counseling programs, etc. are tough to do and there is surprisingly little evidence of even a positive ROI. Applying top-down. linear models to what is an ecosystem may have worked somewhat in traditional economic development but falls way short here. Instead, why not take a systems approach to building entrepreneurial ecosystems** and support the ecosystem builders? (Who are chronically under-funded and facing hostility from the Haves... sometimes it feels like we're Uber/Lyft trying to grow where the taxis are controlled by the mafia, lol.) However, there's progress as we identify what works and doesn't (and limit/delimit those impacts). Perhaps burying the lede, there is now a nascent national group with the charter of "we help those who help the entrepreneurs". As part of that, we have identified some projects that will help these builders to visibly offer significant value to the ecosystem that the old school types cannot. Introducing high-quality entrepreneurship education to a less robust ecosystem can have a big impact long-term but does have measurable impact shorter-term. Improving the mentoring that entrepreneurs get is also powerful. Scott, I can blather on more - but to perhaps oversimplify. it seems that while sometimes you invest in the student and sometimes you want to invest in the school -and the latter is chronically underfunded (that the funding is captured by incumbents...) Thanks for the chance to share!
** ecosystem is actually a good term despite most of my cohorts are not biologists. "Builder" is not my term, I find it a bit arrogant :)
Like many commenters, I'm thinking "isn't microfinance (e.g. Kiva) the best of both worlds?"
Other commenters are saying microfinance isn't actually very good or effective. Could someone summarise the arguments against it?
I found this on Givewell https://blog.givewell.org/2009/12/11/estimating-the-cost-effectiveness-of-microfinance-charity/ and I don't think I understand it. It seems to be saying that microfinance is ineffective because if you take the total amount *currently* being spent on microfinance and divide it by the total number of people in the *potential* target recipient population, you end up with only $0.75 per person. That seems like such a stupid argument that I feel sure I must have misunderstood it, and it could be applied equally well to dismiss the effectiveness of malaria nets or deworming or any other "effective" intervention that's not yet maximally funded. It also seems to be focusing only on the "grants" part of microfinance and ignoring the part about loans which can be repaid and reinvested in other microentrepreneurs, which I thought was the more important part and the part that makes it more capitalism-like and hence relevant to this post.
Surely the relevant factor is how much of an impact microfinance makes on the subset of the population it's currently serving, plus the second-order impact on others in their communities, and how these compare with the impact of healthcare interventions; combined with how likely recipients are to repay their loans and free up the same capital to invest in further microenterprises, which isn't a factor in healthcare interventions.
If I put $1k into microfinance, then, supposing 50% of microfinance loans get repaid (figure plucked out of the air), then the amount of investable money will approach $2k over time. So the impact of one-off healthcare interventions would have to be more than twice that of providing local entrepreneurs with investment, in order for the healthcare interventions to be more effective. This is the sort of analysis I want to see, only with actual data.
(Also, the post seems to conclude "meh, it's a wash between microfinance and typical EA healthcare interventions" rather than "microfinance is notably worse". So it seems to be a matter of framing: why is this being shared as "microfinance isn't that effective really" rather than "microfinance is as good as the best EA-recommended interventions!")
Maybe a good way of thinking about this would be to separate initiatives on two axis, immediate consumption vs long-term investment, and centrally directed vs market mediated.
So a charity that hands out food, would be centrally directed consumption. Wall street investing in a dam would be market mediated investment.
Water filters are centrally directed, and seem more like consumption than investment to me, even though they sort of are "investing" in keeping people alive, human labour probably isn't the tightest bottle neck in the system. They definitely aren't where market mechanism would direct investment to maximise economic output.
If you want your altruism to promote immediate consumption it needs to be centrally directed because the market mechanism just allocates consumption to whoever has money.
For investment, market mediation might work, but it's unlikely to be directed to where it'd be most useful altruistically. Also, it's unclear how much altruism could affect the global rate of investment.
Historically there have been successful centrally planned programs to industrialise countries. That might be the most effective approach for development in places that altruist care especially about.
I don't know if GiveWell would endorse the scheme, but maybe if you resurrected a 1920s soviet agricultural planning officer, gave him jurisdiction over 1000 peasant plots and 10 million dollars to buy tractors, and bridge the temporary gap in food production whilst the system shifted to a new equilibrium, that might accelerate third world development above the rate global capitalism is currently managing.
I think there are several important considerations omitted from this discussion:
- Both a private company _and_ a charity can cause harm under the hood. A charity could be building water pumps in rural Africa, while also giving a cut of the money to a local warlord (because otherwise they would not be permitted to operate in that area, for example), thereby sustaining a group of people who may kill just as many as that charity saved. A private company could be producing a lot of value, while quietly polluting water for the nearby city of a million people. So it is very important to consider the operating conditions and local constraints of both charities and private companies, and if saving 2000 lives comes at the cost of causing deaths of even 2 people, I would personally not give my money to such a charity or company.
- The framing of choice between charity and private company may be ill-posed to begin with. If it were not, it would be possible to consider a society where only charities and no companies exist, or vice versa. However, it would be a clearly absurd, and likely not desirable scenario. A society run by a feudal aristocracy can have a number of highly effective charities but nonetheless an utterly garbage quality of life compared to a capitalist society with half the number of effective charities, for the simple reason that the aristocrats keep the lion's share of the economic value to themselves. So we cannot consider charities or companies outside of the socioeconomic context they exist in, and similarly we should consider situations where a charity or a company, besides saving lives, promotes a specific change to the socioeconomic context. I would not donate to a charity that promotes the institution of feudal aristocracy, for example, even if it were highly effective.
These are not abstract considerations. For this reason, I personally prefer considerations of transparency over just counting how many lives some organization can save. No point if you're only provided with the net profit and not the operating costs, so to speak.
I like the intent of this piece but you (like almost everyone) seem blind to one of the "unspeakable" problems of capitalism — artificial scarcity.
Startups generally, and even some very large companies in the industry-disruption category (e.g. Tesla,) earn 100% of their revenue from creating value. But the majority of large companies get a portion of their revenue through various "rent seeking" strategies. Some get the majority of their revenue this way. "Rent seeking" is a somewhat vague term but it describes very natural behavior to manipulate markets so that more money can be earned from less actual "work." One of the worst of these strategies is the creation of artificial scarcity. A good example is the diamond market, but the same is true of most basic commodities, (e.g. oil.)
If an honest appraisal of the entire global economy segregated the portion that is earned via rent-seeking from the portion due to actual value added, my guess is more than half would be in the former bailiwick. If anyone knows of such a study please share it.
Capitalism is a powerful engine for good. But it naturally also produces a huge amount of bad. I think this is the reason why most discussions of it miss the mark — they fail to admit the scale of the abuse in the system. Unchecked (i.e. with zero regulation) it necessarily results in a vast portion of the world living in poverty due to rent seeking strategies including artificial scarcity. Altering the ratio of good vs bad capitalism ought to be the goal, but so far, our most successful tools have been government regulations, which now often seem to be overmatched due to corporate capture of the regulation mechanisms.
Charity work includes attempts to address both the symptoms and the cause of poverty. In addressing symptoms, it will never be capable of even coming close to balancing out the negative impacts of artificial scarcity, since that is an artificial manipulation in the first place. It is "by design" and is necessary to support that rent seeking revenue. Since charity lacks the function of law enforcement, it will never be able to force companies to abandon rent seeking strategies. Only government, with the implicit threat of prison, can do that.
You’re comparing a marginal (marginal in an economic sense) company in the first world vs a marginal charity in the third world. Of course you’re going to find that investing in the third world is going to have more impact ! That’s what it means to be a developing country. That result has nothing to do with company vs charity ; it’s about first world vs third world.
On Job Creation: That the customers would have spent that money anyway is the broken window fallacy. This frees the time of the customer to do other things, either be more productive or have more non-work time for other activities. What's important is that the Instacart job is the best job that the worker could get (otherwise they get the better job). That means *they* have more money to spend, which creates better jobs for other people, and on and on. It's a positive feedback loop.
Replaceability: You just cheated here. You compared the *brand* of Instagram with the *function* of Dispensers For Safe Water. If DSW was discovered to be embezzling most of its funds and got shut down, another charity would come in to replace it. The brand isn't the thing you're talking about.
Permanence: The lives aren't saved forever. If we assume the other sources of water are, say, magically cursed to be instadeath water, you will immediately see that the lives are saved for only ten years.
And this is key element you missed, and the largest driver of *why* free-market systems are better than charity. A free-market system where the local people are free to generate and spend their wealth on their own would solve the deathwater problem permanently, by creating an incentive for people to create or deliver water that wasn't cursed. Everyone who solved that problem would be directly rewarded by the people who benefit from having the problem solved, and they get into the positive feedback loop measured above.
The rest of your argument hinges on the function of the service in question, rather than the mechanism by which it's delivered. So here's a more useful comparator: Jimmy Donaldson (Mr. Beast) makes a ton of money through his Youtube videos through stupid stunts and silly challenges for tons of money. But he also has an affiliated channel where he makes a ton of money, using the same skills and abilities in promotion and engagement where, instead of stupid stunts, he... does "charity" work. He then takes the money earned through those videos to make more videos about charity work. He doesn't ask for donations, the project is *self-funding* through its commercial endeavors. The results are openly the driver for more results, which are promoted here: https://www.youtube.com/@BeastPhilanthropy/videos
So why doesn't Africa do these? Because most of the governments are corrupt and steal any value the people produce, if the governments even exist at all, and it's not just bandit gangs raiding and pillaging. It's the lack of free markets that makes the continent poor, and where there are, to the extent there are, those countries are improving.
The great advantage of capitalism is that nearly completely useless stuff that doesn't benefit anyone gets filtered out. (Predatory scams, etc, will still get through, but obviously that's not the only kind of low-value project.) You can get even better value out of charities by caring even a little (i.e., checking GiveWell,) but this hasn't reached fixation.
Peter Lindert's analysis shows to my mind that state social spending is competitive with private investment for encouraging long-run growth; and also that as with charities and private investment it's made quite unequally. It's almost certainly the case that GiveWell charities beat out first world state social spending because of the higher marginal impact in developing countries (which also, not coincidentally, have poor state capacity.)
One can probably conceptualize this as a spectrum: market activity (including noncapitalist markets like worker cooperatives) applies a lot of selection pressure to effectiveness, but only maximizes for the benefit of the people with the opportunity to do it; public spending (or peer "charities" like fraternal orgs or neighborhood solidaristic groups) has selection pressure if (but only if) institution are relatively well-functioning via broadly selfish citizens wanting spending that benefits them, and benefits a wider variety of people but only within local borders; charity has completely different agents and beneficiaries and so the highest potential upside but also the potential for the laziest thinking.
One could imagine (however unlikely such a thing might be for humans, obviously) a social system called "charityism" where everyone directs their labor whatever resources they command towards what they good-faith think would do the most good. ("Property rights" over who decides how to direct a resource might be negotiated in advance by participants in projects to create or manage that resource, and the state might set up some rules and try to prevent violence between groups with very strong clashing visions of the good (say Alice wants to blast up a forested mountain to get the ores there for people and Bob thinks this is bad enough to use violence to stop her) but such disputes would take up a much smaller role than in our world.) I suspect that such a system would outperform (on any metric you like) any economic system humans could actually implement. When you do give to charity or otherwise act with the most good in mind you get to bring just a little bit of this sort-of-heaven down to earth.
I'm loving this post because Scott triggered a lot of incredibly cold and calculating readers. The comments are grimly enlightening. I sometimes forget just how ruthless free marketeers can get.
I can see two ways to ”promote capitalism” in ways that might work and be productive. The first is promoting institutions, as capitalism will arise and flower naturally under liberty and good institutions. The second would be to promote free trade, as there’s nothing better you can do for a poor country than involve it in an actually free trade system.
Of course, the question then arises how you would actually achieve this - in most corrupt countries, the leadership are the ultimate beneficiaries of the corruption, and lack of free trade mostly exists to protect some group of people whose support the people in power need.
I would argue that in some sense, charity is part of Capitalism. One of the core ideas of Capitalism is that everyone should have the freedom to spend their resources as they see fit, and in doing so, they will affect what is produced/accomplished at a societal level. Charity is just another option in the choice Capitalism gives you freedom to make. I don't really see how investing in Instacart (or whatever) is "more capitalist" than donating to Givewell, except it a total superficial aesthetic sense.
I think a problem here is the either-or aspect. Capitalism has its place, and so does charity. Economically speaking, both have a decreasing marginal utility, so at some point you should put resources toward the other one.
Also, poorly developed areas can benefit their residents more using fewer resources, but the overall economic impact is smaller. For example, if the GDP of a country is $1 million, and you double it to $2 million, that has less impact on the world than a country with GDP of $1 billion increasing 1% to $1.01 billion, even if both countries have the same population. From a charity perspective, the price may well be worth it to double the poorer country's GDP, but feeling good, making other people happy, and saving lives has no dollar value assigned, which kind of points out a limitation of economic theory.
If the charity is operating under a capitalist framework, isn't donating to that charity equivalent to donating to capitalism? IE: If your water dispensers are manufactured in the US, then donating to the water dispenser charity means the money ultimately stays inside the US, providing jobs and stimulating the US economy, and only the product itself is flowing out and improving material conditions elsewhere. The loss of resources is probably trivial compared to the goodwill it generates for capitalism in the destination countries.
Also, since many companies outsource labor to non-capitalist countries (see the volume of product produced in China, or things like oil), then donating to or buying product from those companies is also helping whatever non-capitalist framework those societies operate under, so it can't be as simple as picking the highest ROI company: you'd have to evaluate how much donating to them would contribute to negating capitalism worldwide.
Something I thought was perfect for "laying the pipes" for capitalism is an Indian program for ensuring digital identities to everyone with a bank account connected to it. This is a huge deal! India has nicely opened the solution up, as well.
One thing about poor countries is that there's often more resources than one thinks, but it's not institutionally secured - for instance, you can't borrow against your house if the only way you own it is through tradition or occupation, and this is economically stifling. Merely having a bank account and a legal identity can be a significant deal. Banking and insurance for the poor is very likely far more important than any charities - see for instance here, at the excellent 'Brain In A Vat' podcast: https://podcasts.apple.com/us/podcast/how-to-end-global-poverty-andy-kuper-rebroadcast/id1509951964?i=1000639600708 .
The fact that people seriously believe that investing in a first world company is going to produce more net benefit than direct charity to third world countries is bizarre to me. It requires such level of wishful ignorance about negative externalities of capitalism that it breaks my benefit of the doubt.
I also notice that Scott didn't mention these negative effects and just compared positive effects which is... not enough at all to understand the situation.
Here is an obvious example. Suppose there are hundreds small chocolate companies buying cocoa beans from Africa. Farmers compete with each other and the most competent become richer. And theoretically, they can use this wealth to educate their children and contribute to the development of their society. Meanwhile, people in the first world get their tasty chocolate and jobs at the companies, which compete with each other for the best offer to the farmers. So far so good. Everyone gets their fair share of gains of the trade, capitalism is working as intended and so on.
Suppose we want even more capitalism with all its benefits and thus a lot of money is invested into some of these chocolate companies. Now, these companies get more slack and a better bargaining position. They outcompete other chocolate companies and now we get an oligopoly of just several huge ones. They are also pushed to provide return on investment, which is achieved by cutting costs, offering worse prices to farmers in the third world. Investors are happy, they get their ROI and invest even more, thus perpetrating the cycle. Customers may even get better prices, thus they are happy too. But farmers in the third world are doomed to poverty now. They have to employ their children working on the farms instead of sending them to get education. Gains of the trade are significantly reallocated, much more of them going to the first world than third world, which needs them the most. No more spare wealth accumulates in the third world, and thus no more awesome effects of capitalism that we wanted - the opposite actually.
One thing I do making donations to health charities with an eye to both saving the maximum number of QALYs per dollar but also to how the disease curing will effect the economies of the recipient countries. Preventing deaths is a large good, but preventing crippling diseases that cause people to be drains on the resources of their fellows in addition to the misery they suffer themselves get a bump in priority. And some charities like Iodine Global Network can potentially cause drastic positive externalities that could swamp the direct good they do
Not too sure where I stand on this, but to strongman the argument for “industrial capitalism” would essentially say that it is basically the biggest factor in improving peoples’ lives and reducing poverty in history. Prior to industrial capitalism, in 1700, if you got incredibly lucky and happened to be born in England, your life expectancy was 37 years, much as it had been in most times and places. The average monthly income was about $80 in present dollars worldwide, although because of vast inequality most would have earned a fraction of that. By historical standards the lives we live today (even in poor countries) are incredibly safe, secure, healthy and free.
It is hard to argue that industrial capitalism isn’t responsible for most or nearly all of this. The timing of the improvements (and the locations) closely mirror adoption of the rule of law, private property and enterprise, competition and financial mechanisms etc (in contrast charitable donations to improve the lives of the poor have existed in nearly all times places).
To take a recent example, in 1980, before reform and opening up, well over 90% of roughly 1bn Chinese people lived in extreme poverty (less than $2.15 dollars a day). Today that number is essentially 0. The UN hit its millenium development goals for poverty reduction five years early (whilst missing pretty much all of the others) not because lots of NGOs did lots of work on poverty reduction, but because China embraced industrial capitalism. Today there are many countries, which similar to China in 1980, have not embraced many tenets of industrial capitalism, and so the lives of most of the population are relatively short and grim. We should be desperately trying to expand the opportunity to use the wonderful life improvement machine that is industrial capitalism to these people.
Therefore strongman case for Scott’s number 3. option (charitable interventions with a capitalist flavour) is probably interventions that encourage the factors necessary for industrial capitalism where it doesn’t exist or does in weak forms. The biggest one is probably changing the mindset of the elites, as a shift to a properly open economy will likely see massive relative reductions in power for them (as the rule of law binds them and power/wealth flow to entrepreneurs/business people) and so generally they (arguably rationally) prevent it from happening.
What would this look like in practice? One example of such an intervention would be educational exchanges between China and the US (as well as other countries) particularly in the 1980s. At the time domestic support for reform and opening up was tepid (with the policy almost entirely collapsing in the early 90s). Educational exchanges helped cement support with Chinese students (much more likely to be tied into elite networks) seeing the benefits of the US model for themselves. Whilst I think Fulbright scholarships are funded by the US government, these sorts of interventions have a relatively low cost and could be done privately. If they increased the chances of reform and opening up succeeding by 0.01% they would be worth a ridiculous amount of QALYs.
Another would be the Ibrahim Prize. This offers $500k for ten years plus $200k a year for the rest of your life to any African leader who reduces corruption and respects democratic norms. If that pushes one leader away from refusing to step down after losing an election (knowing he will have a wealthy and pleasant retirement) again it would seem to be incredibly valuable. It could even go further: $500k is pretty low (and only goes to max one person per year) and it could also be offered to a much wider section of the elite. Once the rule of law and enterprise has taken off these sorts of prizes wouldn’t be needed, as the newly empowered mercantile class will have the wealth and power to defend themselves.
Whilst these interventions are incredibly complex to judge the results and don’t have the clear X number of lives saved metric that the giving well foundation can offer for clean water, in a similar way to often argued for AI risk reduction, the size of the opportunity/risk is so large it is probably worth the attempt.
Slightly separately a few comments on the article:
Comparing an investment in Instacart to a charitable donation is very apple and oranges. The VC investment that led to instacart should in the long run give a market rate of return (otherwise less investments would be made until it did). In a sense the investment that created instacart cost the investors nothing in opportunity costs, they received a market rate of return. A completely amoral rich person would probably put some of their money in VC, whilst likely wouldn’t be donating to charity.
I don’t particularly agree Instacart is a great example, it’s a company that derives rents from network effects rather than anything particularly innovative, the service provided is one of mostly transferring time from poor people to rich people, and the jobs created are relatively low value add and low paying. There are clearly companies that the world is significantly better off for having existed, such as Tesla or Tongwei Solar.
On a slightly pedantic note you can’t really put the cost of Instacart at $10bn (when total capital injected is $3bn) whilst also saying you prefer Instacart as an investment over utilities because of better returns. The $10bn figure is fine but assumes an efficient market (I.e. that investors are investing in VC rationally for market returns and so whilst only $3bn has gone in, you have to include all the other failed investments, and that overall VC investments are making a market rate of return). If you make this assumption it is odd to later assume that the risk adjusted returns of utility investments are much lower than VC.
On further pedantic note, the vast majority of Instacart’s $10bn value comes from investor expectations of rapid future growth. Instacart made a $71m loss in 21 and $70m profit in 22 (after stripping out a one off accounting change as now they are making a profit their past losses of nearly $1bn now have some tax benefit). Ignoring all loss earning previous years, at $70m in earnings, growing steadily, you would probably expect a 10-20x price/earnings ratio for a standard largish firm. Which would put Instacarts value at just over $1bn if we used a 15x multiple. The remaining $9bn is based on expectations of rapid future growth in both revenue and earnings. Therefore the cost of creating Instacart - as it is today - is much closer to $100,000 to give 2,000 people grocery delivery.
It seems to me you're forgetting the by far most important thing that's the advantage of capitalism over charity: scalability.
If you're bottom-line positive, you can make the same product until you hit diminishing return to scale. If you're revenue-negative, you have to get more donation money.
This is a 1000x+ scaling advantage. If it's generally possible in that system (laws, security, property rights etc.) to create revenue-positive businesses, you can create 1000s more of them.
Only from other positive-revenue businesses can charity money come in the first place. My impression is wealthy donors give about 1% of their money to charity (I could be totally off), which means you need a ratio of at min. 100 to 1 based on fixed human nature assumptions.
Not a battle-tested argument, happy to hear feedback.
You link above to your review of _How Asia Works_ (https://www.astralcodexten.com/p/book-review-how-asia-works), and it's interesting rereading that essay in the context of this one. One of the key things it talks about is land reform as a first step toward development, and that seems like something that capitalism can't possibly accomplish. Seizing land from big landlords and redistributing it to the rural poor runs exactly counter to the strong property rights that form one of the foundations of capitalism (foundational enough that the Index of Economic Freedom uses property rights as part of its country scores).
It makes me wonder whether anyone's investigated the possibility of charitable land reform, somewhat after the environmental model of buying land in the Amazon and making it a nature reserve. Rich Westerners could buy land from large landlords in undeveloped countries and redistribute it to poor farmers, helping to create that key basis for successful development to happen.
I find it frustrating that capitalism is always treated as this black box capitalism is what we do in the United States, period. I think capitalism is both good and inevitable, but that doesn't mean that the inequities in the way we do capitalism are also inevitable. My dad raised nine kids on one salary, we lived well. That's basically impossible today. What happened is that the fruits of the economy are no longer distributed the way they were in the 50s. The poor will always be with us, but if capitalism worked more effectively there would be a lot fewer of them
On your list for what it might mean to "give to capitalism" you should have "burn some money." Money is just the right to allocate resources. If you burn some money, you're saying "My personal needs are met, and I'm no expert in allocating resources for other people, so I'll forfeit my right and let the economy decide." In the short and medium run, letting the money sit in the bank has the same effect, with the added benefit that it provides personal security if you become needy later. This is what I mostly do with my money.
Could we consider capitalism to be the means of wealth creation that funds charity? If it weren't for capitalism, would we have the resources to create and fund international charities at all?
I don't think it's fair to compare Instacart against Dispensers For Safe Water because Instacart provides services to people in the First World and the charities that GiveWell endorses provide charity to people in the Third World.
Prices are very high in the First World, so you should compare Instacart with a charity that helps First World people. Alternatively, you could compare Dispensers For Safe Water with a company that is similar to Instacart but is in the Third World. Such a company will likely deliver more groceries to more people for way less money than $250 per year per customer.
The consequence of this is that if you want to encourage capitalism you should do it in poor countries that need capitalism the most, not in rich countries that already have capitalism.
> Return on investment. [...] I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so.
I think the factor is much higher than 2. Most people investing in Instacart have purely selfish motives, they only want the ROI, so the other positive effects are free! Since altruistic giving has a non-zero cost, it is infinitely less cost-effective.
The logical conclusion is that one should emulate Warren Buffett, and allocate capital purely to maximise ROI and re-allocate the gains. The argument must surely be naive since Buffett himself gives a lot away altruistically.
Along the same lines as your point 3 is charities that promote self-sustaining development in areas. My friend runs a charity in Haiti that basically funds a few schools, which are mostly taught by locals, as well as initiatives to help train the locals on better ways to produce food and other goods themselves. One of the key components is self-sufficiency, because, you are right, indefinite charity leads to suboptimal outcomes compared to letting the market work out what is efficient itself. However, sometimes capital injections to overcome extreme poverty or knowledge injections to leapfrog years of technical development can be extremely effective.
One thing you don't mention is policy advocacy within developed countries.
Advocacy for increased immigration and fewer trade restrictions might actually be competitive with donation on "human welfare per dollar" grounds, though of course higher variance because you're looking at a *chance* of influencing policy rather than a near-certainty of providing {water, mosquito nets, cash, etc} to recipients.
One very important negative to charity is that it undermines local production of similar goods. When we give food to poor Africans, we destroy their local food production (who can't compete with free foreign goods) and make the next famine significantly worse, creating more death and misery and making it more necessary for foreigners to send food again, continuing the cycle. Long term, a country is better off with local producers of fresh water systems who can create and repair such systems with the added benefit of local jobs. You get all of the benefits of the charity (fresh water) while insulating the people from the negative effects and training locals in useful skills at the same time.
The thing about capitalism is that it's really about markets. You need a real market with prices that reflect real supply and demand for capitalism to work well. Charities are a type of subversion of the market, since they distort prices. We don't need investment (capital) nearly as much as we need markets (price signals). If you think of Capitalism as investments, then it's a mixed bag compared to charity. If you think of Capitalism as markets, then it clearly wins.
With functioning markets, people can invest in poor foreign countries and provide services for a known or at least estimated return. Belt and Road doesn't work, because it's not based on markets, it's a type of command economy. Heavy infrastructure investment can work for building a country up (it did in China), but it's not a real economy and creates distortions that can come back to bite later (as it is doing in China). There's no guarantee that heavy infrastructure investment will even help, which you can see in a lot of Eastern Europe in the 1990s but also places like Venezuela more recently where money was thrown at projects but didn't really do any long term good.
The capitalist way to better the lives of poor people is by buying their products. Work to eliminate restrictions on free trade which mostly benefit rich countries at the expense of poor. Tariffs, for example.
Reducing agricultural tariffs would help poorer countries which have little to export but agricultural products. The United States has relatively low agricultural tariffs, averaging around 25%, but they are not 0%. Launch an advertising campaign explaining how these tariffs hurt farmers in poor countries. Push back on the "Buy Local" mindset by illustrating how this affects poor farmers around the globe.
Somebody arguing that you should spend your additional dollar on goods or services you want instead of charity needs to argue why spending $100 on the for-profit company that makes the thing you personally want is better than spending $90 on the for-profit company that makes the thing the charity wants + the direct impact of the charity.
(I assumed 10% of the charity's donations are spent on things like their administrative staff, which is an overestimate for AMF.)
Regarding the confusion around Instacart's revenue
It's not necessarily the case that all of their customers are long term users paying the discounted rate. Some of their customers will be churn-y, paying a higher fee for a shorter time and then unsubscribing.
At any given moment in time, a snapshot of all current customers will include a percentage who are of this kind.
What about putting things like Microfinance loans in the funding capitalism frame?
There are numerous charities that do this in some capacity, it generally funds individuals that want to start/expand their small businesses in a way consistent with "funding capitalism" and it has ongoing benefits in that the loans are (generally) repaid and then reinvested.
First off, Instacart is a bad example, because you picked the typical marginal company in a developed capitalist society. To have a better one, go back to the 1860s and put seed money into the first companies developing the electric grid. That compares a lot better with charity since it's a marginal company at the beginning of capitalist developement. Or go back to 1300s europe and help a few capable individual set up commercial trade - you'd be contributing to the culture that eventually generated civil law, which is an amazing technological externality of trading wine and spice around.
But that would lead you to the wrong conclusion that you should invest in developing countries. This will work only some times. And that's because in some countries the government and whole social system is designed to explicitly oppose capitalist developement (I'd suggest "the dictator's handbook" as an introduction), while in others it's severely hindered (other useful introduction: "why nations fail"). So, apart from investing in the few remaining developing countries that are not already en route to developement, what can one do?
Investing to change the aforementioned countries' social institutions to remove obstacles to capitalism is unlikely to work (afaik there's no clear way to do it), and likely beyond the means of something smaller than a nation state.
If you can't bring capitalism to the people, bring the people to capitalism. Another way in which capitalism is hindered around the world is by restricting immigration. The potential of millions of people to add their marginal contribution to capitalism-induced well being is wasted by keeping them inside the borders of countries that don't want them to employ their talents. For each capable human you safely help or sponsor to successfully move from an undeveloped country towards a mature capitalist society, you are "donating" to capitalism the difference between their original expected income (let's say $1500 per year) and their expected "capitalist" income (median wage in the us should be around $40k per year), for every year they are alive, which compounds with every children they have in the country.
I wonder if the answer is investing in companies based in areas without an economy. (Much of Africa, for instance.) One company that could survive would create jobs for the surrounding area, and they would start spending their money there, which would make it rich enough to create clean water and do all the other good things for their community that the U.S. is able to do.
A somewhat false dichotomy - without capitalism you won't have any sensible charity. There would be no surplus funds to make charity with available (there would be some surplus funds though, sadly captured by the ruling apparatchik class). Speaking as someone who regrettably, by the lottery of birthplace, had to spend half of his life without capitalism.
My rule of thumb is that capitalism is good at growing the pie but relatively bad at apportioning it. Capitalism is great at what it does, which is exchange between parties where each one has something the other wants and will pay for. But then there are market failures, especially things that no one wants to or can afford to pay for, like clean water for extremely poor people. Hence redistribution, regulation, and charity.
In practice, both capitalism and charity have varying degrees of success, but it seems clear to me that they are complements. There are good and bad companies, and there are good and bad charities. One category isn't really better or worse in our current world, although if I were in a thought experiment and had to pick I would take capitalism (or enlightened autocracy in theory, but this generally doesn't work out in practice) without charity rather than vice versa.
There's a lot more money looking for investment opportunities than there is in the charity world, so that would tend to favor charity from a supply and demand perspective. However, many of our challenging problems like housing supply or better healthcare can't really be solved just by charity. So it's one of those questions where the answer changes shape depending on which piece you're looking at.
> I’m going to summarize the deal that Capitalism offers by allowing Instacart to exist to “For $1 million, you can give 2,000 people a great deal on grocery delivery”.
I think the error is here. The real deal is “For $1 million, you can give 2,000 people a great deal on grocery delivery, plus shares of a company that are worth more than $1 million.”
I think this pretty much solves the issue? Surprised I haven’t seen more comments saying this directly.
Scott, have you validated that Dispensers for Safe Water's claim of $1M = safe water for 50K people for 10 years => 1500 lives saved is in fact true? Seems like you're working with hard numbers (admittedly with some assumptions) on the Instacart side, but with a press release on the Dispensers for Safe Water side...
For (3), you missed one interesting use of money, which is lobbying to make capitalism work more effectively in your first-world country of residence. As you've noted in the past, the amount of money spent on lobbying is both large on paper but tiny in comparison to the economic value it can influence. Of course, first-world markets work better than third-world ones so there is less low-hanging fruit. But they are also much larger and more receptive to lobbying, which more than offsets this in my view. You could also envision reforms, like lifting individual donation caps so that lobbying can be done more flexibly than via SuperPAC. This leads to uncomfortable conclusions, like the potential that the Koch brothers are spending their money more effectively than Peter Singer.
Also on approach (3), there's a great way to make investment in third world countries better, without sticking your neck out yourself. Make it easier for Wall Street to do it! Maybe you can't identify the right Kenyan Dam, and Wall Street doesn't have the power to do it because of various regulation such as the Foreign Corrupt Practices Act, PATRIOT Act, and AML Laws -- things that the Chinese Govt can skirt to operate more flexibly and create win-wins.
On approach (2) The "return on investment" is stipulated to help by like a factor of 2, but it's really more like a factor of infinity and explains ~all of the advantages of capitalism over charity. The compounding of advantage from investment dominates everything else in the long run. Also Instacart is a public company, and one of the worst possible examples of (2). Doing good via approach (2) looks more like YCombinator, funding novel / ambitious / risky new technology that could be big. The more inefficient the market, the more good there is to be done. Perhaps you wanted to count this benefit as "permanence", but I think it's cleanest to lump "permanence" and "ROI" together.
Maybe this is what you mean by "impact investing" but wouldn't the best option be to provide investment/seed money to a startup company which provides economically priced products for the poor?
In this way, you could create jobs, provide poor people with resources, and also possible get a return on your investment so that you can rinse and repeat.
Within capitalism, charity is a consumer good. You can’t compare capitalism to charity because it’s apples to oranges; capitalism rewards economic control, while charity is a way to fulfill the human need to help others. If you want to help people by encouraging capitalism, you can’t do it by purchasing instacart stock, as you pointed out clearly. Instead you’d donate to political charities or economic assistance organizations that promote the creation of freer markets, whether through regulation or direct assistance.
I think the way to square this is by interrogating what aspect of capitalism has led to the massive increase in well-being — the creation of technologies like electricity, computers, antibiotics, that spread widely and make everyone's life better. Capitalism is a blunt tool; it gives everyone an incentive to make money, and one way to make a whole lot of money is to create this kind of technology. It's this aspect of capitalism that has created ~all of the increase in material well-being since pre-industrial times. It cannot be replicated by charities.
> Some sense in which the US is rich and a good place to live, and each successful company contributes to this.
This is certainly true in aggregate, but I do not think that it is true on a company by company basis. Capitalists are only aligned to if externalities are captured in their incentive structure by some artificial means.
The mob running a protection racket might be a successful company (unless one has the regulatory framework to deal with it). A patent troll might be a successful company. An app vendor pushing free-to-play Skinner box games on kids might be financially successful. A ransomware enterprise might rake in big bucks. Does whoever have a monopoly on epi pens in the US provide ten times as much value per pen than their EU competitors? Are the companies which provide fossil fuels or try to invent AGI well incentivized to consider the overall effects of their endeavors on the global population?
I share Scott's opinion that capitalist companies are instrumental in making the US a decent place for living. But their objective is the shareholder value, not some abstract ideal of honest competition, which is a strategy of last resort for making money if you can not achieve a regulatory capture or monopoly status.
More generally, I would argue that effective charity basically fills the gaps left by the free market. People who can afford to spend 20$/person on safe water dispensers should just buy them, but for the ones who can't afford it, charity can pick up the slack.
(I also do not believe that anything which could possibly be provided on a for-profit basis should be provided in that basis. Scott providing most of his articles for free is fine. Free/open source software is fine. Natural monopolies (e.g. road infrastructure, water supply, or the early telephone network) can also be well provided by publicly owned utility companies on a cost covering basis.)
You actually almost CAN write a check to capitalism directly, though, by pushing for a Georgist land value tax and universal basic income. Moloch, relentless and shortsighted as a cat chasing a laser pointer, promotes the interests of whoever has the most property rights. Shift allocations away from exclusionary speculators, toward "an equal slice of the rent for every citizen," existing engines of capitalism will turn and cater to the formerly-desperately-poor, in direct proportion to their newly expanded ability to pay.
I am currently traveling/touring in Laos, and one of our guides, an english speaking university graduate, told me he want to go for work NGOs for the money, that is where the big money is at. Not at business, not at government, NGOs.
While this post addresses how individuals should spend their money, it does little to address how large organizations or movements should orient their goals or whether said movements are good or bad. In this context, the claim that capitalism is better than charity can be seen as an argument against the effective altruist movement, while not an argument about individual spending decisions.
For this argument to follow it is necessary to observe several facts: the effective altruism movement is not merely about donating your money to the most efficient cause. It is also about participating in a given social structure, researching the efficacy of charities, and selecting a career path. These things are not essential, but to me, they are far from non-central. Second, money donated to effective altruist organizations goes in part to employ people to determine the most effective use of this money.
Thus, I take the argument capitalism is more effective than charity to mean that a) EA organizations frequently direct people away from careers with high returns or direct them away from social enterprises according to capitalism by altering preferences. People who go on to start charities may have started successful tech companies instead, and as a result, redirect value. Likewise, they may enable people to launder their reputation by encouraging people to look away from business fundamentals and best practices, and pay attention to their altruistic pursuits instead. b) EA organizations generate insufficient social value to offset these losses, because capitalist institutions matter more than charity implying that charitable donations will have only muted effects in areas without capitalist institutions, and as a social movement, EA would be more successful if it lobbied for capitalist institutions.
Now personally, I suspect both of these arguments are false, but I think it is worth considering them. For example, I certainly think it is possible that EA causes individuals to place too high of value on AI safety, and thus discourages them from taking other roles. Likewise, I think EA doesn't adequately consider it's own ability to impact and steer social institutions.
TL;DR—Capitalism being better than charity could be a critique of the EA movement rather than individual decisions. This critique is substantive if EA made the wrong individuals less sensitive to market returns, and this decreased aggregate value. Alternatively, if EA could lobby for more capitalist institutions effectively, than this may have a more positive impact than charity.
Wait, how is the answer not just "the charity I'm giving to operates within capitalism and by spending my money will contribute to economy in exactly the same way and amount I would if I spent it on other, presumably non-charitable things, all I'm doing is acting on my preference for someone to have safe clean water".
(That's of course granting the assumption that capitalism is a net good in the first place, which I do not share.)
the best part about Capitalism is that you can spend the wealth you generate by producing stuff other people want on the stuff you want.
so like, if you want to reduce malaria in various places, you can pay for a bunch of other people to make mosquito nets, and someone else to ship them, and someone else to distribute them, and....
Instacart charges fees even if you have the subscription. They're just no delivery fees, but they tack on service fees, and additionally mark up prices.
Before you can donate to charity, someone must have made a profit. That's the only place charity can come from. Someone has to have made the money first.
Plus, it's not just a transfer from one area to another: growth compounds. Do you want to grow the pie or redistribute it? It become just a math problem to figure out how long it takes for the recipients of wealth transfers (say, "the poor") to be worse off than they would have been if the transfers had been used to increase wealth instead. Poverty is the #1 killer of humans, and prosperity is the thing that extends life (and is strongly correlated with happiness too).
Charity is putting the money where it will do the least good, with the lowest return. Growing the pie is where the return is highest, and it compounds forever.
Also, there are basic questions about the motivation for charity. Is living a guilt-driven life a good thing? Ayn Rand would call it living for others, rather than yourself.
I think some of the dissonance in the results of: capitalism vs charity and instacart vs clean water are thermostatic effects.
In a country (world) where capitalism has been a driving and successful force for centuries, it makes some sense that at the margin adding more capitalism has a smaller effect. Charity has less direct self reinforcement mechanisms, and coupled with the nature of new charitable causes coming up (AIDS in the 80s), you’d expect pretty high marginal impact available more regularly.
I also think the example is a little contrived, I wonder what you would think about instacart vs whatever the median charitable gift is — a tithe to a church or something.
One could also come up with an extreme example for instacart, how do you calculate the expected value of investing in the instacart series A round? That might compete a lot more closely versus now that it is a mature company with a huge market cap.
Capitalism produces a large output because it gets a large input.
The amount of money/resources that humanity overall puts into capitalistic systems is large, compared to the amount that goes to charity.
>It would seem that capitalism is better than charity. The countries that became permanently rich, like America and Japan, did it with capitalism. This seems better than temporarily alleviating poverty by donating food or clothing.
There are just not enough charitable dollars to give that many people that level of wealth.
I'm assuming your thought is, "How many anyone-utils can I buy for $X with investment, purchasing, charity and charity-investment?" You'll get a much bigger number for charity, which isn't surprising because that's what charity is designed for.
Capitalism produces more utils in total because capitalism is [compares US GDP to a random unchecked google result for total US charitable donations for a lazy statistic] about 50 times larger. Part of that is because capitalism has a way to grow itself which charity can't, part of it is because people will inevitably be more drawn to participate in capitalism than to give to charity.
If you had a hypothetical charity-based economy, it would romp home. This could be modelled as everyone's individual utility function being replaced with a total human utility function.* I can't really comprehend what it would look like (even the most extreme anarcho-communists don't go anything like this far; this is Kingdom of Heaven stuff),** but I'm not sure you'd have anything resembling a functioning market. Anything you would normally pay someone to do they'd already be doing anything as their goals would be completely aligned with yours.
That's obviously absurd though, which is why charity is always an ancillary project of another system. Increasing the amount of charity on the margin seems to be inevitably the right call for any individual-scale donation though.
The remaining 2% is the principle-agent problem involved in charities, which is largely solved by direct cash transfers. These also have a second-order effect of stimulating local economies, as the water-pump shop owners of rural Africa can go and invest their money in mosquito-net shops which employ more people who can buy more water pumps.
*Technically, people would each have a slightly different utility function, as it would be the amalgamated utility function of everyone who wasn't them.
I see the distinction of charity vs. capitalism as incorrect; our concept of charity exists only in the context of a capitalistic system. There's plenty of charity in pre-modern systems, but it's largely bound up in kinship relationships. A modern charity is where the benefits flow to the recipients regardless of their social relationship to the ultimate givel. Indeed, I've seen the Economist state that you can't fully industrialize without a state-supported welfare system that enables people to shop their skills to the best-paying employer without fearing that getting laid off will cause them to starve to death.
Seriously missing how capitalism works here. You don’t “give” $100000 to instacart, you. BUY it. You still have it, unlike your donation. On average, it costs you LESS THAN NOTHING to assist Instacart. You are comparing giving with investing for the same nominal amount but that makes no sense.
The underlying problem is intellectuals that universalize and moralize individual choices. All you need to say is "I don't want to give to charity." you don't need to say "my not giving to charity is better than your giving!" because charity is an individual choice.
The intellectual kind of frames too many choices that way. You don't just like wine in moderation, it must be a health benefit. Having/not having kids is about the future of man; it can't just be one man's hope or fear. When you do that the unspoken thing is that these really aren't choices, they are moral duties or commands.
otherwise its silly; the economic system you are under creates money you choose to give alms with. They are not competitors any more than a basketball court is with basketball players.
I'd like verify your analysis here. Could you link me to where Givewell documents that $X will chlorinate water for Y people? I scanned all of the posts they had about water quality interventions and couldn't actually find it. Probably I'm just blind. I'm skeptical of your figures because the 3 charities listed on Givewell's "Top Charities" page all have costs of $4000, $5000, and $5500 to save a life. If water treatment was nearly an order of magnitude better then I would expect it to be listed there.
In your point on ROI you say
" I agree this is an important distinction, but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so."
Could you make your math explicit here? I'd like to know exactly what effects you included. Also, isn't a factor of 2 actually kind of important? Being able to do twice the amount of good in the world is a big deal, especially since that surplus compounds over time.
I'd also like to question whether it's appropriate to compare a randomly-chosen investment option to the single most cost-effective charity that a dedicated team of analysts could find. Isn't the fair comparison to look at the returns of the best available investment option that a dedicated team of financial analysts could find? Warren Buffett makes his investment advice freely available to everyone and Berkshire Hathaway has averaged something like 20% returns since 1970.
Does capitalism beat charity? I guess that means, how should I divide my disposable income between investments and donations? The boring economist answer is, it probably is not worth worrying too much about, since at the margin your effect will probably be small. The EA response, I guess, is go ahead and do the math and hope to be a useful drop in an effective ocean. Or maybe, try to seek out the margins where you can actually make a difference.
It’s hard to try to steer capitalism, and even how to give it a helpful push is not so obvious. This is due to the sort of problems that make capitalism preferable to the alternatives, which have the same problem to a greater degree. Capitalism, when it works, helps people help themselves, neatly avoiding the problem at the core of EA concerns.
You wrote an earlier post, Beware Systemic Change (https://slatestarcodex.com/2015/09/22/beware-systemic-change/) that sums up my objections to this post. Here, capitalism is systemic change, and one should not donate to it. This is perfectly consistent with the idea that capitalism is more effective than charity. It is just that donating money is a poor way of promoting capitalism. Donate to specific causes with good ROI for the recipients (for example, charities with a high QALYs/$), and use other means to promote the more nebulous causes where the ROI is difficult to measure, such as capitalism.
Also, when people say that capitalism is better than charity, they don't mean any specific company. Using Instacart (or any other company) as a point of comparison with charities is a poor way to go about this. What they mean by capitalism is the whole set of institutional arrangements that makes prosperity happen. Once these institutions are in place, there is no need to charitably give money to Instacart: Wall St. and venture capitalists will provide it money anyway. Likewise, without these institutional arrangements, Africa's potential Watts and Arkwrights will continue to toil in the fields and hope that the warlords stay far away.
The key problem is putting the institutions of capitalism in place. This is Systemic Change, and it never worked through charity. Rather, it involves things like England's Glorious Revolution, the French Revolution (https://www.astralcodexten.com/p/the-consequences-of-radical-reform), and semi-capitalist reformers like Park Chung Hee and Deng Xiaoping (https://www.astralcodexten.com/p/book-review-how-asia-works). In many cases, successfully promoting Systemic Change leads to failure anyway because the reformers were clueless and had terrible ideas (socialism, neoliberal shock therapy, the War on Terror in Iraq and Afghanistan). This leads to my objection to point #3: if you donate to one of the think tanks promoting capitalism, you don't know whether you are funding a capitalist reform that will be successful or whether you are funding a capitalist reform that will fail and backfire catastrophically. That is why the discipline espoused in Beware Systemic Change seems to be such a good idea.
The comparison of Instacart with a charity is a false one for many reasons, including:
1) Businesses seek to make money, charities seek to provide benefits (at least they are supposed to)
2) Food delivery is a luxury, not a need for the vast majority of people. Yes, disabled and elderly people do need it but Instacart is not built on a consumer base of disabled and elderly people; it is built on a base of moderately to very rich people. There is a difference.
3) Capitalism seeking profit does not equate to societal benefit in many areas. The entire point of regulated utilities, the DMV, etc is to provide a necessary service at the lowest price - not the highest profit.
This doesn't even get into the issue of how Instacart really operates as a way to get around labor and compensation laws, or how it uses/abuses its "contractors".
A far better example would be FedEx and the US Post Office.
Yes, Fedex is great if you are moderately to very wealthy.
Yes, it is terrible if you're not moderately to very wealthy and/or if you live in a low density/rural area.
The point of the Post Office was never to make money - the point was to provide mail service to knit together a far flung, widely dispersed American people. If Fedex could make more profit serving the 10 million richest people in the US, they would be perfectly happy to stop serving everyone else - but of course that's what the Post Office does.
I don't have any issue with the existence of FedEx, but failure to recognize the purpose of the USPS is very common.
>I agree that overall capitalism has produced more good things than charity. But when I try to think at the margin, in Near Mode, I can’t make this argument hang together
You're missing the forest for the trees here. The "overall effect" of capitalism is nothing but repeated applications of Near Mode marginal choices. It's good in aggregate because it's an accumulation of many small individual decisions that are good in isolation. Your argument is the equivalent of saying "Look, in aggregate this gold bar is obviously more valuable than this lead bar, but when I look at the individual atoms I have a hard time seeing why any particular atom is any more valuable than any other atom."
The only loophole is the possibility that there are nonlinear effects. And there are. The problem is that they all go in the direction of capitalism. Capitalism has compounding effects. It grows exponentially. That's because it enables technological development which increases productivity which makes technological discovery happen faster. It's the greatest virtuous cycle in history! Even if your moral system bottoms out in "number of lives saved," capitalism still wins! Lives saved is a linear function of wealth, and wealth is an exponential function of time. If you have money to save X people today, invest it at 7% and save 2X people in 10 years. Future people aren't less morally valuable. And in the meantime your money will be put in the hands of people who can make permanent positive changes to the world. You gesture towards this in your "Second Order Effects" point, but your analysis is deeply flawed because you make a false equivalence between the marginal value of people's time in first world vs third world countries. People's time in the first world is CLEARLY more valuable. Just look at how much more technological and scientific innovation the first world produces relative to the third world. It's not even close, and that's all that matters in the long run.
As the great Richard Feynman explained when he clashed with a socialist group, "It isn't the stuff, but the power to make the stuff, that's important."
First world countries are good places to live for two reasons: they have good (e.g. high IQ) people and good institutions. That's it! That's all that's necessary to release the genie of exponential technological and economic growth. When thinking about how to make the future better (modulo tail-risk stuff, which clean water in Uganda doesn't address) technological progress and self-sustaining economic growth are ALL THAT MATTER. Just like Feynman said. They're the only things that move the needle. So if you tell me that your charity has a goal of seeding good institutions that will plausibly lead to self-sustaining growth, then I'm all for it. But if the goal is just "keep poor people from dying" then you're making no difference except transferring resources from an effective culture to an ineffective one (and keeping poor people from dying doesn't change an ineffective culture into an effective one - if anything it makes it even more dysgenically ineffective). This kind of charity makes the world worse.
>Instacart is self-sustaining: after some initial investment, its profits pay for its benefits to continue forever
Surely this is an argument *against* spending your money on Instacart? Since it can sustain itself just fine without your charitable dollars?
This would be an argument for developmental aid of various sorts (to create these self-sustaining companies), but not for investing in capitalism simply by spending money on things you want.
What a delightfully short post on some exceedingly complicated and difficult subject matter. Ultimately, I think you're a bit off the mark here, drawing a false equivalency. 'Dispensers for Safe Water' would be mostly useless if it operated exclusively within the US, similar to how Instacart would go bankrupt if it set up shop in rural Africa. DFSW is effective because it operates in poor or corrupt areas with little access to clean water, while Instacart is effective because it operates in areas with enough excess cash flow to render such basic necessities irrelevant. If we're going to place charity and capitalism in competition, we need to compare wealthy with wealthy, and poor with poor.
So, DFSW should be in competition with local water suppliers, while Instacart should be compared with, say, Toys for Tots. These examples also aren't perfect, but make for more salient comparisons. DSFW is easier to send your money to, more reliably effective in saving lives, but also outsources a segment of the local economy. Sometimes this is great, allowing locals to focus on expanding other, more lucrative ventures, and sometimes it backfires, preventing the establishment of local infrastructure which would provide clean water on a more or less indefinite time scale. You can't compete with free, after all. Toys for Tots and Instacart both serve to make people happier, but Instacart is more explicitly need dependent. If people don't have the extra cash, or aren't too concerned about convenience, then Instacart disappears. Toys for Tots, on the other hand, will supply Toys to Tots, regardless of whether those Tots need Toys, or food, or backpacks. Charity is inflexible in a way that capitalism isn't, and can potentially lead to some significant misallocations of charitable intent, often by accident.
Personally, I don't think solutions are mutually exclusive here. Capitalism is a flexible, broad system, built up by an individual, often unintentional willingness to continually improve and expand the mechanisms which drive it. This makes it excellent for long-term success, but also makes it difficult to implement. Charity is simpler, and typically much easier to put into practice. It's pretty rare for someone to complain when you offer them free money, after all. As such, charity can serve as an excellent stop-gap, when capitalism is difficult or impossible to implement. But, capitalism really does offer a better long-term solution. Good capitalist work in other countries reduces the need for charity in the first place, and allows charity funds to move elsewhere. Heck, a booming economy is basically guaranteed to contribute to charity funds themselves, which is exactly the kind of compounding good worth pursuing.
Ayn Rand's Objectivism is perfectly okay with philanthropy as long as it is a mutually voluntary action (i.e. not coerced by government), a reasoned decision motivated by one's own values (i.e. not by guilt) and without compromising one's own well-being. It seems to me that something like donating 10% of one's income to effective charities passes these criteria.
(Ironically, the people who are trying to make you feel bad about your voluntary charity donations would be the bad guys from the Objectivist perspective, as they feel entitled to dictate how you should spend your rightfully earned money, using social pressure.)
In the hypothetical world of Spherical Cow capitalism, there would be no opportunity for charity, because everyone's needs would be already satisfied by the market. By the same logic, there would also be no opportunity to start a company, because all reasonable opportunities would be already exploited by someone else. Clearly, we are not living in the world of Spherical Cow capitalism. If you can find an opportunity to start a new business (and sometimes make billions as a result), there are probably also opportunities to do a lot of good using charities. Especially considering that EA only recommends a tiny fraction of all existing charities.
In a hypothetical world of perfect freedom, zero transaction costs, and perfectly rational actors with complete knowledge, most charities would be useless, because if I can spend $1 to somehow increase your lifelong earnings by more than $1 (for example by saving your life or improving your health), such charity could be converted to a trade... and indeed it should be, because that would mean that I can later help another person using the same $1. But the actual world is not like this, so sometimes good actions in the actual world are the ones that would not make sense in the hypothetical world.
There are probably possible some very nonstandard ways to create a lot of good per dollar, for example by assassinating the world's worst dictators (and making it publicly known that if you pass certain threshold of evil, you will be killed). But there would need to be a political consensus on this, which is unlikely to happen; for example many powerful people would realize that such system might put them in crosshairs a few years down the line, so they would oppose it strongly from the beginning.
Does eating an avocado toast beat capitalism? When I spend $5 to buy and devour an avocado toast, there is a human being (myself) that enjoys eating it. Also, this human being is being sustained to be able to earn more of $5 to buy more avocado toasts in the future. If I invest $5 in stock market, I do not get to enjoy an avocado toast right now. I might be able to buy two avocado toasts in the future when my investment pays me dividends or is disposed of, but even then the enjoyment I will get will be from two toasts and not from the dividend or stock sale events. Any enjoyment of the prospect of future gains in my equity portfolio is just an enjoyment of future toasts I will be able to buy with these gains. Thus, eating an avocado toast beats capitalism.
Charity giving is a good alternative to eating an avocado toast. It subtracts one human being enjoyment of a toast, and it saves the life of another, much poorer, human being in a remote country. The tradeoff of a life vs toast enjoyment is pretty compelling on its own. We do not need to resort to second order justification for that such as "saving people’s lives allows them to engage in productive activity too". Which is just as good because these justifications are false: if someone's life can be saved for $5 it is very unlikely that they are able to engage in productive activities much more valuable than $5 (on average and possibly through no fault of their own.)
Is comparing avocado eating to capitalism a fair comparison? I do not think it is. Capitalism is the system that allows me to eat avocado toasts regularly. Other systems are known to result in far fewer toast eating opportunities. So capitalism (and improvements to capitalism) are much more important than eating an avocado toast, even though we have already established that eating an avocado toast beats capitalism. The same is true for charity.
In your Instacart example, the arithmetic should be different. It is irrelevant that Instacart provides groceries to 10m customers for $250 each. Their consumer surplus is positive but we do not have any reliable way to estimate it - may be it is $1 per customer on average, may be it is $1,000. What matters is that Instacart turned $5Bn of VS investment into $10BN of VC value (plus an unknown but positive amount of consumer surplus.) These VS could have saved many lives for $5Bn in 2012, presumably, they can save many more lives with $10Bn they have in 2023. If the life saved discount rate and inflation over this period compound to less than x2, Instacart (and capitalism) beat charity; otherwise, charity beats capitalism.
Invest in or start a company that will be a low-cost high-volume provider of goods in the countries you want to help. Econ 101 tells us that shifting the supply curve to the right increases the total surplus. You accomplish this with economies of scale, amortizing fixed costs over a larger volume of product. Think Walmart, Amazon, Costco, Home Depot, Exxon, Shell, Volkswagen, Toyota. These are the companies that make the rich countries rich. Just go on a stock screener and sort by revenue.
The "bad" companies are the ones with high profit margins based on advertising gaslighting people that their brand of poison is better than the alternatives when it isn't -- Coca Cola, Altria, See's Candies, etc.
Another way to frame the argument for charity is that charities can help particular people that capitalism has no incentive to help.
Pure capitalism will always leave some losers at the margin - people with no money, no familial support, and no marketable skills. Capitalism wants to sell them stuff, but what do they have to pay for it? If you have zero money and no way to get it, then capitalism is not particularly interested in helping you.
(Note that here I mean "pure" capitalism - not the mixed system that we actually live in in the U.S. where government programs and redistribution can fill some of the same holes that would otherwise only be filled by charity.)
The efficiency of (pure) capitalism helps improve the average case, but doesn't necessarily do anything for the worst case.
Your summary of Instacart doesn't make much sense to me. Surely if it's a successful company, it should be making money, not losing $500 per customer as your summary suggests. Anyway, the companies that do good things but lose money are kind of like charities, so let's focus on the ones that do make money.
Profitable companies have good (hopefully) impact on the world and make their investors richer, charities have good (hopefully) impact on the world and make their investors poorer. Given this summary it's clear that most people are already investing in companies, so I'd expect charities to be relatively underinvested -- if you have $1m that you don't need, give it to the charities.
"(also, I’m concerned that even though rich countries got rich because of capitalism, it’s no longer that easy for poor countries to get rich with the same type of capitalism - existing rich countries will outcompete them "
It's interesting to me that you chose Instacart to compare to a charity, because when judged as a business it's lost money for its owners since inception and continues to. In some ways it is a charity. According to their most recent filing, owners have put in $6,395 billion and business has lost $2,734 so far. It costs them money to give you that service. The stock price goes up, but the company is bleeding economically.
Every business analyst is pretty much perplexed why it and so many of its peer companies are trading at the prices they are. The ONLY way it's worth that figure is if they're able to turn wildly profitable in the future. We haven't seen the full story yet.
The 1500 lives saved per million dollars per life saved seems too cheap. That's like $667 per life saved. GiveWell estimates their top charities save a life at 3.5 to 5.5k usd. So maybe we're talking closer to 150 lives saved rather than 1500 lives.
Still doesn't change the basic argument, but good to get the facts right.
I don't know whether this comment is a violation of ACX comments policy so I'll broach the subject carefully. If you look at rich, successful Japan and compare it to poor, disease-ridden Africa that doesn't have clean water, the actual explanation for the difference isn't to be found in the relative merits of markets versus charity.
It is to be found primarily in what I shall call Heinous Bad Discourse, also known as the Voldemort topic.
If you won't discuss that then the whole post is a waste of time.
In cases where the Voldemort topic doesn't apply like North vs South Korea it's pretty obvious that markets are better than charity as far as creating wealth goes. Singapore is another example - good governance plus markets.
I feel that EA as a whole walks around with a massive blind spot. Voldemort is pretty much the most important thing about the world when it comes to generating good outcomes. But EA cannot discuss Voldemort because it's Forbidden. So you have this comical situation where the world's society for good outcome production can't talk about the most important causer of outcomes. Lol. Lmao, even. It's been like this for over a decade now. Africa is still a disaster. Some countries even got worse. The world overall is clearly in a worse state than when EA got started. And here we are, in 2024, discussing markets vs charity. Sigh.
The current cost to society of allowing instacart to exist is not its market cap, or paid capital. If instacart ceased to exist that value wouldnt go anywhere it would just show up as a loss to investors.
The cost to society is some version of its annual expenses. In particular the payroll. If instacart ceased to exist, these workers would do other things, along with other resources instacart may have tied up, like its building lease. This is the economic way of discussing the idea that instacart doesnt create jobs. It consumes them and creates deliveries.
If you wanted to altruistically invest in capitalism you would want to invest in companies you think are likely to increase worker productivity the most, directly or indirectly. Instacart is very end-consumer oriented. Doesnt seem like it has any first order effect, but maybe saving time for the professional class has a lot of long term value.
Okay, I am launching an EA ETF. its chooses companies based on this. Ground floor. This is the next ESG. Get in while you can.
Firstly, capitalism is good for QALY because it raises worker productivity. The US can meet its basic needs by employing like 5% of the population in agriculture, food processing, utilities, and home construction.
Charity as presented here works essentially be assigning high productivity workers to the basic needs of low income communities. The channel is not sending PhDs to these locations, but a) inventing things like portable water filters and b) funding the manufacture of them with donations from productive workers.
Certainly as charity is directed to QALYs, and capitalism is not. Charity get more short term QALYs. But its also the case that if in 1750 all the worlds wealthiest countries directed their entire economies to basic needs for the world we would not be able to create so much clean water with the one years income of 15 average workers today. Does each charitable indulgence destroy QALYs in the long run by reducing growth?
Growth economics tells us that growth economics comes from investment not consumption. I am not going to question that here. There has to be some non zero consumption for the investment to pursue (for future earnings) but at the margins consumption funded charity does not decrease growth and buying instacarts services does not contribute to growth. Surely their cant just be $1 dollar of national consumption either though. I think as long as interest rates are positive though we can conclude 0 effect on growth from consumption changes.
How much growth does investment cause? US investment is 20% of GDP. GDP growth is 4%. India investment is 30% of GDP. GDP growth is 7%. Similar ratios! Lets say 1$ invested creates 20c of growth on average( kind of neat that stock returns 10%, suggests rewards are evenly split between investor and society) It seems like the marginal impact should be smaller even though India got the same ratio. Again interest rates seem like a floor. So somewhere between 20 and 5c.
How much QALYs does growth create? Well most people are not EAs. So $1 of US growth creates very little charitable giving. So the only channel that US growth creates significant QALY is through efficiency in production of basic needs (inventing water filters in the example above). Basic needs production is a small fraction of the US economy though. But we could target the investment. Tyson Foods (if we ignore animal suffering) creates lots of QALYs right? It feeds millions of people with a 10% market share in US food processing, it could create more with investment. Lets assume for a moment that returns to productivity here mirror the wider economy. A 5 to 20 pct return on basic need production efficiency to me looks attractive.
But even at Tyson a lot of the investment is not optimized for QALYs. What if there was a food company with Open AI governance. It competed in the free market but focused all of its research on relentlessly grinding down the cost of the cheapest food stuffs, and never made any attempt to move up the quality curve. You might actually see something approaching a QALY return rate of 4 to 20.
There is also of course growth in the lower income countries. When I started this analysis I thought maybe since all the absolute growth is in the US that it might not be a good channel. But India gets the same absolute growth per absolute investment. And production in developing economies is probably far more targeted to basic needs and therefore QALYs than the US. The faith in capitalism play would be to favor investment in poor country's companies over any planned intervention like micro credit.
Now since all this is framed around worker productivity I have to consider does direct QALY buys raise this? There is nothing less productive than a corpse. It seems like it should, but as distasteful as it is to consider, these are very poor people being saved and they might be more of a mouth than a brain. If these QALYs were super valuable economically, would we see lots of indentured servitude financed charity? Do we see that? What it would look like?
Well overall an EM heavy investment portfolio willed to GiveWell on death seems to me a more attractive play than I considered before. And would be an easier sell to marginal EAs than a 20% oath.
Er…I feel like missing something here. Why is "donate to libertarian nonprofits" which advocate for more capitalism (perhaps in foreign countries which need it more) not on this list?
Is it correct to state that your examples constitute "giving to capitalism"? I don't see that allocating money any particular way within the framework of capitalism is what causes it. There are probably historical och cultural-evolutionary paths to capitalism, and when the institutional or cultural prerequsits are in place, capitalism is the emergent phenomena that we see in the aggregate of human interaction. In a place that lack drinking water, the cultural and institutional factors that promote the situation we interpret as "capitalism" are not (sufficiently) present, and thus resources are not allocated in an effective way, where the criteria for effectiveness include the aggregate of all human preferences, scaled by the amount of resources respectively individual controls (including money and IQ).
If they’re competing, than neither one can be good.
"Do something like donating to charity, but the donation should go to charities that promote capitalism somehow, or be an investment in companies doing charitable things (impact investing)"
One interpretation of this is that donating to the Grameen Bank is better than donating to the Heifer International.
Capitalism can't beat charity, which is why it must have taxation. And the desire of the top-most capitalistic winners to avoid taxation is, in my opinion, just evidence of this.
I do think you're saying "couldn't we just vote with our dollars" and while we can, if those dollars are funneled into an investment / holding for a rich person the effort is moot. These winners still get the dollars to tip the vote however they wish.
IMO the only way capitalism works is if the money moves around, and currently we have a lot of people keeping the money in big puddles. A stream only works when it's flowing. Same with capitalism. Again, IMO and IANAD(octor or economist).
As the resident Objectivist bore, I'll just note that Scott's completely right here.
The real criticism is that we have a society that thinks charity is superior to production. But you cannot give away anything that hasn't been produced. And capitalism is the only system that allows production, so it is the only system in which charity can flourish.
> Compare this to a good charity, like GiveWell’s pick Dispensers For Clean Water. If I understand their claim right, per $1 million they can give 50,000 people clean water for ten years, which would probably save about 1,500 lives.
Source?? This is shockingly good.
Re footnote 1, google "how does instacart make money"
Honestly surprised by the lukewarm thoughts on strategy 3. I haven't done a tenth of the charity research Scott has, but I remember reading about efforts like the Gates foundation basically acting like a super generous bank for small farms in developing countries. Offering loans with good terms, and making a commitment to buy grain at a certain price to protect the burgeoning market from price shocks. That sounds like a good way to set up a much needed industry in the absence of credible local banks and other institutions. Is there some bit of research that indicates this isn't very effective?
I don't know about supporting capitalist charities (and I don't think I feel quite as bullish on capitalism for various reasons) but I think a different strategy to consider is 'investing' in (or donating to) charities that also operate in the market economy. Nonprofits make up 6% or so of GDP and there are many interesting nonprofits that have sustainable revenue, allowing them to re-invest in more work 'for good.'
The value of capitalism isn't the "second order effects" so much as the cascading-indefinitely effects. It's the "give a man to fish" vs. "teach a man to fish" principle. While I in no way wish to denigrate the value of saving lives with better water... once you do that, then what? You have people who are alive, and still in the same situation they were in before.
The value of capitalism is that it elevates entire civilizations to a higher state of living. There's a reason why stuff like water dispensers to save lives are going to developing countries with no market economy: *in capitalist nations, there is no need for such things in the first place.* The equivalent work was baked into our basic infrastructure long ago.
Seems to me that one of the best places to invest, then, would be in research to figure out why the "charities that send economists (or other professionals) to developing countries and advise them on how to do more capitalism" were ineffective and how to do it better.
The obvious way in which personal market spending could do more total good than charity but charitable spending could do more good on average would be if charitable spending were much less than market spending. As charitable donations make up only 2% of US GDP, the conclusions here aren't at all surprising.
Comparing capitalism to charity seems like comparing chocolate to Mozart? They're not comparable. One is an economic system, the other is a personal choice. Capitalism applies to a society - you live in a capitalist system, or a non-capitalist system, and your personal ability to choose which system to operate under is pretty limited (short of moving to another country). As for charity, you can choose whether to give, and how much (and, of course, where), independently of the choices of anyone around you.
So I don't really understand how "does capitalism beat charity?" is even a well-formed question. To put it more sharply: on *what metric* are we asking whether capitalism beats charity?
I suspect the "right answer" is to provide capital to the malaria pharma company or well builder which are just below the point where they would be profitable enough to get investment.
I have no idea how it would be possible to evaluate that.
Instacart is making a whole lot more money off you via markups and commissions charged to stores than just the $100/yr you pay to make it "free"
This fails to engage with the actual argument of the social enterprise movement. The argument is that there is an irrational aversion to profitable activity among people who seek to do social good. Largely, in my opinion, due to ideological anti-capitalism. It is not that maximizing returns is the best use of money at all times or that we need to go around preaching the gospel of capitalism.
To give you a simple example, Foodhini is a for profit company that takes various refugees and has them make their regional cuisines then sells them in an Instacart or Uber Eats like model. It's a profitable company but it also does significant work to help these people get on their feet. Whether that's services to make sure the work is legal or helping them set up restaurants (which in turn profits Foodhini in various ways).
The argument is this is better than just giving them money or funding classes to help them integrate and that you should direct money toward this type of cause rather than charities that rely on constantly receiving a stream of donations. The model of constantly asking for money or grants to sustain the charitable activity is (according to the argument) supposed to be a last resort, not a first resort.
If that's not third world enough for you there's companies that help deploy limited resources to repair potholes in Central Asian roads (which the government is happy to pay for because it saves money), a company that makes water purifiers that it sells in Africa (while donating a significant number to poorer villages), a company that provides cheap industrial milling into certified gluten free flour for poor farmers, and so on. You also have non-profits that are 'profitable' in the sense they make enough money from standard business to operate like Ten Thousand Villages.
These are often not strictly the most profitable thing that people could be doing with their time but they both serve a social good AND they're profitable and therefore self-sustaining, able to raise investment, and don't need to spend nearly as much time asking for funds. That's the argument.
To be honest, I haven't heard a good counterargument. Which is one of the main reasons I'm backing this horse instead of EA.
I always thought the capitalist argument was that, thanks to compound interest, if you invest your $1 million now, in 30 years it will be $1 bajillion, and thus will fund much more charitable activities. To put it in terms of your #2, invest in companies that produce the highest rates of return, and this will produce more surplus value in our national economy, and in the long run will create a wealthier society that can spend more on philanthropic pursuits, some of which will be determine by you, since you now have more surplus, too. You have to balance that against whatever discount rate you want to apply, obviously, which, ya know...starving children probably have a pretty high discount rate, so I don't consider this an easy question to answer.
Why don't the villages have clean water dispensers? Is there an issue preventing their inhabitants from prioritizing clean water? If they don't care about it, fix that. If they do care but can't afford it, fix the problem where they have no jobs to earn enough money to buy clean water dispensers by investing in local companies to those villages.
"And it saves its customers time, which they can spend on productive economic activity." - I think this is close to the actual reason why Capitalism is Good. Expanding and generalizing a bit: capitalism creates material abundance, by allocating scarce resources extremely efficiently.
You write "On the other hand, saving people’s lives allows them to engage in productive activity too." But the question is how much productive activity? People abject poverty are for most part deeply unproductive (in the capitalist sense, not in any moral sense). It is at least plausible that saving an hour of some silicon valley engineer's time today via Instacart creates more total economic surplus than the result of saving some poor kid from malaria (after applying some discount rate to future value). Arguably, the fact that morally neutral hypercapitalists seem more interested in investing in Instacart than in saving poor kids from malaria is evidence for exactly this claim.
Fortunately, I'm not a utilitarian, so I have no problem just donating to charity.
Re: Footnote 1 on how Instacart makes money:
Instacart's service isn't free after the $100 subscription - while you may no longer pay a per-order delivery fee, they continue to extract value through upcharging you on the cost of the groceries themselves (an item which costs $2 in-store costs $2.10 or $2.50 on Instacart), charging a percentage of the revenue to the retailer itself (so even if the price is equivalent in-store and on Instacart, Instacart charges a few percentage points of revenue to the retailer for the customer traffic), charging the retailer directly for providing services (most notably with smaller retailers, where Instacart may pick the products from the shelves, provide the back-end of the ecommerce platform, etc), or some combination of all of the above.
In all cases, the value extracted by Instacart far exceeds the stated fee that they charge you (either per-order or as a subscription), and you end up bearing it in one form or another at the end of the day. It's an interesting experiment to buy the same basket in-store and on Instacart at a retailer where the prices are NOT equivalent - often you'd surprised at the premium they're charging you for convenience. Certainly worth it for a segment of the population and a segment of retailers, but there's a reason that most retailers of scale are moving towards bringing the services formerly provided by Instacart in-house and figuring out ways to monetize it themselves - it's a frighteningly expensive proposition when you lay out all the costs end-to-end.
Now if he had published this *before* Sam Bankman-Fried had gotten everyone's money...
<gd&r>
(...admittedly SBF's 'earn to give' cover for his shenanigans puts this into much sharper relief.)
Obviously capitalism is the dominant mode of production in our world so it has a much stronger effect on things than charity. So when compared to charity it has some very big positives, but also some very big negatives. By all accounts the US seems like very unpleasant place to live for a large proportion of the population, undoubtedly for someone who is forced to take a “job” (or are they a self-employed contractor with no benefits) for instacart. Doesn’t instacart also contribute to social isolation and all the problems that causes?
My point is not to say capitalism is wholly bad and we should stop producing hospitals and vaccines and clothes and live in the woods, but that although it’s the main form of production currently it could be changed and improved, and money could be better spent doing that rather than blindly reproducing the current system
Scott, I'm not sure your comparison between charity and investing in companies is a good one.
For investing, I would pick an exchange traded index fund. For the charity equivalents, I would pick whatever top charity GiveWell suggests.
I think the charity you did pick is very similar to what my method would suggest. At least in terms of impact.
But the investment is different. Mostly because it's much easier to load up a S&P500 portfolio with leverage than to do that for a single stock.
If our goal is to have the biggest economic impact, we should use the amount of leverage that maximises something like the Kelly criterion, I guess. As a rough guess, it's probably 2x to 2.5x. (Diversification allows more leverage. Leverage doesn't create more capital to invest in the economy. But it sort-of transforms risk-averse capital into at-risk capital. The latter can be a lot more impactful.)
About the impact on jobs: you are right that in a reasonably well functioning economy, Instacart doesn't create jobs.
It's all about opportunity costs and substitutions.
Without Instacart people would still be able to buy groceries, just slightly less convenient.
Similarly, without Instacart the people now working their would have slightly less nice jobs on average. Instacart also bids up the wages all across the economy. It's all about equilibria.
(It's the same as when you explored a few years ago why Switzerland has more expensive haircuts than Turkey, even though hairdressers are presumably just as productive in both places. It's all about who else is competing for their labour.)
The charitable version of capitalism is GiveDirectly. It's just like buying things for yourself but the first person to spend the money is someone else.
It seems to me that you are confusing donation vs investment.
Yes, you try to address that in your Return on investment point, but this:
> ... but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so.
Definitely isn't correct.
There is no "amount you donated" in the Instacard example. You made money! In the case of charity you lost money! Discounting this with VC discounting rate doesn't solve anything?
Is there anything preventing you from investing into Instacard, making wagons of money and then donating into charity? How do you know that this is worse than just donating to charity?
There is a way to know. In theory, at least. The correct approach would be:
1. Take Instacard and calculate discounted cash flow + discounted externalities and come up with ROI.
2. Take your favourite charity and do the same. Yes, there is no cash flow but you are presumably making up for this on the externalities front.
Bigger number wins.
I think this argument is nonsensical because money donated to charity eventually ends up back in the capitalist economy anyway the difference is what gets consumed along the way. If I donate $1 million dollars to the charity that builds wells that charity will then spend that on things like the materials to build wells, the capacity to ship those materials to the locations they need them, paying the people who build the wells etc. all the supposed second order benefits you would get from the money being spent in the capitalist economy would still happen since its still getting spent.
Would be interesting to run through the thought experiment with investing in options with huge asymmetrical upside. Put the 1m in a vc fund. Maybe that all gets lost in a crypto scam. Or maybe you marginally help research for a vaccine that saves millions. Not sure what that tradeoff look like.
Charities are only possible because existing systems of production/management (Capitalism being a piece) allow excess resources which can be donated. Charity outside the family is rare in resource constrained environments. Proponents saying "Capitalism is better than Charity" are right when it comes to outcomes but that doesn't really help short term decision making if you want to send money to one of those options. If I had to choose a society with no Capitalism but with Charity or vice versa I would obviously pick the latter but that isn't the question here.
If your goal is to maximize lives saved then the water charity will clearly be better than the Instacart option. The water charity cheaply saves lives while the Instacart option furthers and improves the current Capitalist system but its effect is so diluted it is impossible to measure the incremental benefit.
Also, there are several economic misunderstandings in this post but the most prominent one I will point out is when you say, "...existing rich countries will out-compete them ..." - it is pretty common knowledge that in global capitalist systems less developed countries have a competitive advantage when it comes to wage demands which encourages companies to go there and set up production...ultimately raising the living standard in said country. See China, India, Vietnam, Taiwan, Mexico, etc.
Whereas I agree that capitalism is somewhat better than charity, I don't see the world as black-or-white.
What I miss among your list of options is:
4. Start / invest into a business that will (profitably) solve the problem your charity is trying to address.
If the problem is real and can be solved by a business, then a business solution will be permanent and self-sustainable, whereas charity will be just a sink-hole relying on more and more charitable donations every year.
The thing that immediately jumps to mind for me is not your #1-3, but an obvious #4:
4. Start or join a company that provides or improves upon the good or service about which you most care.
Your 1-3 all work via aggregate effects, rather than directly. But there's no reason to limit your thinking to such aggregate effects when thinking about capitalism. One can engage in direct action to bring about targeted effects. That's what founders and early employees do all the time.
Possibly relevant: One of the amazing things of capitalism is that it works (relatively) well despite the involvement of many selfish and/or ignorant actors.
You are intelligent and well meaning. It would not surprise me if you outperform the "charity market" (for example by giving to GiveWell). The majority of charitable donations of course go to things that aren't even clearly a net positive. (I.e. promoting a favorite sport/church/political party etc.)
Request for a follow-up post “does welfare best charity?” about the returns to a public welfare state vs. effective charity
The question I think deserves engagement is whether you should give money to GiveWell top charities or just give money to poor people via something like GiveDirectly. For the most part, the former appear to be producing private (i.e. rival, excludable) goods for very poor people, and then using spreadsheets to argue that those goods do much more "good" per dollar than the things those very poor people would buy ("from capitalism") with a marginal dollar. These arguments are usually somewhat plausible at the object level, but the poor people in question are probably the experts on their own needs (but don't have so much time to make spreadsheets to pitch charity evaluators). And they seem to often have very high return investments available (e.g. buying a cow or a metal roof that doesn't need to be replaced every year), at least according to the spreadsheet-mongers on the GiveDirectly side.
Isn't it kind of plausible that the best way to spend money to make a particular very poor person better off is to give them that money to spend however they want? That capitalism works well enough to provide for their needs once they have money to spend? Isn't that the approach that treats them with the most dignity and respect? Are the object level arguments of the "good charities" sufficiently convincing to overcome this presumption, when you take into account the "multiple comparison" problem that in picking the "best" charities you are magnifying any sources of error that went into evaluating them?
Change my view, it might redirect $1M or so this year.
The problem is that you're looking for charities when, conceptually, what you are talking about is development finance institutions (e.g., the U.S. International Development Finance Corporation).
There are all sorts of mission-oriented specialty financial institutions, including not-for-profits, which issue loans at below-market rates for 'good causes'. On the domestic side of things (in the US), you could be talking about CDFI Fund lenders or green banks. These get their funds from grants, government programs, and traditional banks which are incentivised to provide capital at below-market rates courtesy of things like the Community Reinvestment Act.
> but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so.
What discount rate are you using? This is probably the single most important question when comparing your options.
If you pick something low (like a 2% real rate), the expected multiplier of getting an S&P500-historical average return diverges to infinity the longer you keep doing capitalism with the plan of donating later (even if you assume the companies capture literally 100% of the value they create in the meantime and have no net positive effect on the rest of society).
If you pick something high (like 8%), you avoid that problem, but you also invalidate much of the reasoning for caring about long-term climate impacts of CO2 emissions (which is based on low rates in the 2%-5% range), and other similar issues. And there's now a question of whether you should borrow against all your future donation spending at $DISCOUNT-1% in order to spend it now and do more good by your own metric.
> Compare this to a good charity, like GiveWell’s pick Dispensers For Clean Water. If I understand their claim right, per $1 million they can give 50,000 people clean water for ten years, which would probably save about 1,500 lives.
Suppose the charity does not invent the equipment to purify water themselves, which I presume is the case, they must buy it from a for-profit company who can offer it at price X only because of innovation and market competition, without capitalism none are possible.
Without capitalism the basis of wealth creation, effective charity will not be possible.
I actually think it's not your Instacart example choice that's bad for this thought experiment, but your clean water charity. I myself donate to water charities because they seem to me to provide the same kind of benefit that capitalism does -- so it's not a good example of the ways capitalism can be superior to charity. The water charity allows more people to live in a place, which is one of the preconditions for "people consensually doing useful things for each other" -- which is the inner Venn lemon of both charity and capitalism. (Modify it to "people consensually doing useful things for each other, out of the goodness of their hearts" and you get charity. Modify it to "people consensually doing useful things for each other, in exchange for money, according to market price signals" and you get capitalism.)
For a clearer thought experiment, use a charity that just does something useful, instead of one that does something useful and also creates the preconditions for people to do useful things. Then the contrast with capitalism (and with the State) will show up more clearly. I actually think charity is usually superior to capitalism, but for completely separate reasons.
The Copenhagen Consensus Group of economists rates various charitable and miscellaneous initiatives and intriguingly has a runaway first place item that breaks the charts. They say money spent on free trade negotiations pays off at 1000-1 with the larger proportional benefit recieved by the lower income countries involved
However it's difficult to personally spend money on free trade negotiations, and might rather be a bigger focus in terms of political capital and in the opportunity cost of not promoting freer trade in some way while doing other charitable or capitalistic things
Folks have mentioned business-aligned charities, but another option if you want to "give money to capitalism" in a way that would theoretically be helpful to folks in poor countries, you could just buy in some emerging markets mutual fund and continuously re-invest the profits. Similarly, you could lower the cost of borrowing by buying up corporate bonds from similar markets.
I think you are too quick to brush aside the criticism that instacart is a bad example. Capitalism works because it incentivizes production and innovation. It also incentivizes corruption and rent seeking which is unfortunate but seems to not be significant enough in most societies to cancel out the good from production and innovation. Instacart does have a little innovation, but it doesn’t look profound to me and so I’d mostly call it rent seeking.
"Charity vs. capitalism" is indeed a category error. You make various consumption choices with your income (and also have a savings/consumption margin). Apparently one of your favored consumption attributes is utilitarian/EA (I don't keep up that closely with all the inside baseball, here, I'm afraid), so you like to donate to things that you believe help lots of people a lot per dollar donated.
It's entirely possible that there are hidden "altruistic" or "benevolent" impacts from your non-donation consumption choices that do more good to more people than direct donations. Quite likely, however, is that these are perverse "Fable of the Bees" type effects that run counter to what most people think of as "altruistic." For example, if you buy products that include imported cobalt (lots of electronic stuff has this element), it is often mined by desperately poor children who queue up and even pay for the opportunity to go into open pits and scoop it up with their bare hands. The fact that they are willing to queue up and even pay strongly suggests that their next-best option is truly horrible. An incremental increase in demand for cobalt will probably raise the incomes of desperately poor children in the aggregate, so your purchase of an item containing cobalt is a contribution toward their welfare.
On the other hand, ostensibly benevolent charitable endeavors, even when pursued efficiently rather than wastefully, often make matters worse in the long term via perverse incentives that they create. A number of serious thinkers and observers (Bauer, Easterly, etc) have noted that the on-the-ground effects of foreign aid are often destructive of local markets and local governing responsibility. One needn't look at extreme situations such as the Gaza Strip, where foreign aid propped up a vicious and oppressive terrorist "government" that was able to ignore the productivity of its society because of this inflow of external resources. There are third world governments all over the place that have been relieved of all responsibility to allow for a flourishing economy because they don't need to extract surplus via taxes from their population, instead battening on charitable giving from abroad. In that sense, a piteous population that can attract foreign aid is a version of the "resource curse."
Since we like prediction markets so much, why don't we allocate charitable giving according to prediction markets? But one of the big challenges of prediction markets is phrasing the questions correctly. In this case, the most difficult question is what recipients actually consider most beneficial to themselves. We might think that charity should be judged according to lives saved or homes built or whatever, but isn't that a very paternalistic approach? Shouldn't the recipients get the main say here? So maybe the recipients should run a prediction market to decide what would be best to receive, while we should run a prediction market to decide how best to give it. But it doesn't make sense to have two separate markets, so let's combine the markets or let them predict each other.
And that super combined prediction market for allocating charity already exists. It's simply called "the market". That's what the market system is meant to do. It lets us most efficiently spend and invest resources toward production in the way that consumers communicate (through their spending) is most valuable to them.
This isn't about "capitalism", which is separate from markets. (Communist and socialist countries also have markets for goods and services, they just refuse to use them for *investment* because they believe the resulting means of production should not be privately owned.) It's purely about the power of markets to elicit, communicate and process information about the preferences of consumers and the limits of producers in the most efficient way. If you think prediction markets work better than other ways of aggregating information, then you should think that just spending your money as the market naturally incentivizes you should also work better than other ways of deciding how to benefit others with that money.
Magette Wade says that Africa is poor because of bad business laws, which kill capitalism before it can generate prosperity. She wants capitalism for Africa, instead of charity. see: https://magatte.substack.com/p/why-is-africa-poor So perhaps investing in her is a good idea.
The casual mention of the dairy industry as a core type of capitalist enterprise hints at another key drawback of capitalism: it doesn't necessarily promote absolute welfare, but the welfare of citizens with money (weighted by how much they have). The welfare of this subset can often be increased by arbitraging away the welfare of others, like dairy cows and their prematurely separated calves forced into ever-tinier pens and more-miserable conditions by capitalist farmers competing with each other to provide consumers with ever-cheaper milk.
If you believe the world is on a trajectory towards more and more of the world living under systems resembling rich countries' capitalism, it's a smart move to work on stably improving the total welfare of all human and nonhuman creatures (weighted by speciesist bias if you insist) under systems like these: animal welfare regulations when they outweigh the marginal interest of consumers in cheap animal products, social safety nets when the outweigh the marginal utility of money to the relatively rich, etc.
Suppose Instacart had never been founded. Then people would spend whatever money they now spend on Instacart on something else (let’s say booze and porn), which would also create jobs (for brewers, bartenders, and porn stars). There’s no particular reason to think spending the money on Instacart creates more jobs than spending it on those other things would.
If you believe this, then you don't believe any economy can ever grow, barring the introduction of some kind of utterly disruptive consumer good/service that doesn't have any conceivable substitute.
I was glad to see the EA Intervention Report on Charter Cities but it was limited by the fact that it was written by non-expert outsiders. Mark Lutter's response is much better informed than was their write up.
Regarding the widely varying success of SEZs - Read Lotta Moberg's, "The Political Economy of Special Economic Zones." Tl;dr privately financed zones are more likely to be successful than are crony capitalist, politically-motivated government financed zones, plus a lot more nuance worth reading for serious SEZ students. Moberg and Lutter are two of a handful of scholars who have done dissertations on zone related issues. The EA report was not informed by Moberg's research, thus they did not understand the political economy dynamics of different types of zones.
Insofar as one of the core conclusions of the "Intervention Report" was "economic development and reform zones," the actual work done by Charter Cities Institute and others in this domain do, in fact, work on a variety of zone-based reforms. The Romer-esque version of a "Charter City" was to some extent a straw man for what should have been a deeper dive into the global movement of zones with distinctive law and governance.
Thus several of their conclusions were sensible - but should have led you to increase your support of the Charter Cities Institute (CCI) rather than question it:
"Charter cities are expensive to build and take a long time to come to fruition, so if your focus was on the value of information, it seems likely that you could more cheaply and quickly generate this by focusing on alternatives which do not require you to build a new city, such as economic development and reform zones."
Hello? Much of CCI's work is towards what are de facto reform zones rather than grandiose Romer-esque Charter Cities - and that is the way they should be working.
There is a global movement towards zones with distinctive law and governance (precisely because it is widely recognized that bad institutions limit economic development). The Charter Cities Institute is indeed a leader in this movement, and should be supported, but the issue of better law and governance in zones is broader than their work alone. The most successful example is the Dubai International Financial Centre, where a common law legal system was placed in a 110 acre zone within UAE sharia law. It led to Dubai becoming a top global financial center in twenty years.
Zone based reforms are a hack around the public choice challenges of nation-state reforms. Bob Haywood, former director of the World Economic Processing Zones Association, makes the case that zones address Doug North's "natural state" of oligarchy preventing liberalization because export zones don't immediately threaten the rent-seeking structures. In his experience, usually zones were adovcated by the peripheral elites - not the core elites, but the son-in-law, cousin, younger brothers, etc. who had access to elites but were not currently benefiting from rent-seeking themselves. Without zone solutions, however irregular their success, most nations tend to be stuck in the "natural state" of oligarchic rent-seeking. Haywood makes the case that zones led to broader economic liberalization in Mexico, China, Mauritius, Ireland, and elsewhere. If the benefits of zone-based reforms includes broader economic liberalization then the returns are much greater.
The most important work being done by CCI is not necessarily creating Charter Cities - Prospera alone has a much more sophisticated platform than anything CCI has. But they play a crucial role in mainstreaming these ideas so that development economists, multi-lateral institutions, media, and well-intentioned Westerners pay more attention and are more likely to support reform zones. Prospera's technology is ready to replicate - we need this greater mainstream support to close the deals.
I've been involved in selling these ideas in multiple nations, and being able to point to the growing mainstream credibility achieved by CCI is definitely a factor leaning towards adoption. Conversely, without CCI's leadership, developing world government "reforms" are driven by a combination of venality, corruption, populist or leftist ideologies, World Bank banalities, and the occasional McKinsey analysis. CCI is a big positive step in the direction of concrete, actionable reform zones that are likely to improve institutions incrementally. If we can get to the point at which zones with their own law and governance become a routine technology of economic development, then the value of these institutional experiments is likely to become high.
Most people have no idea how much harder it is to do legal business in developing nations. The upside of making Prospera-quality law and adjutication available in zones in Africa will be significant over time. My wife, Magatte Wade, is working to bring Prospera to Africa because of this. She also writes and speaks about the ridiculous over-regulation of business in Africa that makes it necessary - she has first hand experience of what it is like to do business in the US vs. in Senegal. The fact that African nations are ranked at the bottom of the Doing Business index is not an artifact of measurement.
So by all means support CCI. The work it does is much more important than the EA Intervention Report acknowledges.
Have you heard of microloans and microfinance? They are in my opinion the cleanest example of "donating to capitalism". The actually donation is not getting any interest, and you taking on the default risk/lack of due diligence of making a loan to to e.g. lend $500 to Nain Isai in El Salvador to buy animal feed for his livestock, or lend $1,250 to Hương in Vietnam for school supplies and tuition for her children. It's essentially giving a bit more oomph to the invisible hand for these people to use on what they feel is the best use of the money.
Givewell seems to have a largely negative view of microfinance, though these may be outdated, stating that it "is not among the best options for donors looking to accomplish as much good as possible", but if you're looking to make a more developmental donation than non-capitalist mosquito nets, you might be interested in it. To the best of my knowledge the biggest player is Kiva, which makes it very easy to match with microborrowers across the world (my two examples above are from there), Givewell doesn't like them either from what I can tell.
tl;dr If you'd like to make a donation to capitalism, go to Kiva and you can immediately find a fledgling capitalist to lend an arbitrarily small amount of money, and consider the default risk and interest opportunity cost a donation.
https://www.givewell.org/international/economic-empowerment/microfinance (old)
https://blog.givewell.org/2009/12/25/where-we-stand-on-microfinance-charity/ (old)
https://www.kiva.org/
Regarding footnote 1, a significant portion of Instacart’s revenue is from advertising. Not sure whether this meaningfully changes your analysis.
Educating people with high value skills is capitalism-charity that seems to have good trickle down and helps countries get rich (programmers in India).
I think when most people say 'capitalism makes the world richer' they're saying investment spending and research make the world richer. You can trade coconuts and bananas all day, but at the end of the day you'll still only have coconuts and bananas. I think a similar thing can be said about any consumption spending, including Instacart.
I can't quantify any of this but here are some systems-oriented charities that would improve capitalism a lot:
- Improve the incentives of the arena by producing more deeply informed product reviews. Information is a non-excludable good, so the market wont do this very well. Do this well enough and you will obsolete the FDA.
- (Edit: Industry-government partnerships actually seem to be doing okay at this today, so idk, but it's an example of the kind of thing that *could* be needed) Thinktank to develop better interoperability standards. Governments preserve competition by requiring competing products to be interoperable, apple must use USBC (this is a real act that the EU passed), Mastodon can access Threads (happened without regulation though (confusing)), the user can get their data out in a standard format (used to happen without regulation but seems endangered today), that kind of thing, but designing these regulations is genuinely difficult. If they get it right, it supports a lot more competition and innovation than the market otherwise could (*competition and capitalism are antonyms*), but if they get it wrong it can forbid progress in standards, or burden projects with standards that're antiquated and complex, which stifles innovation. Getting it right is *expensive*, it requires deep expertise and consideration. Governments can't reliably do this job. Charity is needed here.
- Decentralized finance system development actually has suffered a lot from the lack of charitable investment. We could've had systems with unlimited global transaction rates and negligible transaction costs (built around a P2P approach that allows the user to earn enough gas to get by without even knowing that there are transaction costs). It's called Holochain, it's been in development for a long time, it's still not complete because having these qualities prevents them from extracting rent on the system later on and that very fact means they make relatively little from token presales and can't hire enough R&D. They haven't had the manpower to develop ZK-rollups and they're going to have history bloat problems.
(And the fact that these systems are all open source should be a clue that they're not going to be capturing much of their value.)
It's worth mentioning that american FOSS funder FUTO actually are charitably funding Freenet (2), which afaict is at least adjacent to the genre of Holochain.
Isn't the argument simply that capitalism creates a powerful system of incentives for people to be productive - in the broadest sense of the word - which in aggregate results in economic growth and rising living standards? Perhaps the greatest reduction in poverty in history was China over the past 4 decades (770 million people brought out of poverty is the number the CCP used in 2021) without having any significant domestic charitable sector and without receiving any substantial foreign aid. The country simply pivoted away from Maosim in favor of a more capitalist approach.
I think the humorous irony of using marginalist reasoning (the basis of modern capitalist theory) to argue against capitalism has to be noted (of course, in this case I think it's legitimate, but funny nonetheless).
I think rather than using money to "promote capitalism" the more appropriate alternative would be to use money to promote the conditions that capitalism, at least the successful style of rich-world capitalism, requires -- which mainly comes down to rule of law, education, good (generally less) regulation, less corruption, and good (generally more) antitrust enforcement. This doesn't really solve the "how do I do that" problem, though, since it largely becomes a "how do I accelerate political reform" problem. Then again, given the dictator book club series, maybe you can figure out how to do that? Incidentally I think the challenge of solving these antecedent problems (especially corruption) are what really makes it difficult for countries to get richer. I kind of suspect western countries mostly had an easier time getting rich because they'd already solved many of those problems. The United States took, what, a hundred years to get from patronage to civil service exams and antitrust law? And we had a very free press, very good courts, and a lot of luck.
One alternative to charity worth considering might also be more science funding: there are a number of private bodies that give grants to scientists, though their scale is far smaller than the federal programs.
Imagine, for a moment, you have a magic box, the contents of which grow by 5% a year. You have a rare and expensive medicine that will save lives.
What do you do with this? Do you save lives, or put it in the box to save lives later? When should you take it out of the box?
That's sort of like investing. You get a return on investment; you can then use this to save -more- lives, -or- you can invest it and save even more lives later.
Now imagine that as long as the medicine is kept in the box, random improvements happen. People get slightly better cell reception one year. The next year, everybody's computers get 1% faster.
Now how long do you keep it in the box?
What if, by keeping it in the box, sometimes the world production of rare and lifesaving medicine slightly increases?
That's what capitalism has to offer. As long as you keep the medicine in the box, and let some people die this year - next year you can save a few more people. But also things randomly just kind of get better in small ways.
Now - if you're going to consume the money instead, charity is probably the better option. The real question is whether you direct your share of market consumption towards single events - getting a motorcycle or saving a life - or whether your direct your share of market consumption towards making the market better/bigger in the future.
Most people want things better now; they want the hungry fed, the homeless housed, the sick healed. And this is quite fine, if the alternative is consumption. But where the alternative is to forestall consumption for another year, to leave the rare medicine in the box, and both have more medicine in a year and ALSO food delivery gets slightly more convenient - the choice looks a lot more in favor of "investment" than I think a lot of people actually think it does.
One problem with capitalism is that it is predicated on perpetual growth, that growth ultimately consumes Earth's biosphere, and therefore capitalism will eventually destroy life on Earth. So "donating to capitalism," in whatever sense, contributes in the long run to destroying life on Earth.
Givedirectly seems like a pretty solid option for "investing in capitalism itself." You give poor people money, figure out some way to keep them from losing it to corruption or criminal shakedowns, and then those people use that money to buy things they need, which results in the businesses that provide those things succeeding, and so on.
If capitalism is a very good system for giving people with money what they want, then the problem might just be that people don't have money and that means they aren't getting their needs met.
Honestly feels like a category error of a question.
Capitalism is what keeps us in the game without everything going completely to hell.
"Charity" such as we refer to in terms of EA or give well or such, are just providers of a good under capitalism.
Walking back a step - Whatever people are willing to pay for, Capitalism will provide.
If people value assisting people in the third world, capitalism will (and does) lead to the creation of firms whose mission is to accept money from customers in exchange for making water safe for 10 people or giving two families mosquito nets or whatever.
At a previous time, what most people who wanted to "do charity" actually wanted to buy was the feeling of having given to charity in a personally satisfying way. The firms capitalism created were numerous, existing in fractally obscure philanthropic niches such that an individual could easily find something personally satisfying to them (and even make it part of their identity), and then have slick marketing to make the sale feel as good as possible. Because that was what was being demanded and supplied, these firms didn't optimize for outcomes.
When people began demanding outcomes, capitalism created charitable firms that carefully evaluated and tracked their outcomes and made different kinds of charity compete with each other, so that now people who value assisting others can get the most bang for their buck - all of the good that something like GiveWell has done is ultimately the totally expected and excellent result of capitalism. People wanted effective altruism - firms entered the space to sell it.
"Capitalism" and "charity" aren't alternatives. If someone says capitalism does more good than charity - it's like saying capitalism does more good than cars. Sure? Almost by definition? what does it even mean?
But are you suggesting we should do away with cars and instead have more capitalism?
If they are specifically making the claim that charitable interventions for the preservation or support of capitalism are better uses than for any other kind of charity - first make sure you agree you want to buy the same thing (effective altruism in your case)
If they are making that claim that it's more _effective_, well, that can be at least approached empirically, but I think it's extremely likely pro-capitalist interventions will be much less effective. Much of the low hanging fruit has already been picked, and we don't know how to make there be capitalism in places that don't already have it.
The normal operations of capitalism do a lot of work towards the end of preserving capitalism - but they never ever provide things nobody is willing to pay for. The normal operations of capitalism do not lead to good things by accident, but by purpose.
If you specifically want to altruism most effectively, capitalism will sell it to you, but it won't provide it on it's own.
"If you invest in Instacart, various good things happen and you get more than your original amount of money back (which you can then spend on something else). I agree this is an important distinction, but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so."
As long as investment growth rate > discount rate (which it is), this actually changes things by a factor of infinity.
One way to consider this would be consumption-charity (make things a little better now) vs investment-charity (make things much better later).
Suppose there are thousands of people chained up in a terrible prison. You have enough time and energy to unchain one of them every month. Who should you unchain first?
It's not whoever is suffering most in the prison.
It's not whoever is most sympathetic.
It's whoever will be able to unchain someone else once you unchain them.
For the sake of argument, suppose you believe that humans are causing a problematic amount of climate change via CO2 emissions. Elon Musk shares that belief. He could have donated the vast majority of his PayPal fortune to some kind of charity. Instead he's using it to build the industry-leading electric vehicle company, whose 18-wheelers stand poised to electrify the highway freight market. Effectiveness of altruism is positively correlated with the amount of care, attention, proximity and self-motivation that you can put into your altruism. Care, attention and proximity are maximized when you do something yourself. Self-motivation is maximized when what you are doing is so valuable to other people that you make money by doing it.
Charity is great at saving lives by providing people with the basic necessities of survival. Capitalism (or rather, a mixed economy like the one we have in the US and Europe) is great at creating a world where charity is unnecessary because the basic necessities of survival are so cheap (or, if you prefer, the people are so rich) as to be ubiquitous. Both charity and capitalism are useful; and in fact the key reason for the success of EA (before they went off the rails) was to introduce a form of capitalism into the machinery of charity, thus creating a hybrid approach that was the best of both worlds.
Among the capitalist options, I'd propose:
1b. Same as #1, but whenever you can, buy versions made by a company owned & operated in a poor region, especially complex, capital intensive goods & services with high skill required. If you have to take a hit in quality or price, consider that your donation.
In other words, if you want to support a poor region in undergoing capitalist development, support their capitalists. It's important that the company be operated in the poor region, circulating money locally via wages. It's even more important that the company be owned locally, so that profits also circulate locally instead of being siphoned off to a capital city or rich foreign country. It's most important that the purchases be high in the value chain, so that the revenue supports the whole ecosystem of producers in previous stages.
Of course the central point of the article was that charity still seems to do orders of magnitude more good per dollar. If #1b can compete on that measure, it's because it makes the donation orders of magnitude more sustainable, since you get goods you need.
"There’s one thing that confuses me here, which is that Instacart has 10 million customers and makes $2.5 billion in revenue per year, suggesting each customer spends $250. But you can get a yearly subscription to Instacart for $100, after which the service is free. So either customers are overwhelmingly being stupid, not buying the subscription, and paying much more than it should cost - or I’m missing something here and the numbers are wrong."
Iiuc, Instacart often charges a markup on grocery items in addition to its official fee.
It seems obvious to me that this is just a question of scale. Yes, the countries that have become nice places to live have done so through capitalism, but how much more money has capitalism been working with than philanthropy? US GDP is ~$25T, and US charitable giving is ~$500B. Most of that charitable giving is for things like teaching poor children to play the flute and mailing books to homeless people, so I would guess 'real' charity is ~$50B at most. It seems easy to argue that $1 to charity will do more good than $1 to capitalism, but also that capitalism has done more good overall because it's been much more successful at obtaining dollars.
Re "giving to capitalism," what about (4) Build a business based on fulfilling a need/desire that other people in society have? This seems to me to be the most obvious way that capitalism drives prosperity. Trillions (quadrillions?) of trades, every single day, each of which involves net wealth creation (otherwise presumably the trade wouldn't happen) is what makes capitalism "work." You could argue that this is encapsulated in your point (2), but investment in existing businesses is distinct from the creation of new businesses.
More succinctly, simply living your life in a capitalist society by engaging in mutually beneficial trades, at all levels, is the capitalist version of "charity." This is something everyone can do. Intensifying this would simply be either increasing the number or magnitude of trades. The more "charitable" you feel, the more you should let your counterparty accrue the benefits of each trade.
But Moloch. I haven't made peace with Moloch yet. The energy and spirit of money/capitalism colonizes mind and world. I notice sadness and mourning for what Wendell Berry called "the Peace of Wild Things." Perhaps I need stronger psychic defense mechanisms or perspective/framings when faced with narratives of mass extinctions, climate change, rainforest burning, microplastics, and floating oceanic garbage islands.
Moloch-capitalism makes everyone happier and sadder, safer and more insecure. How to abide Moloch/Mammon/Money?
But as is being said, Moloch is over charities now too.
It seems like this discounts the value of instacart, with respect to jobs, while overstating the value of Dispensers For Safe Water.
The million dollar investment in water doesn't save 1500 lives by itself: those people still need food, shelter, medicine, etc.. By contrast, the jobs instacart creates give people a large fraction of what they need to procure all their survival needs (or all of what they need and then some).
Isn't the biggest difference between instacart and the water charity, that instacart is operating in a wealthy country and serving a luxury good to relatively wealthy customers, while the water charity is operating in a poor country? If you instead chose a company making an important necessity, like shelter or clothing, in a developing country, and compared it to, say, the Make a Wish foundation in the US, which would come out better in a similar comparison?
Actually, what does it even mean to "donate money to capitalism"? You derive your costs for instacart based on investment money spent on the company... but the whole point of an investment is to make a return. If you invested 1 million dollars in IC back in 2012, then you would have provided delivered meals for 2,000 people, *and* you would have 1 million dollars * the rate of return of the IC investment. But that's not really right either, because the latter is money that people paid you for the delivery service; you didn't give them food for free. Which gets at the whole point of investment (to be worse off *now* and better off *later*, so of course it looks like a bad idea, and similarly, you'd be warmer now if you burn all your clothes than if you wear them) and makes this whole comparison very confusing, in my opinion.
If you ask the question, "what is the present discounted value of 1 million dollars given to a water charity vs invested in a basket of startups?" If we take your number for the ROI of the latter as 7.5% per year, with 2% inflation, then in 10 years our 1 million dollars is worth the equivalent of about 1.7 million dollars today. If we then converted this back into a water charity donation, we would break even at a discount rate of about 5.4% per year. Or in other words, the investment is a better option if discount the value of future water at less than 5.4% per year, and a worse option if we discount more strongly than that. (I think all secondary benefits should be incorporated into the relevant rates of return and discount, but maybe I messed something up).
Scott, I think you slightly misunderstand the argument for working on spreading capitalism. It goes something like this:
1. If enough of us buy malaria nets, we could potentially prevent all malaria deaths in the nation of DR Congo, which would save ~80k lives/year.
2. But if the people saved by malaria nets still live in very poor conditions (albeit with clean water and maybe some micro-loans provided by charities), that's still a far shot from living as good as the median American.
3. We can very roughly compare the quality of people's lives by looking at GDP/capita. For the US that's $76k/year, for DR Congo it's $600/year or 150x lower.
4. Saving 80k people/year is very much noble but on a GDP/capita basis that's only equivalent to saving 80k/150 = 530 Americans/year.
5. If instead of malaria nets we fund projects that try to bring capitalism to the poorest nations, we have a chance to make a *huge* impact. DR Congo has a population of 111m, and if we manage to bring proper capitalism to the country, it might reasonably 3x the country's GDP/capita over the next two-three decades, which would in turn create 111m*1,200 = $130B/year of additional economic prosperity or be equivalent to saving $130B/80k = 1.6m Americans/year.
6. So how good of a chance of bringing capitalism to DR Congo must a project have in order to have a bigger value than eliminating malaria? Roughly 530/1.6m = 0.03%. Can any project reasonably achieve that? Very hard to say, I would definitely bet that the Belt and Road initiative had a much higher chance than that in the beginning.
7. Can we reasonably identify projects which a) Accept donations or investments and b) Have a chance of at least 0.03% of tripling DR Congo's GDP/capita? I don't know but I would arguably that might be something worthy of EA's time.
> This kind of development aid has been roundly criticized and did especially badly in Russia.
The perspective I've heard is that Yeltsin had to implement radical capitalist reforms like this to secure the transition away from the soviet system. If he had embraced more gradual reforms, enough of the soviet state apparatus would persist to allow communists to return to power in the next election cycle.
In other words, economic prosperity was not the goal of shock therapy, the goal was to root out entrenched political opponents. Given that the communist party consistently remained popular in post-soviet Russia, this doesn't strike me as incorrect.
If it costs $1 million for a charity to provide 50,000 people with drinking water, it will also cost $1 million to provide them with drinking water the next time they need it. And the next time. And the next time. Before you know it you've spent a billion dollars on water and people are still thirsty. A functioning economy will provide them with drinking water *forever*. Invest a million dollars in something that will employ those people and let them pay for their own water from the proceeds.
Shouldn’t the argument be that Instacart provides a service which increases economic activity and therefore taxable income at the company as well as for its employees and gig workers? Some economists somewhere said that each dollar in the economy changes hands 7 times in a year, so capitalism creating new economic activity like Instacart increases that velocity of dollars, which are taxed wherever yet are spent, which (in theory) goes to support the government services that the charities are trying to replace.
In other words, if they had tax revenues supporting competent governments, those governments would provide clean water and the charity wouldn’t be necessary
Blithely, capitalism gives wealth to people who deserve (in some very specific sense) it, and charity gives wealth to people who don't deserve it.
("Deserve", in this sense, means "capable of producing value for others, due to a combination of internal attributes and the surrounding environment". This may or may not match up with your personal definition of desert, in particular for those whose inability to produce value is caused by their environment rather than their own attributes.)
Developed countries don't need safe water dispensers. In order to develop, underdeveloped countries need to join the capitalist system. It's by no means clear how you can get them to do that, but it's something to think about. Meanwhile, the anti-capitalist mood affiliation that shows up in other comments does not do anyone any good.
I’ll always support Scott and the rationalists taking a silly argument seriously and deconstructing it. But let’s be real: the people saying “capitalism is the most effective charity” are just saying “yay capitalism” and are looking for a way to have their cake and eat it too (i.e. buy and spend however they want while being able to wave away drowning child type thought experiments).
There are two meanings of capitalism. One is descriptive. "What happens in Capitalism." Another is proscriptive. "What should happen in Capitalism." I'd argue that capitalism requires some measure of altruistic investment in order to function. An example of this would be something like LOVE (Let Oro Valley Excel) which was a group in Arizona which was unusually successful fighting some shady rent seeking on the part of Walmart. Basically, Walmart got a huge tax break on their property taxes, as they tend to lobby for wherever they go. The governing board that gave it to them swore it wasn't for a Big Box store. And then it turned out to be for Walmart. All but one of the board members were voted out.
I'm not sure how to quantify the value of this kind of behavior, which requires time and altruistic punishment, or to compare it with donations which save lives. I suspect that it has strong second-order effects in terms of promoting competition and preserving choice for workers and customers.
But if you can save lives that wouldn't otherwise be saved, it makes sense to save lives.
I'm curious about your use of the discount rate. I'm not an economist, but wouldn't we prefer some kind of discount rate that assumes 0% growth and 0% inflation? Having a lower value for future money due to a high growth rate makes sense in investment, but makes less sense in regards to charity.
"Return on investment. If you donate to charity, various good things happen. If you invest in Instacart, various good things happen and you get more than your original amount of money back (which you can then spend on something else). I agree this is an important distinction, but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so."
I don't quite track the argument here.
To take an extreme example, If you have a dollar 200 years ago that you invest at a very conservative 4% interest rate investment then that dollar will be worth over a million dollars after 200 years. There's a chance, of course, of losing that dollar over that span of time. But I'm not confident that "act now" is always better than "invest now and act later." Probably, this comes down to a matter of trust, where there are considerable benefits related to spending one's charitable dollars as one chooses within the span of one's lifetime, which nets considerable personal utility for the individual.
Isn't charitable giving just letting governments abdicate their responsibility to administer a bountiful, equitable, and just society, and enabling free riders to exploit the compassionate/gullible? Of course it's your money, do with it as you will. Perhaps it is a good idea to bribe the downtrodden and otherwise unfortunate not to destroy civilization, such as it is, but I'd prefer to address the issues at their root rather than relying on "the kindness of strangers" to paper them over.
So, if charity provides lots of value per dollar but doesn't incentivize people to spend much, and the market provides far less value per dollar but incentivizes people very strongly, then it could both be the case that the market is expected to create more value overall, but also that choosing to spend on charity is better. Once you've made the choice to spend some amount, how incentivized you were to do so is no longer all that relevant.
Forgive me if someone else made the argument in the comments already, but the comparison at the margin is not between a million dollars to capitalism versus philanthropy. Rather it is between competing philanthropies.
Suppose we have a million dollars to allocate. Do we give it all to the clean water nonprofit or a pro-life pregnancy crisis center? Do we give some of it to the pro-life center and some to a pro-choice center? What about the adult literacy center down the block, or the at-risk youth program downtown?
There is no way, ex ante, to determine who should get the million, or a portion of it that meets a standard of rationalism or justice.
What capitalism does, however, is permit the emergent order of philanthropy. I'll give what I can when I can, you'll do likewise, and so will everyone else. And the system of profit and loss, the 'market pressures' incentivize the nonprofits to do the most good with the money they have. And indeed, because it not a choice between the pro-life pregnancy center and the pro-choice one, but between several of each, each with different managers, budgets, and quality of staff. In short, capitalism, or the market, allows philanthropy to thrive the same way for-profit firms thrive.
But capitalism does something else. It allows the wealthy and corporations to give. As major donors or corporate donors, they can give back to causes in their local or national communities. (This, of course, relies on a clear tax system that gives them the write-off.) Even a great many small nonprofit firms are supported by corporate giving.
>There’s one thing that confuses me here, which is that Instacart has 10 million customers and makes $2.5 billion in revenue per year, suggesting each customer spends $250
Instacart has a lot of other things they could make money from. This includes partnerships with grocery stores, advertising of specific products, providing data and analytics on spending and shopping habits, etc
It's not necessarily a false dichtomy, but I would model capitalism as a social structure of which purpose **can be** to enable charity by making the humans run around, building the pumps. Communism then is like a dildo that penetrates both ways, since it makes you to run in one wheel of charity in order to get resources from the others.
1755, a full 21 years before writing his classic book on growth theory, The Wealth of Nations:
"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical."
In both Adamsmithia and Charitia there is demand for clean water. In Adamsmithia clean water is supplied by Instawater which supplies clean water to all, and makes $500M a year and is self-sustaining. In Charitia clean water is supplied by donations from donors from Adamshithia. This situation is self-sustaining. InstawaterCharitia is never funded or developed.
Answering the question in footnote 1: the accounting for Instacart is that they report revenue from the transaction fees, not from the whole size of the order (I'm not an accountant, but I believe technically what's going on is that the grocer is selling to the customer and Instacart is a delivery/ads/other stuff company that intermediates, so it's analogous to Google reporting the $2 someone paid for an ad click and not the $10 of revenue they got from whatever they sold. This revenue number also excludes the payout to the shopper). Instacart's gross transaction value last quarter was $7.1bn, compared to $670m in revenue. So, round numbers, the amount people spend on Instacart is very roughly 10x the company's reported revenue. This is a moving target because the revenue take rate will change, but gets you directionally there.
I think it is helpful to make a distinction between the effects of dollars given at the individual level (lives saved, textbooks bought, meals distributed) and *systemic* solutions to large scale problems. Charity exists, as I understand it, to address the individual level of impact--but it is a very ineffective approach for addressing systemic issues. It just doesn't do that very well: not enough money is donated per year, there is very poor system wide coordination on spending priorities, and there is no public forum or governing structure to debate or determine what those spending priorities should be. What kind of social impact do we, as a global or national public, want charity to have? I know of no consensus on this, nor any method of producing such a consensus.
Capitalism (more accurately, pro-business economic policy) is, to my understanding, designed and intended to work maximally efficiently as the systemic level. Individual participants and businesses might lose money or suffer, but in the long run (years, decades, generations) the market is supposed to deliver sustainable economic growth and make modern civilization possible. As for public consensus, the market at least provides a forum by which people can vote with their dollar--any good or service which is seen as unnecessary or unwanted is eliminated.
Of course, "sustainable" is a term with many meanings and distinctions. The market provides what people want to those who can afford to pay for it, but that doesn't mean that it always serves the interests of society as a whole. The poor are left behind, and global warming is the poster child for the consequences of ignoring externalities.
Government is meant to provide for the common good, the public interest. It may not be as effective at that as we would like, but, well, "Democracy is the worst form of government except for all the alternatives", and so on. No one has come up with a better one yet.
So I think it depends on what your priorities are: fulfilling the economic needs of the majority of individuals (Capitalism), addressing social issues at a systemic level (Democracy), or satiating a need to provide assistance a small number of needy individuals (Charity).
I think it obvious that some balance is necessary. As for how one should invest one's charitable donations, this analysis seems to indicate that it's really just a matter of personal opinion: what needs, which people and how many of them to assist is probably best seen as a subjective opinion. Go with your gut. As long as you are contributing to a problem that neither the market nor public opinion is addressing, it's good.
Capitalism is there to extract rent/taxes from those who can pull their weight. From this the lazy/incapable are known. Charity is spent on them.
1 million given to water dispenser will not stay with charity but trickle down to capatalism. Charity will need to buy water dispenser from a company. So, water dispenser company will get part of 1 million too which in turn could create jobs. Giving dollars to capital intensive project that saves lives and trickles money into the hands of people who need money will be good.
You can certainly find many instances where a charitable donation does more societal good than an investment or act of personal consumption. You can cherry pick so as to make any given claim on your next $100 seem absurd. Of course 200 mosquito nets > than a bottle of Krug.
But there is no arguing that washer / dryers, dishwashers, cipro, tractors, genetically modified crops, cars, iPhones and other byproducts of investment in new tech and the production of that new tech at scale, all financed via the selfish pursuit of profits (i.e., "capitalism"), have done far, far more good in the world, for both rich and poor, first and third world, than any charity has ever done, or that all charities combined have ever done or could ever do.
Which is why I've always been skeptical of EA wanting to move money and expertise away from the efficiency and discipline exerted by market forces and instead give it to projects that don't do much R&D, don't operate well at scale and are often mostly about moral preening. It's like diverting money from Microsoft or Amazon and giving it to the DEI department at the DMV.
Scott, you already made the argument that maybe we don't understand how to jumpstart development as well as we think we do, and I think that extends to development of capitalism. However, I'd like to extend this a little farther and make the claim that capitalism and democracy aren't even the first rungs on the ladder of development, which is why attempts to charitably jumpstart capitalism often don't work out.
Why do I suspect democracy isn't the first rung on the development ladder? While Japan had democracy forced upon them after WWII, other countries that also developed economically didn't see their democratic reforms until much later. For example, South Korea didn't see democratic reforms in that country until late in the 1980's. Meanwhile, they experienced multiple decades before then with annual per capita GDP growth well above 5% (https://ourworldindata.org/grapher/gdp-per-capita-growth?tab=chart&country=USA~KOR~JPN~PHL). The same story can be told about Taiwan, which didn't see democracy until the early 1990's. (Democracy/autocracy is easier to recognize. It's harder to point to a country as 'capitalist' vs. 'non-capitalist', but I'll get to that in a minute.)
We see autocratic regimes and think, "Why can't they just get rid of the dictator and go democratic already? What's the Special Sauce that allows this to happen?" But this ignores the underlying economic reality that most people in low-income countries live in a kind of feudalism, where landowners derive most of the profits from agriculture, even though that's often not the way those landowners actually make most of their money. Just because they own farmland, doesn't mean they're farmers. It's more of a passive income stream for them. So you might have an economy where a small percentage of the population is able to meaningfully engage in 'capitalism', because only a small percentage of the people actually own capital. Everyone else is subsistence farming, typically paying ~50% of their increase to the landowner.
What South Korea and Taiwan experienced right before their catchup period was a successful land reform movement. Effectively, the government forced large landowners to transfer their land titles to the farmers who actually work the land. (That's oversimplifying, of course.) Incidentally, Japan also had a major land reform movement right before they saw dramatic economic development. Even the US gave away massive amounts of land to individual farmers right before experiencing massive GDP growth.
Meanwhile, many countries tried land reform but couldn't make it stick politically (rich oligarchs tend to have lots of political sway - especially in an autocracy) and didn't see significant GDP growth. (Russia, the Philippines, Mexico, etc.)
Before you can 'encourage' capitalism in low-income countries, you have to find a way to dismantle feudalism so the majority of the population can meaningfully engage with the capitalist system you want to set up. Trying to skip this step is a futile effort.
You can try all day long. Let's say you come up with a plan to give chickens to all the farmers. You reason that the chicken will wander around and eat bugs, so they don't have to waste money on feed, plus it will lay eggs nearly every day. Shouldn't this be a permanent increase in standard of living for these people (so long as the poultry shall live)? Make enough of these small changes, and the farmers will eventually be prosperous! Except the farmer doesn't own his farmland. In many cases these farmers live in the nearby village and walk 3-5 km to work the fields every day. They don't have a farm for the chicken to roam in. They live in a tiny shack. What would you do if you lived in < 500 sqft and someone gave you a chicken? Dinner, I guess, but no permanent improvement to your standard of living.
Or say you set a target of 'farm mechanization', trying to copy what works so well in high-income countries. Again, this ignores the effective serfdom most of the world lives under. What good is a tractor to a landowner who works a desk job in the city and monitors his farm by paying for satellite updates? He doesn't want a tractor, or even to be a farmer. Meanwhile, the farmhands don't want to all get replaced by a machine.
I would argue that the reason we've failed to develop many low-income countries in a meaningful way is that we engage with them as though we can just gift them capitalism. But that will never work so long as they're living inside a feudalist system.
(Yes, I recognize that 'feudalism' isn't exactly the right term, but it's colloquially accepted as a shorthand for an oligarchic land ownership model so I'm using it that way.)
I'm surprised that the few comments I've read don't mention two things:
1. Difficulty of value capture (free rider problems, diffuse gains, etc.)
2. Market inefficiencies/failures
Market solutions do not work in these circumstances, so charity/government is superior.
Let's take the water example. If it were profitable for a capitalist to _capture_ the gains of the clean water, it would be done! The gains are diffuse and hard to capture, so a market solution doesn't work here.
Instacart is highly profitable. A charity to connect workers to deliver food would suck. A market solution is substantially better here.
(Another thing to note is that the vast majority of charity dollars goes to places like... Harvard. Might as well set your money on fire. The average dollar spent on "capitalism" is substantially more effective than the average dollar spent on charity even on your metric. You're comparing apples to oranges.)
Even the staunchest (non-insane) libertarians I know don't believe markets can solve literally every problem. The right tool needs to be used in the right situation.
Outside of the actual point, I think your 10 million "happy customers" is flawed, as it's just a single point in time. You need to think instead of the number of total customers, ie number of people who have gotten value from instacart since it's inception. If you don't, the comparison with "number of people saved by clean drinking water" doesn't make sense, it would need to be "today's number of people drinking clean water from our system."
Additionally, I was a gig worker, specifically for Instacart and Shipt, and I think it's fair to put all (or at least a fraction) of the 600,000 gig workers in the "gained benefit" column. (Or should I say, the total number of workers who gained benefit since it's inception)
I feel like this post misses the fundamental difference between expenditures and equity. If you invest in a company, you have the option to donate (or otherwise reallocate) your capital in the future. For example, if you invested $1 million in Instacart in 2012, you have the option today of selling your stock and donating the proceeds to GiveWell.
So the question of whether to invest in Instacart or donate to GiveWell more or less corresponds to the question of whether you'd rather build 100 wells this year or 107 wells next year. (Assuming 7% real returns relative to the cost of building wells.)
Seems like this list is missing the most obvious pro-capitalism form of charity, i.e.,“Give the money directly to someone who needs it more than you do, and then let them spend the money on whatever they personally want, since that’s the normal engine of capitalism and encourages companies to provide desirable things”
I think a "charitable" way to interpret it might be (not sure if it has been covered already) is that to have sprawling successful charities one needs a lot of capitalism to begin with, to make the money to donate to charities. Once there is enough money floating around, some will donate. If there is not enough, very few will.
> And Instacart has gotten better return on investment in the past few years than the local utility company…
Note that PG&E is not an example of "capitalism", or at least not one that you should be able to give with a straight face. Their policies must be approved by the government of California.
"I’m nervous about this because of China’s Belt and Road initiative, which did this at huge scale for infrastructure, but doesn’t seem to have done much good (and might have done some bad)."
Yeah, but how many developing-world projects come with a catchy children's song? https://www.youtube.com/watch?v=M0lJc3PMNIg
The correct way to do 3 is to give to GiveDirectly, which isn't *that* ineffective by the standards of GiveWell.
If the US & Japan got rich through capitalism then indeed it would seem to be a priority for poorer countries to follow a similar path. Donating to the Charter Cities Institute might not accomplish much (how many charter cities have they actually made?) but Tyler Cowen donates money to entrepreneurs in places like Ethiopia rather often. It is actually something of a puzzle in economics that poorer countries, which have a shortage of capital, aren't receiving large influxes of capital for the higher marginal returns, and the common explanation is that political problems makes people suspect they won't receive such high returns from investment. So one is arguably providing more social benefit by investing in such places at risk to your personal returns, although it would still be better to incentivize the stationary bandits in such countries by investing in places with the least avaricious/most pro-growth bandits.
I'm glad you blogged about this, but I think the actual problem is a lot simpler. Clean water, mosquito nets, and giving money directly to poor people all lead to guaranteed measurable improvements right now. Spending money and effort on a vague plan to somehow get non-capitalist countries to start being more capitalist is what we should theoretically be doing to fix the world in the long term, but it would probably go nowhere. I absolutely believe we should spend some money and effort doing that (I insert economic soliloquies into my YouTube videos and decorate my leather jacket collection with the principles of economics for this very reason), but I also accept that it's much more of a gamble as far as effectively spending our altruism goes.
Instacart belongs to a handful of San Francisco techbros. I don't know if any of them are Effective Altruists but they might be. If they are, shouldn't that (or even the possibility they might be} count in favor of capitalism? The standard EA claim being as I understand it that if instacart customers walked to the store they would either not donate the money saved to charity or give it to an animal shelter.
*Carefully raises hand* I think the 2-3 orders of magnitude in affected people should be accounted for?
610k employees getting money
10 million customers saving time and honestly just being a bit more comfortable
Vs
50k people with clean water
Grain of sand for billions vs gruesome murder for a dozen kinda thing
Scott, your math is completely bonkers.
You counted:
Instacart: externalities - cost_to_start <- MASSIVELY INCORRECT
Charity: externalities - cost_of_donation
You should count:
Instacart: externalities - cost_to_start + $10B
(Where "externalities" capture all the facets not accruing to the investors - be they positive or negative).
And this is why investors prefer capitalism over charity - they get another $10B ;)
(yes you do pay lip service to this in one of the latter sections, but the whole calculation still appears completely off)
(Also sounds like a classic problem of incentives - most people are mostly interested in the returns that accrue to them, not to the externalities, hence "privatize the gains, socialize the losses")
For centuries some people have been asking why a diamond is more valuable than water. Water is fundamental for life whereas a diamond is not. Nowadays some ask why porn stars get paid better than a schoolteacher. Basic education is more important than sexual entertainment. Today we ask, why we give money to Instacart instead of this wonderful charity?
Maybe the answer is silly. If Instacart disappears, is Dispensers For Safe Water going to bring the groceries I want to my door? If whateverpornvideos.com disappears, what charity is going to provide that sexual entertainment to people instead? Are charities better in that, arguably, more relevant sense?
If the metric to establish that charity beats capitalism, is that we have to frame life as just a set of very basic human needs that can only can only satisfied just to keep alive the greatest amount of people, in a very efficient manner, then you might be right. The problem is that even in that framing, capitalism and government also got there first.
Don't forget that NGOs also create jobs, to perform their activities, and you can create more jobs in poor countries, with the same money.
(some money monsters like the UN offer excessive salaries for basic jobs like chauffeuring their expats, which drains the local economy of qualified employees, but you weren't thinking about giving to the UN, were you?)
I think you missed what I'd consider to be the most obvious/intuitive way to "donate to capitalism": voting for politicians, funding campaigns, and other actions to increase the number and level of pro-capitalism policies passed in the world.
I expect most people who say things like "Why give to charity when capitalism is better?" are right-libertarians or pro-market Republicans. From their perspective, the marginal best altruistic uses of money may well be trying to get the more pro-market party in office (or voting/promoting the most pro-market candidates within each party).
To be clear, I'm not saying that donating to economically right-leaning political campaigns is a) net positive, b) more cost-effective than GiveWell top charities even if you have typical right-libertarian beliefs, or c) even worth putting a lot of research into.
I'm just saying that the most obvious way to promote capitalism with money probably involves politics ("money is speech" etc etc).
So the pro-capitalism argument can be rephrased as an emh thing - if you can cheaply create more wealth in Africa with public health investment, why don't investors just do that instead of investing in Instacart? I think there's three explanations for this (two pro and one anti charity):
First , it could be a value capture issue. Maybe you create a lot of productivity in Africa by investing in clean water, but Africa doesn't have the financial infrastructure to let you charge everyone 10% of the extra earnings they get from being healthy, so you have no personal incentive to do it. This is a problem directly solved by some people being altruistic and not doing things purely for profit.
Second, corruption - maybe extra investment in public health don't actually make the country richer, since there's inevitably going to be dictators who skim everything off beyond basic living standards. Your foreign investment just goes to displacing the minimum investment they otherwise would have had to make. In this case the charity really is useless or worse, going to empower terrible people (leaders of terrorist groups generally become incredibly wealthy through similar means).
Third, "value" might be fundamentally unsharable. If you make Kenyan workers twice as healthy, that might still be less total productivity gain than saving a silicon valley employee the time it takes to go grocery shopping, because most of the gains are just in that Kenyan workers feeling better, and even after that he doesn't have enough spare resources to pay you what it's worth. This one is mostly a pro-charity take (at least, assuming you value people's internal experiences and not just their economic productivity), but it can also mean economic growth isn't impacted much by charitable investment, which boosts the argument that it's net negative because it creates dependency.
Overall I find (1) here most convincing, but I do worry about (2), which is why I'm generally more supportive of long term public health projects than other ideas like givedirectly.
definite +1 for these guys -- I've seen them do good work on a shoestring (and have a sense of humor)
There isn't really a competition - the two address different issues. Capitalism has lifted masses of people out of poverty, and continues to do so. However, in any system, some people will fall through the cracks, and charity offers an opportunity to catch and help those people. That is the situation within a functioning society with capitalism.
The situation across international borders is different. Charity from wealthy countries, given to poor countries, nearly always results in unintended side-effects. IMHO it is counterproductive more often than helpful. Just as an example: food aid for Africa, where the free food drives local producers out of business, making the country even more dependent on food aid.
Rather than bet on a specific value proposition, why not invest in those who support them? It's a painfully inefficient market as money tends to flow toward to the most entrenched, not the most effective. Efforts to assess the ROI for business incubators/accelerators, counseling programs, etc. are tough to do and there is surprisingly little evidence of even a positive ROI. Applying top-down. linear models to what is an ecosystem may have worked somewhat in traditional economic development but falls way short here. Instead, why not take a systems approach to building entrepreneurial ecosystems** and support the ecosystem builders? (Who are chronically under-funded and facing hostility from the Haves... sometimes it feels like we're Uber/Lyft trying to grow where the taxis are controlled by the mafia, lol.) However, there's progress as we identify what works and doesn't (and limit/delimit those impacts). Perhaps burying the lede, there is now a nascent national group with the charter of "we help those who help the entrepreneurs". As part of that, we have identified some projects that will help these builders to visibly offer significant value to the ecosystem that the old school types cannot. Introducing high-quality entrepreneurship education to a less robust ecosystem can have a big impact long-term but does have measurable impact shorter-term. Improving the mentoring that entrepreneurs get is also powerful. Scott, I can blather on more - but to perhaps oversimplify. it seems that while sometimes you invest in the student and sometimes you want to invest in the school -and the latter is chronically underfunded (that the funding is captured by incumbents...) Thanks for the chance to share!
** ecosystem is actually a good term despite most of my cohorts are not biologists. "Builder" is not my term, I find it a bit arrogant :)
Like many commenters, I'm thinking "isn't microfinance (e.g. Kiva) the best of both worlds?"
Other commenters are saying microfinance isn't actually very good or effective. Could someone summarise the arguments against it?
I found this on Givewell https://blog.givewell.org/2009/12/11/estimating-the-cost-effectiveness-of-microfinance-charity/ and I don't think I understand it. It seems to be saying that microfinance is ineffective because if you take the total amount *currently* being spent on microfinance and divide it by the total number of people in the *potential* target recipient population, you end up with only $0.75 per person. That seems like such a stupid argument that I feel sure I must have misunderstood it, and it could be applied equally well to dismiss the effectiveness of malaria nets or deworming or any other "effective" intervention that's not yet maximally funded. It also seems to be focusing only on the "grants" part of microfinance and ignoring the part about loans which can be repaid and reinvested in other microentrepreneurs, which I thought was the more important part and the part that makes it more capitalism-like and hence relevant to this post.
Surely the relevant factor is how much of an impact microfinance makes on the subset of the population it's currently serving, plus the second-order impact on others in their communities, and how these compare with the impact of healthcare interventions; combined with how likely recipients are to repay their loans and free up the same capital to invest in further microenterprises, which isn't a factor in healthcare interventions.
If I put $1k into microfinance, then, supposing 50% of microfinance loans get repaid (figure plucked out of the air), then the amount of investable money will approach $2k over time. So the impact of one-off healthcare interventions would have to be more than twice that of providing local entrepreneurs with investment, in order for the healthcare interventions to be more effective. This is the sort of analysis I want to see, only with actual data.
(Also, the post seems to conclude "meh, it's a wash between microfinance and typical EA healthcare interventions" rather than "microfinance is notably worse". So it seems to be a matter of framing: why is this being shared as "microfinance isn't that effective really" rather than "microfinance is as good as the best EA-recommended interventions!")
Maybe a good way of thinking about this would be to separate initiatives on two axis, immediate consumption vs long-term investment, and centrally directed vs market mediated.
So a charity that hands out food, would be centrally directed consumption. Wall street investing in a dam would be market mediated investment.
Water filters are centrally directed, and seem more like consumption than investment to me, even though they sort of are "investing" in keeping people alive, human labour probably isn't the tightest bottle neck in the system. They definitely aren't where market mechanism would direct investment to maximise economic output.
If you want your altruism to promote immediate consumption it needs to be centrally directed because the market mechanism just allocates consumption to whoever has money.
For investment, market mediation might work, but it's unlikely to be directed to where it'd be most useful altruistically. Also, it's unclear how much altruism could affect the global rate of investment.
Historically there have been successful centrally planned programs to industrialise countries. That might be the most effective approach for development in places that altruist care especially about.
I don't know if GiveWell would endorse the scheme, but maybe if you resurrected a 1920s soviet agricultural planning officer, gave him jurisdiction over 1000 peasant plots and 10 million dollars to buy tractors, and bridge the temporary gap in food production whilst the system shifted to a new equilibrium, that might accelerate third world development above the rate global capitalism is currently managing.
I think there are several important considerations omitted from this discussion:
- Both a private company _and_ a charity can cause harm under the hood. A charity could be building water pumps in rural Africa, while also giving a cut of the money to a local warlord (because otherwise they would not be permitted to operate in that area, for example), thereby sustaining a group of people who may kill just as many as that charity saved. A private company could be producing a lot of value, while quietly polluting water for the nearby city of a million people. So it is very important to consider the operating conditions and local constraints of both charities and private companies, and if saving 2000 lives comes at the cost of causing deaths of even 2 people, I would personally not give my money to such a charity or company.
- The framing of choice between charity and private company may be ill-posed to begin with. If it were not, it would be possible to consider a society where only charities and no companies exist, or vice versa. However, it would be a clearly absurd, and likely not desirable scenario. A society run by a feudal aristocracy can have a number of highly effective charities but nonetheless an utterly garbage quality of life compared to a capitalist society with half the number of effective charities, for the simple reason that the aristocrats keep the lion's share of the economic value to themselves. So we cannot consider charities or companies outside of the socioeconomic context they exist in, and similarly we should consider situations where a charity or a company, besides saving lives, promotes a specific change to the socioeconomic context. I would not donate to a charity that promotes the institution of feudal aristocracy, for example, even if it were highly effective.
These are not abstract considerations. For this reason, I personally prefer considerations of transparency over just counting how many lives some organization can save. No point if you're only provided with the net profit and not the operating costs, so to speak.
I like the intent of this piece but you (like almost everyone) seem blind to one of the "unspeakable" problems of capitalism — artificial scarcity.
Startups generally, and even some very large companies in the industry-disruption category (e.g. Tesla,) earn 100% of their revenue from creating value. But the majority of large companies get a portion of their revenue through various "rent seeking" strategies. Some get the majority of their revenue this way. "Rent seeking" is a somewhat vague term but it describes very natural behavior to manipulate markets so that more money can be earned from less actual "work." One of the worst of these strategies is the creation of artificial scarcity. A good example is the diamond market, but the same is true of most basic commodities, (e.g. oil.)
If an honest appraisal of the entire global economy segregated the portion that is earned via rent-seeking from the portion due to actual value added, my guess is more than half would be in the former bailiwick. If anyone knows of such a study please share it.
Capitalism is a powerful engine for good. But it naturally also produces a huge amount of bad. I think this is the reason why most discussions of it miss the mark — they fail to admit the scale of the abuse in the system. Unchecked (i.e. with zero regulation) it necessarily results in a vast portion of the world living in poverty due to rent seeking strategies including artificial scarcity. Altering the ratio of good vs bad capitalism ought to be the goal, but so far, our most successful tools have been government regulations, which now often seem to be overmatched due to corporate capture of the regulation mechanisms.
Charity work includes attempts to address both the symptoms and the cause of poverty. In addressing symptoms, it will never be capable of even coming close to balancing out the negative impacts of artificial scarcity, since that is an artificial manipulation in the first place. It is "by design" and is necessary to support that rent seeking revenue. Since charity lacks the function of law enforcement, it will never be able to force companies to abandon rent seeking strategies. Only government, with the implicit threat of prison, can do that.
You’re comparing a marginal (marginal in an economic sense) company in the first world vs a marginal charity in the third world. Of course you’re going to find that investing in the third world is going to have more impact ! That’s what it means to be a developing country. That result has nothing to do with company vs charity ; it’s about first world vs third world.
On Job Creation: That the customers would have spent that money anyway is the broken window fallacy. This frees the time of the customer to do other things, either be more productive or have more non-work time for other activities. What's important is that the Instacart job is the best job that the worker could get (otherwise they get the better job). That means *they* have more money to spend, which creates better jobs for other people, and on and on. It's a positive feedback loop.
Replaceability: You just cheated here. You compared the *brand* of Instagram with the *function* of Dispensers For Safe Water. If DSW was discovered to be embezzling most of its funds and got shut down, another charity would come in to replace it. The brand isn't the thing you're talking about.
Permanence: The lives aren't saved forever. If we assume the other sources of water are, say, magically cursed to be instadeath water, you will immediately see that the lives are saved for only ten years.
And this is key element you missed, and the largest driver of *why* free-market systems are better than charity. A free-market system where the local people are free to generate and spend their wealth on their own would solve the deathwater problem permanently, by creating an incentive for people to create or deliver water that wasn't cursed. Everyone who solved that problem would be directly rewarded by the people who benefit from having the problem solved, and they get into the positive feedback loop measured above.
The rest of your argument hinges on the function of the service in question, rather than the mechanism by which it's delivered. So here's a more useful comparator: Jimmy Donaldson (Mr. Beast) makes a ton of money through his Youtube videos through stupid stunts and silly challenges for tons of money. But he also has an affiliated channel where he makes a ton of money, using the same skills and abilities in promotion and engagement where, instead of stupid stunts, he... does "charity" work. He then takes the money earned through those videos to make more videos about charity work. He doesn't ask for donations, the project is *self-funding* through its commercial endeavors. The results are openly the driver for more results, which are promoted here: https://www.youtube.com/@BeastPhilanthropy/videos
So why doesn't Africa do these? Because most of the governments are corrupt and steal any value the people produce, if the governments even exist at all, and it's not just bandit gangs raiding and pillaging. It's the lack of free markets that makes the continent poor, and where there are, to the extent there are, those countries are improving.
The great advantage of capitalism is that nearly completely useless stuff that doesn't benefit anyone gets filtered out. (Predatory scams, etc, will still get through, but obviously that's not the only kind of low-value project.) You can get even better value out of charities by caring even a little (i.e., checking GiveWell,) but this hasn't reached fixation.
Peter Lindert's analysis shows to my mind that state social spending is competitive with private investment for encouraging long-run growth; and also that as with charities and private investment it's made quite unequally. It's almost certainly the case that GiveWell charities beat out first world state social spending because of the higher marginal impact in developing countries (which also, not coincidentally, have poor state capacity.)
One can probably conceptualize this as a spectrum: market activity (including noncapitalist markets like worker cooperatives) applies a lot of selection pressure to effectiveness, but only maximizes for the benefit of the people with the opportunity to do it; public spending (or peer "charities" like fraternal orgs or neighborhood solidaristic groups) has selection pressure if (but only if) institution are relatively well-functioning via broadly selfish citizens wanting spending that benefits them, and benefits a wider variety of people but only within local borders; charity has completely different agents and beneficiaries and so the highest potential upside but also the potential for the laziest thinking.
One could imagine (however unlikely such a thing might be for humans, obviously) a social system called "charityism" where everyone directs their labor whatever resources they command towards what they good-faith think would do the most good. ("Property rights" over who decides how to direct a resource might be negotiated in advance by participants in projects to create or manage that resource, and the state might set up some rules and try to prevent violence between groups with very strong clashing visions of the good (say Alice wants to blast up a forested mountain to get the ores there for people and Bob thinks this is bad enough to use violence to stop her) but such disputes would take up a much smaller role than in our world.) I suspect that such a system would outperform (on any metric you like) any economic system humans could actually implement. When you do give to charity or otherwise act with the most good in mind you get to bring just a little bit of this sort-of-heaven down to earth.
I'm loving this post because Scott triggered a lot of incredibly cold and calculating readers. The comments are grimly enlightening. I sometimes forget just how ruthless free marketeers can get.
I can see two ways to ”promote capitalism” in ways that might work and be productive. The first is promoting institutions, as capitalism will arise and flower naturally under liberty and good institutions. The second would be to promote free trade, as there’s nothing better you can do for a poor country than involve it in an actually free trade system.
Of course, the question then arises how you would actually achieve this - in most corrupt countries, the leadership are the ultimate beneficiaries of the corruption, and lack of free trade mostly exists to protect some group of people whose support the people in power need.
I would argue that in some sense, charity is part of Capitalism. One of the core ideas of Capitalism is that everyone should have the freedom to spend their resources as they see fit, and in doing so, they will affect what is produced/accomplished at a societal level. Charity is just another option in the choice Capitalism gives you freedom to make. I don't really see how investing in Instacart (or whatever) is "more capitalist" than donating to Givewell, except it a total superficial aesthetic sense.
I think a problem here is the either-or aspect. Capitalism has its place, and so does charity. Economically speaking, both have a decreasing marginal utility, so at some point you should put resources toward the other one.
Also, poorly developed areas can benefit their residents more using fewer resources, but the overall economic impact is smaller. For example, if the GDP of a country is $1 million, and you double it to $2 million, that has less impact on the world than a country with GDP of $1 billion increasing 1% to $1.01 billion, even if both countries have the same population. From a charity perspective, the price may well be worth it to double the poorer country's GDP, but feeling good, making other people happy, and saving lives has no dollar value assigned, which kind of points out a limitation of economic theory.
If the charity is operating under a capitalist framework, isn't donating to that charity equivalent to donating to capitalism? IE: If your water dispensers are manufactured in the US, then donating to the water dispenser charity means the money ultimately stays inside the US, providing jobs and stimulating the US economy, and only the product itself is flowing out and improving material conditions elsewhere. The loss of resources is probably trivial compared to the goodwill it generates for capitalism in the destination countries.
Also, since many companies outsource labor to non-capitalist countries (see the volume of product produced in China, or things like oil), then donating to or buying product from those companies is also helping whatever non-capitalist framework those societies operate under, so it can't be as simple as picking the highest ROI company: you'd have to evaluate how much donating to them would contribute to negating capitalism worldwide.
Something I thought was perfect for "laying the pipes" for capitalism is an Indian program for ensuring digital identities to everyone with a bank account connected to it. This is a huge deal! India has nicely opened the solution up, as well.
https://www.globalgovernmentfintech.com/india-opens-up-payments-and-digital-id-global-repository/
One thing about poor countries is that there's often more resources than one thinks, but it's not institutionally secured - for instance, you can't borrow against your house if the only way you own it is through tradition or occupation, and this is economically stifling. Merely having a bank account and a legal identity can be a significant deal. Banking and insurance for the poor is very likely far more important than any charities - see for instance here, at the excellent 'Brain In A Vat' podcast: https://podcasts.apple.com/us/podcast/how-to-end-global-poverty-andy-kuper-rebroadcast/id1509951964?i=1000639600708 .
The fact that people seriously believe that investing in a first world company is going to produce more net benefit than direct charity to third world countries is bizarre to me. It requires such level of wishful ignorance about negative externalities of capitalism that it breaks my benefit of the doubt.
I also notice that Scott didn't mention these negative effects and just compared positive effects which is... not enough at all to understand the situation.
Here is an obvious example. Suppose there are hundreds small chocolate companies buying cocoa beans from Africa. Farmers compete with each other and the most competent become richer. And theoretically, they can use this wealth to educate their children and contribute to the development of their society. Meanwhile, people in the first world get their tasty chocolate and jobs at the companies, which compete with each other for the best offer to the farmers. So far so good. Everyone gets their fair share of gains of the trade, capitalism is working as intended and so on.
Suppose we want even more capitalism with all its benefits and thus a lot of money is invested into some of these chocolate companies. Now, these companies get more slack and a better bargaining position. They outcompete other chocolate companies and now we get an oligopoly of just several huge ones. They are also pushed to provide return on investment, which is achieved by cutting costs, offering worse prices to farmers in the third world. Investors are happy, they get their ROI and invest even more, thus perpetrating the cycle. Customers may even get better prices, thus they are happy too. But farmers in the third world are doomed to poverty now. They have to employ their children working on the farms instead of sending them to get education. Gains of the trade are significantly reallocated, much more of them going to the first world than third world, which needs them the most. No more spare wealth accumulates in the third world, and thus no more awesome effects of capitalism that we wanted - the opposite actually.
One thing I do making donations to health charities with an eye to both saving the maximum number of QALYs per dollar but also to how the disease curing will effect the economies of the recipient countries. Preventing deaths is a large good, but preventing crippling diseases that cause people to be drains on the resources of their fellows in addition to the misery they suffer themselves get a bump in priority. And some charities like Iodine Global Network can potentially cause drastic positive externalities that could swamp the direct good they do
Without companies like Instacart, no one would have money to donate water dispensers.
Not too sure where I stand on this, but to strongman the argument for “industrial capitalism” would essentially say that it is basically the biggest factor in improving peoples’ lives and reducing poverty in history. Prior to industrial capitalism, in 1700, if you got incredibly lucky and happened to be born in England, your life expectancy was 37 years, much as it had been in most times and places. The average monthly income was about $80 in present dollars worldwide, although because of vast inequality most would have earned a fraction of that. By historical standards the lives we live today (even in poor countries) are incredibly safe, secure, healthy and free.
It is hard to argue that industrial capitalism isn’t responsible for most or nearly all of this. The timing of the improvements (and the locations) closely mirror adoption of the rule of law, private property and enterprise, competition and financial mechanisms etc (in contrast charitable donations to improve the lives of the poor have existed in nearly all times places).
To take a recent example, in 1980, before reform and opening up, well over 90% of roughly 1bn Chinese people lived in extreme poverty (less than $2.15 dollars a day). Today that number is essentially 0. The UN hit its millenium development goals for poverty reduction five years early (whilst missing pretty much all of the others) not because lots of NGOs did lots of work on poverty reduction, but because China embraced industrial capitalism. Today there are many countries, which similar to China in 1980, have not embraced many tenets of industrial capitalism, and so the lives of most of the population are relatively short and grim. We should be desperately trying to expand the opportunity to use the wonderful life improvement machine that is industrial capitalism to these people.
Therefore strongman case for Scott’s number 3. option (charitable interventions with a capitalist flavour) is probably interventions that encourage the factors necessary for industrial capitalism where it doesn’t exist or does in weak forms. The biggest one is probably changing the mindset of the elites, as a shift to a properly open economy will likely see massive relative reductions in power for them (as the rule of law binds them and power/wealth flow to entrepreneurs/business people) and so generally they (arguably rationally) prevent it from happening.
What would this look like in practice? One example of such an intervention would be educational exchanges between China and the US (as well as other countries) particularly in the 1980s. At the time domestic support for reform and opening up was tepid (with the policy almost entirely collapsing in the early 90s). Educational exchanges helped cement support with Chinese students (much more likely to be tied into elite networks) seeing the benefits of the US model for themselves. Whilst I think Fulbright scholarships are funded by the US government, these sorts of interventions have a relatively low cost and could be done privately. If they increased the chances of reform and opening up succeeding by 0.01% they would be worth a ridiculous amount of QALYs.
Another would be the Ibrahim Prize. This offers $500k for ten years plus $200k a year for the rest of your life to any African leader who reduces corruption and respects democratic norms. If that pushes one leader away from refusing to step down after losing an election (knowing he will have a wealthy and pleasant retirement) again it would seem to be incredibly valuable. It could even go further: $500k is pretty low (and only goes to max one person per year) and it could also be offered to a much wider section of the elite. Once the rule of law and enterprise has taken off these sorts of prizes wouldn’t be needed, as the newly empowered mercantile class will have the wealth and power to defend themselves.
Whilst these interventions are incredibly complex to judge the results and don’t have the clear X number of lives saved metric that the giving well foundation can offer for clean water, in a similar way to often argued for AI risk reduction, the size of the opportunity/risk is so large it is probably worth the attempt.
Slightly separately a few comments on the article:
Comparing an investment in Instacart to a charitable donation is very apple and oranges. The VC investment that led to instacart should in the long run give a market rate of return (otherwise less investments would be made until it did). In a sense the investment that created instacart cost the investors nothing in opportunity costs, they received a market rate of return. A completely amoral rich person would probably put some of their money in VC, whilst likely wouldn’t be donating to charity.
I don’t particularly agree Instacart is a great example, it’s a company that derives rents from network effects rather than anything particularly innovative, the service provided is one of mostly transferring time from poor people to rich people, and the jobs created are relatively low value add and low paying. There are clearly companies that the world is significantly better off for having existed, such as Tesla or Tongwei Solar.
On a slightly pedantic note you can’t really put the cost of Instacart at $10bn (when total capital injected is $3bn) whilst also saying you prefer Instacart as an investment over utilities because of better returns. The $10bn figure is fine but assumes an efficient market (I.e. that investors are investing in VC rationally for market returns and so whilst only $3bn has gone in, you have to include all the other failed investments, and that overall VC investments are making a market rate of return). If you make this assumption it is odd to later assume that the risk adjusted returns of utility investments are much lower than VC.
On further pedantic note, the vast majority of Instacart’s $10bn value comes from investor expectations of rapid future growth. Instacart made a $71m loss in 21 and $70m profit in 22 (after stripping out a one off accounting change as now they are making a profit their past losses of nearly $1bn now have some tax benefit). Ignoring all loss earning previous years, at $70m in earnings, growing steadily, you would probably expect a 10-20x price/earnings ratio for a standard largish firm. Which would put Instacarts value at just over $1bn if we used a 15x multiple. The remaining $9bn is based on expectations of rapid future growth in both revenue and earnings. Therefore the cost of creating Instacart - as it is today - is much closer to $100,000 to give 2,000 people grocery delivery.
It seems to me you're forgetting the by far most important thing that's the advantage of capitalism over charity: scalability.
If you're bottom-line positive, you can make the same product until you hit diminishing return to scale. If you're revenue-negative, you have to get more donation money.
Michael Porter made this case well: https://www.ted.com/talks/michael_porter_the_case_for_letting_business_solve_social_problems?language=en
This is a 1000x+ scaling advantage. If it's generally possible in that system (laws, security, property rights etc.) to create revenue-positive businesses, you can create 1000s more of them.
Only from other positive-revenue businesses can charity money come in the first place. My impression is wealthy donors give about 1% of their money to charity (I could be totally off), which means you need a ratio of at min. 100 to 1 based on fixed human nature assumptions.
Not a battle-tested argument, happy to hear feedback.
You link above to your review of _How Asia Works_ (https://www.astralcodexten.com/p/book-review-how-asia-works), and it's interesting rereading that essay in the context of this one. One of the key things it talks about is land reform as a first step toward development, and that seems like something that capitalism can't possibly accomplish. Seizing land from big landlords and redistributing it to the rural poor runs exactly counter to the strong property rights that form one of the foundations of capitalism (foundational enough that the Index of Economic Freedom uses property rights as part of its country scores).
It makes me wonder whether anyone's investigated the possibility of charitable land reform, somewhat after the environmental model of buying land in the Amazon and making it a nature reserve. Rich Westerners could buy land from large landlords in undeveloped countries and redistribute it to poor farmers, helping to create that key basis for successful development to happen.
I find it frustrating that capitalism is always treated as this black box capitalism is what we do in the United States, period. I think capitalism is both good and inevitable, but that doesn't mean that the inequities in the way we do capitalism are also inevitable. My dad raised nine kids on one salary, we lived well. That's basically impossible today. What happened is that the fruits of the economy are no longer distributed the way they were in the 50s. The poor will always be with us, but if capitalism worked more effectively there would be a lot fewer of them
We need an Effective Capitalism movement.
On your list for what it might mean to "give to capitalism" you should have "burn some money." Money is just the right to allocate resources. If you burn some money, you're saying "My personal needs are met, and I'm no expert in allocating resources for other people, so I'll forfeit my right and let the economy decide." In the short and medium run, letting the money sit in the bank has the same effect, with the added benefit that it provides personal security if you become needy later. This is what I mostly do with my money.
Could we consider capitalism to be the means of wealth creation that funds charity? If it weren't for capitalism, would we have the resources to create and fund international charities at all?
I don't think it's fair to compare Instacart against Dispensers For Safe Water because Instacart provides services to people in the First World and the charities that GiveWell endorses provide charity to people in the Third World.
Prices are very high in the First World, so you should compare Instacart with a charity that helps First World people. Alternatively, you could compare Dispensers For Safe Water with a company that is similar to Instacart but is in the Third World. Such a company will likely deliver more groceries to more people for way less money than $250 per year per customer.
The consequence of this is that if you want to encourage capitalism you should do it in poor countries that need capitalism the most, not in rich countries that already have capitalism.
> Return on investment. [...] I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so.
I think the factor is much higher than 2. Most people investing in Instacart have purely selfish motives, they only want the ROI, so the other positive effects are free! Since altruistic giving has a non-zero cost, it is infinitely less cost-effective.
The logical conclusion is that one should emulate Warren Buffett, and allocate capital purely to maximise ROI and re-allocate the gains. The argument must surely be naive since Buffett himself gives a lot away altruistically.
Along the same lines as your point 3 is charities that promote self-sustaining development in areas. My friend runs a charity in Haiti that basically funds a few schools, which are mostly taught by locals, as well as initiatives to help train the locals on better ways to produce food and other goods themselves. One of the key components is self-sufficiency, because, you are right, indefinite charity leads to suboptimal outcomes compared to letting the market work out what is efficient itself. However, sometimes capital injections to overcome extreme poverty or knowledge injections to leapfrog years of technical development can be extremely effective.
One thing you don't mention is policy advocacy within developed countries.
Advocacy for increased immigration and fewer trade restrictions might actually be competitive with donation on "human welfare per dollar" grounds, though of course higher variance because you're looking at a *chance* of influencing policy rather than a near-certainty of providing {water, mosquito nets, cash, etc} to recipients.
One very important negative to charity is that it undermines local production of similar goods. When we give food to poor Africans, we destroy their local food production (who can't compete with free foreign goods) and make the next famine significantly worse, creating more death and misery and making it more necessary for foreigners to send food again, continuing the cycle. Long term, a country is better off with local producers of fresh water systems who can create and repair such systems with the added benefit of local jobs. You get all of the benefits of the charity (fresh water) while insulating the people from the negative effects and training locals in useful skills at the same time.
The thing about capitalism is that it's really about markets. You need a real market with prices that reflect real supply and demand for capitalism to work well. Charities are a type of subversion of the market, since they distort prices. We don't need investment (capital) nearly as much as we need markets (price signals). If you think of Capitalism as investments, then it's a mixed bag compared to charity. If you think of Capitalism as markets, then it clearly wins.
With functioning markets, people can invest in poor foreign countries and provide services for a known or at least estimated return. Belt and Road doesn't work, because it's not based on markets, it's a type of command economy. Heavy infrastructure investment can work for building a country up (it did in China), but it's not a real economy and creates distortions that can come back to bite later (as it is doing in China). There's no guarantee that heavy infrastructure investment will even help, which you can see in a lot of Eastern Europe in the 1990s but also places like Venezuela more recently where money was thrown at projects but didn't really do any long term good.
The capitalist way to better the lives of poor people is by buying their products. Work to eliminate restrictions on free trade which mostly benefit rich countries at the expense of poor. Tariffs, for example.
Reducing agricultural tariffs would help poorer countries which have little to export but agricultural products. The United States has relatively low agricultural tariffs, averaging around 25%, but they are not 0%. Launch an advertising campaign explaining how these tariffs hurt farmers in poor countries. Push back on the "Buy Local" mindset by illustrating how this affects poor farmers around the globe.
Any benefits that flow from buying goods or services from for-profit companies should also follow from donating to charity, since most of what charities do with the donations they receive is to buy goods or services from for-profit companies. For example, most of AMF's expenses are (unsurprisingly) purchasing nets (https://www.againstmalaria.com/financialinformation.aspx), which they source from for-profit companies (https://www.againstmalaria.com/newsitem.aspx?newsitem=Question-to-AMF-Where-are-your-nets-manufactured).
Somebody arguing that you should spend your additional dollar on goods or services you want instead of charity needs to argue why spending $100 on the for-profit company that makes the thing you personally want is better than spending $90 on the for-profit company that makes the thing the charity wants + the direct impact of the charity.
(I assumed 10% of the charity's donations are spent on things like their administrative staff, which is an overestimate for AMF.)
Regarding the confusion around Instacart's revenue
It's not necessarily the case that all of their customers are long term users paying the discounted rate. Some of their customers will be churn-y, paying a higher fee for a shorter time and then unsubscribing.
At any given moment in time, a snapshot of all current customers will include a percentage who are of this kind.
What about putting things like Microfinance loans in the funding capitalism frame?
There are numerous charities that do this in some capacity, it generally funds individuals that want to start/expand their small businesses in a way consistent with "funding capitalism" and it has ongoing benefits in that the loans are (generally) repaid and then reinvested.
First off, Instacart is a bad example, because you picked the typical marginal company in a developed capitalist society. To have a better one, go back to the 1860s and put seed money into the first companies developing the electric grid. That compares a lot better with charity since it's a marginal company at the beginning of capitalist developement. Or go back to 1300s europe and help a few capable individual set up commercial trade - you'd be contributing to the culture that eventually generated civil law, which is an amazing technological externality of trading wine and spice around.
But that would lead you to the wrong conclusion that you should invest in developing countries. This will work only some times. And that's because in some countries the government and whole social system is designed to explicitly oppose capitalist developement (I'd suggest "the dictator's handbook" as an introduction), while in others it's severely hindered (other useful introduction: "why nations fail"). So, apart from investing in the few remaining developing countries that are not already en route to developement, what can one do?
Investing to change the aforementioned countries' social institutions to remove obstacles to capitalism is unlikely to work (afaik there's no clear way to do it), and likely beyond the means of something smaller than a nation state.
If you can't bring capitalism to the people, bring the people to capitalism. Another way in which capitalism is hindered around the world is by restricting immigration. The potential of millions of people to add their marginal contribution to capitalism-induced well being is wasted by keeping them inside the borders of countries that don't want them to employ their talents. For each capable human you safely help or sponsor to successfully move from an undeveloped country towards a mature capitalist society, you are "donating" to capitalism the difference between their original expected income (let's say $1500 per year) and their expected "capitalist" income (median wage in the us should be around $40k per year), for every year they are alive, which compounds with every children they have in the country.
I wonder if the answer is investing in companies based in areas without an economy. (Much of Africa, for instance.) One company that could survive would create jobs for the surrounding area, and they would start spending their money there, which would make it rich enough to create clean water and do all the other good things for their community that the U.S. is able to do.
A somewhat false dichotomy - without capitalism you won't have any sensible charity. There would be no surplus funds to make charity with available (there would be some surplus funds though, sadly captured by the ruling apparatchik class). Speaking as someone who regrettably, by the lottery of birthplace, had to spend half of his life without capitalism.
My rule of thumb is that capitalism is good at growing the pie but relatively bad at apportioning it. Capitalism is great at what it does, which is exchange between parties where each one has something the other wants and will pay for. But then there are market failures, especially things that no one wants to or can afford to pay for, like clean water for extremely poor people. Hence redistribution, regulation, and charity.
In practice, both capitalism and charity have varying degrees of success, but it seems clear to me that they are complements. There are good and bad companies, and there are good and bad charities. One category isn't really better or worse in our current world, although if I were in a thought experiment and had to pick I would take capitalism (or enlightened autocracy in theory, but this generally doesn't work out in practice) without charity rather than vice versa.
There's a lot more money looking for investment opportunities than there is in the charity world, so that would tend to favor charity from a supply and demand perspective. However, many of our challenging problems like housing supply or better healthcare can't really be solved just by charity. So it's one of those questions where the answer changes shape depending on which piece you're looking at.
> I’m going to summarize the deal that Capitalism offers by allowing Instacart to exist to “For $1 million, you can give 2,000 people a great deal on grocery delivery”.
I think the error is here. The real deal is “For $1 million, you can give 2,000 people a great deal on grocery delivery, plus shares of a company that are worth more than $1 million.”
I think this pretty much solves the issue? Surprised I haven’t seen more comments saying this directly.
Scott, have you validated that Dispensers for Safe Water's claim of $1M = safe water for 50K people for 10 years => 1500 lives saved is in fact true? Seems like you're working with hard numbers (admittedly with some assumptions) on the Instacart side, but with a press release on the Dispensers for Safe Water side...
TL;DR of my earlier comment: charity is going to be better short-term, investment is going to be better long-term.
For (3), you missed one interesting use of money, which is lobbying to make capitalism work more effectively in your first-world country of residence. As you've noted in the past, the amount of money spent on lobbying is both large on paper but tiny in comparison to the economic value it can influence. Of course, first-world markets work better than third-world ones so there is less low-hanging fruit. But they are also much larger and more receptive to lobbying, which more than offsets this in my view. You could also envision reforms, like lifting individual donation caps so that lobbying can be done more flexibly than via SuperPAC. This leads to uncomfortable conclusions, like the potential that the Koch brothers are spending their money more effectively than Peter Singer.
Also on approach (3), there's a great way to make investment in third world countries better, without sticking your neck out yourself. Make it easier for Wall Street to do it! Maybe you can't identify the right Kenyan Dam, and Wall Street doesn't have the power to do it because of various regulation such as the Foreign Corrupt Practices Act, PATRIOT Act, and AML Laws -- things that the Chinese Govt can skirt to operate more flexibly and create win-wins.
On approach (2) The "return on investment" is stipulated to help by like a factor of 2, but it's really more like a factor of infinity and explains ~all of the advantages of capitalism over charity. The compounding of advantage from investment dominates everything else in the long run. Also Instacart is a public company, and one of the worst possible examples of (2). Doing good via approach (2) looks more like YCombinator, funding novel / ambitious / risky new technology that could be big. The more inefficient the market, the more good there is to be done. Perhaps you wanted to count this benefit as "permanence", but I think it's cleanest to lump "permanence" and "ROI" together.
Maybe this is what you mean by "impact investing" but wouldn't the best option be to provide investment/seed money to a startup company which provides economically priced products for the poor?
In this way, you could create jobs, provide poor people with resources, and also possible get a return on your investment so that you can rinse and repeat.
In order to give to charity you need excess money derived from capitalism.
Within capitalism, charity is a consumer good. You can’t compare capitalism to charity because it’s apples to oranges; capitalism rewards economic control, while charity is a way to fulfill the human need to help others. If you want to help people by encouraging capitalism, you can’t do it by purchasing instacart stock, as you pointed out clearly. Instead you’d donate to political charities or economic assistance organizations that promote the creation of freer markets, whether through regulation or direct assistance.
I think the way to square this is by interrogating what aspect of capitalism has led to the massive increase in well-being — the creation of technologies like electricity, computers, antibiotics, that spread widely and make everyone's life better. Capitalism is a blunt tool; it gives everyone an incentive to make money, and one way to make a whole lot of money is to create this kind of technology. It's this aspect of capitalism that has created ~all of the increase in material well-being since pre-industrial times. It cannot be replicated by charities.
> Some sense in which the US is rich and a good place to live, and each successful company contributes to this.
This is certainly true in aggregate, but I do not think that it is true on a company by company basis. Capitalists are only aligned to if externalities are captured in their incentive structure by some artificial means.
The mob running a protection racket might be a successful company (unless one has the regulatory framework to deal with it). A patent troll might be a successful company. An app vendor pushing free-to-play Skinner box games on kids might be financially successful. A ransomware enterprise might rake in big bucks. Does whoever have a monopoly on epi pens in the US provide ten times as much value per pen than their EU competitors? Are the companies which provide fossil fuels or try to invent AGI well incentivized to consider the overall effects of their endeavors on the global population?
I share Scott's opinion that capitalist companies are instrumental in making the US a decent place for living. But their objective is the shareholder value, not some abstract ideal of honest competition, which is a strategy of last resort for making money if you can not achieve a regulatory capture or monopoly status.
More generally, I would argue that effective charity basically fills the gaps left by the free market. People who can afford to spend 20$/person on safe water dispensers should just buy them, but for the ones who can't afford it, charity can pick up the slack.
(I also do not believe that anything which could possibly be provided on a for-profit basis should be provided in that basis. Scott providing most of his articles for free is fine. Free/open source software is fine. Natural monopolies (e.g. road infrastructure, water supply, or the early telephone network) can also be well provided by publicly owned utility companies on a cost covering basis.)
You actually almost CAN write a check to capitalism directly, though, by pushing for a Georgist land value tax and universal basic income. Moloch, relentless and shortsighted as a cat chasing a laser pointer, promotes the interests of whoever has the most property rights. Shift allocations away from exclusionary speculators, toward "an equal slice of the rent for every citizen," existing engines of capitalism will turn and cater to the formerly-desperately-poor, in direct proportion to their newly expanded ability to pay.
I am currently traveling/touring in Laos, and one of our guides, an english speaking university graduate, told me he want to go for work NGOs for the money, that is where the big money is at. Not at business, not at government, NGOs.
While this post addresses how individuals should spend their money, it does little to address how large organizations or movements should orient their goals or whether said movements are good or bad. In this context, the claim that capitalism is better than charity can be seen as an argument against the effective altruist movement, while not an argument about individual spending decisions.
For this argument to follow it is necessary to observe several facts: the effective altruism movement is not merely about donating your money to the most efficient cause. It is also about participating in a given social structure, researching the efficacy of charities, and selecting a career path. These things are not essential, but to me, they are far from non-central. Second, money donated to effective altruist organizations goes in part to employ people to determine the most effective use of this money.
Thus, I take the argument capitalism is more effective than charity to mean that a) EA organizations frequently direct people away from careers with high returns or direct them away from social enterprises according to capitalism by altering preferences. People who go on to start charities may have started successful tech companies instead, and as a result, redirect value. Likewise, they may enable people to launder their reputation by encouraging people to look away from business fundamentals and best practices, and pay attention to their altruistic pursuits instead. b) EA organizations generate insufficient social value to offset these losses, because capitalist institutions matter more than charity implying that charitable donations will have only muted effects in areas without capitalist institutions, and as a social movement, EA would be more successful if it lobbied for capitalist institutions.
Now personally, I suspect both of these arguments are false, but I think it is worth considering them. For example, I certainly think it is possible that EA causes individuals to place too high of value on AI safety, and thus discourages them from taking other roles. Likewise, I think EA doesn't adequately consider it's own ability to impact and steer social institutions.
TL;DR—Capitalism being better than charity could be a critique of the EA movement rather than individual decisions. This critique is substantive if EA made the wrong individuals less sensitive to market returns, and this decreased aggregate value. Alternatively, if EA could lobby for more capitalist institutions effectively, than this may have a more positive impact than charity.
>if you know a good development nonprofit, please bring it to my attention!
https://www.growth-teams.org/
Wait, how is the answer not just "the charity I'm giving to operates within capitalism and by spending my money will contribute to economy in exactly the same way and amount I would if I spent it on other, presumably non-charitable things, all I'm doing is acting on my preference for someone to have safe clean water".
(That's of course granting the assumption that capitalism is a net good in the first place, which I do not share.)
the best part about Capitalism is that you can spend the wealth you generate by producing stuff other people want on the stuff you want.
so like, if you want to reduce malaria in various places, you can pay for a bunch of other people to make mosquito nets, and someone else to ship them, and someone else to distribute them, and....
Instacart charges fees even if you have the subscription. They're just no delivery fees, but they tack on service fees, and additionally mark up prices.
Before you can donate to charity, someone must have made a profit. That's the only place charity can come from. Someone has to have made the money first.
Plus, it's not just a transfer from one area to another: growth compounds. Do you want to grow the pie or redistribute it? It become just a math problem to figure out how long it takes for the recipients of wealth transfers (say, "the poor") to be worse off than they would have been if the transfers had been used to increase wealth instead. Poverty is the #1 killer of humans, and prosperity is the thing that extends life (and is strongly correlated with happiness too).
Charity is putting the money where it will do the least good, with the lowest return. Growing the pie is where the return is highest, and it compounds forever.
Also, there are basic questions about the motivation for charity. Is living a guilt-driven life a good thing? Ayn Rand would call it living for others, rather than yourself.
I think some of the dissonance in the results of: capitalism vs charity and instacart vs clean water are thermostatic effects.
In a country (world) where capitalism has been a driving and successful force for centuries, it makes some sense that at the margin adding more capitalism has a smaller effect. Charity has less direct self reinforcement mechanisms, and coupled with the nature of new charitable causes coming up (AIDS in the 80s), you’d expect pretty high marginal impact available more regularly.
I also think the example is a little contrived, I wonder what you would think about instacart vs whatever the median charitable gift is — a tithe to a church or something.
One could also come up with an extreme example for instacart, how do you calculate the expected value of investing in the instacart series A round? That might compete a lot more closely versus now that it is a mature company with a huge market cap.
It is unfortunately an appels and oranges comparison.
Lack of capitalism is frequently a political problem-- there's a government that's preventing it from happening.
Are the good charities working to convince governments to permit markets?
Capitalism produces a large output because it gets a large input.
The amount of money/resources that humanity overall puts into capitalistic systems is large, compared to the amount that goes to charity.
>It would seem that capitalism is better than charity. The countries that became permanently rich, like America and Japan, did it with capitalism. This seems better than temporarily alleviating poverty by donating food or clothing.
There are just not enough charitable dollars to give that many people that level of wealth.
Scale. The answer is 98% scale.
I'm assuming your thought is, "How many anyone-utils can I buy for $X with investment, purchasing, charity and charity-investment?" You'll get a much bigger number for charity, which isn't surprising because that's what charity is designed for.
Capitalism produces more utils in total because capitalism is [compares US GDP to a random unchecked google result for total US charitable donations for a lazy statistic] about 50 times larger. Part of that is because capitalism has a way to grow itself which charity can't, part of it is because people will inevitably be more drawn to participate in capitalism than to give to charity.
If you had a hypothetical charity-based economy, it would romp home. This could be modelled as everyone's individual utility function being replaced with a total human utility function.* I can't really comprehend what it would look like (even the most extreme anarcho-communists don't go anything like this far; this is Kingdom of Heaven stuff),** but I'm not sure you'd have anything resembling a functioning market. Anything you would normally pay someone to do they'd already be doing anything as their goals would be completely aligned with yours.
That's obviously absurd though, which is why charity is always an ancillary project of another system. Increasing the amount of charity on the margin seems to be inevitably the right call for any individual-scale donation though.
The remaining 2% is the principle-agent problem involved in charities, which is largely solved by direct cash transfers. These also have a second-order effect of stimulating local economies, as the water-pump shop owners of rural Africa can go and invest their money in mosquito-net shops which employ more people who can buy more water pumps.
*Technically, people would each have a slightly different utility function, as it would be the amalgamated utility function of everyone who wasn't them.
**Cf San Francisco in Unsong.
I see the distinction of charity vs. capitalism as incorrect; our concept of charity exists only in the context of a capitalistic system. There's plenty of charity in pre-modern systems, but it's largely bound up in kinship relationships. A modern charity is where the benefits flow to the recipients regardless of their social relationship to the ultimate givel. Indeed, I've seen the Economist state that you can't fully industrialize without a state-supported welfare system that enables people to shop their skills to the best-paying employer without fearing that getting laid off will cause them to starve to death.
Seriously missing how capitalism works here. You don’t “give” $100000 to instacart, you. BUY it. You still have it, unlike your donation. On average, it costs you LESS THAN NOTHING to assist Instacart. You are comparing giving with investing for the same nominal amount but that makes no sense.
The underlying problem is intellectuals that universalize and moralize individual choices. All you need to say is "I don't want to give to charity." you don't need to say "my not giving to charity is better than your giving!" because charity is an individual choice.
The intellectual kind of frames too many choices that way. You don't just like wine in moderation, it must be a health benefit. Having/not having kids is about the future of man; it can't just be one man's hope or fear. When you do that the unspoken thing is that these really aren't choices, they are moral duties or commands.
otherwise its silly; the economic system you are under creates money you choose to give alms with. They are not competitors any more than a basketball court is with basketball players.
I'd like verify your analysis here. Could you link me to where Givewell documents that $X will chlorinate water for Y people? I scanned all of the posts they had about water quality interventions and couldn't actually find it. Probably I'm just blind. I'm skeptical of your figures because the 3 charities listed on Givewell's "Top Charities" page all have costs of $4000, $5000, and $5500 to save a life. If water treatment was nearly an order of magnitude better then I would expect it to be listed there.
In your point on ROI you say
" I agree this is an important distinction, but I think once you factor in the discount rate of money it doesn’t change things by more than factor of 2 or so."
Could you make your math explicit here? I'd like to know exactly what effects you included. Also, isn't a factor of 2 actually kind of important? Being able to do twice the amount of good in the world is a big deal, especially since that surplus compounds over time.
I'd also like to question whether it's appropriate to compare a randomly-chosen investment option to the single most cost-effective charity that a dedicated team of analysts could find. Isn't the fair comparison to look at the returns of the best available investment option that a dedicated team of financial analysts could find? Warren Buffett makes his investment advice freely available to everyone and Berkshire Hathaway has averaged something like 20% returns since 1970.
Does capitalism beat charity? I guess that means, how should I divide my disposable income between investments and donations? The boring economist answer is, it probably is not worth worrying too much about, since at the margin your effect will probably be small. The EA response, I guess, is go ahead and do the math and hope to be a useful drop in an effective ocean. Or maybe, try to seek out the margins where you can actually make a difference.
It’s hard to try to steer capitalism, and even how to give it a helpful push is not so obvious. This is due to the sort of problems that make capitalism preferable to the alternatives, which have the same problem to a greater degree. Capitalism, when it works, helps people help themselves, neatly avoiding the problem at the core of EA concerns.
You wrote an earlier post, Beware Systemic Change (https://slatestarcodex.com/2015/09/22/beware-systemic-change/) that sums up my objections to this post. Here, capitalism is systemic change, and one should not donate to it. This is perfectly consistent with the idea that capitalism is more effective than charity. It is just that donating money is a poor way of promoting capitalism. Donate to specific causes with good ROI for the recipients (for example, charities with a high QALYs/$), and use other means to promote the more nebulous causes where the ROI is difficult to measure, such as capitalism.
Also, when people say that capitalism is better than charity, they don't mean any specific company. Using Instacart (or any other company) as a point of comparison with charities is a poor way to go about this. What they mean by capitalism is the whole set of institutional arrangements that makes prosperity happen. Once these institutions are in place, there is no need to charitably give money to Instacart: Wall St. and venture capitalists will provide it money anyway. Likewise, without these institutional arrangements, Africa's potential Watts and Arkwrights will continue to toil in the fields and hope that the warlords stay far away.
The key problem is putting the institutions of capitalism in place. This is Systemic Change, and it never worked through charity. Rather, it involves things like England's Glorious Revolution, the French Revolution (https://www.astralcodexten.com/p/the-consequences-of-radical-reform), and semi-capitalist reformers like Park Chung Hee and Deng Xiaoping (https://www.astralcodexten.com/p/book-review-how-asia-works). In many cases, successfully promoting Systemic Change leads to failure anyway because the reformers were clueless and had terrible ideas (socialism, neoliberal shock therapy, the War on Terror in Iraq and Afghanistan). This leads to my objection to point #3: if you donate to one of the think tanks promoting capitalism, you don't know whether you are funding a capitalist reform that will be successful or whether you are funding a capitalist reform that will fail and backfire catastrophically. That is why the discipline espoused in Beware Systemic Change seems to be such a good idea.
The comparison of Instacart with a charity is a false one for many reasons, including:
1) Businesses seek to make money, charities seek to provide benefits (at least they are supposed to)
2) Food delivery is a luxury, not a need for the vast majority of people. Yes, disabled and elderly people do need it but Instacart is not built on a consumer base of disabled and elderly people; it is built on a base of moderately to very rich people. There is a difference.
3) Capitalism seeking profit does not equate to societal benefit in many areas. The entire point of regulated utilities, the DMV, etc is to provide a necessary service at the lowest price - not the highest profit.
This doesn't even get into the issue of how Instacart really operates as a way to get around labor and compensation laws, or how it uses/abuses its "contractors".
A far better example would be FedEx and the US Post Office.
Yes, Fedex is great if you are moderately to very wealthy.
Yes, it is terrible if you're not moderately to very wealthy and/or if you live in a low density/rural area.
The point of the Post Office was never to make money - the point was to provide mail service to knit together a far flung, widely dispersed American people. If Fedex could make more profit serving the 10 million richest people in the US, they would be perfectly happy to stop serving everyone else - but of course that's what the Post Office does.
I don't have any issue with the existence of FedEx, but failure to recognize the purpose of the USPS is very common.
>I agree that overall capitalism has produced more good things than charity. But when I try to think at the margin, in Near Mode, I can’t make this argument hang together
You're missing the forest for the trees here. The "overall effect" of capitalism is nothing but repeated applications of Near Mode marginal choices. It's good in aggregate because it's an accumulation of many small individual decisions that are good in isolation. Your argument is the equivalent of saying "Look, in aggregate this gold bar is obviously more valuable than this lead bar, but when I look at the individual atoms I have a hard time seeing why any particular atom is any more valuable than any other atom."
The only loophole is the possibility that there are nonlinear effects. And there are. The problem is that they all go in the direction of capitalism. Capitalism has compounding effects. It grows exponentially. That's because it enables technological development which increases productivity which makes technological discovery happen faster. It's the greatest virtuous cycle in history! Even if your moral system bottoms out in "number of lives saved," capitalism still wins! Lives saved is a linear function of wealth, and wealth is an exponential function of time. If you have money to save X people today, invest it at 7% and save 2X people in 10 years. Future people aren't less morally valuable. And in the meantime your money will be put in the hands of people who can make permanent positive changes to the world. You gesture towards this in your "Second Order Effects" point, but your analysis is deeply flawed because you make a false equivalence between the marginal value of people's time in first world vs third world countries. People's time in the first world is CLEARLY more valuable. Just look at how much more technological and scientific innovation the first world produces relative to the third world. It's not even close, and that's all that matters in the long run.
As the great Richard Feynman explained when he clashed with a socialist group, "It isn't the stuff, but the power to make the stuff, that's important."
First world countries are good places to live for two reasons: they have good (e.g. high IQ) people and good institutions. That's it! That's all that's necessary to release the genie of exponential technological and economic growth. When thinking about how to make the future better (modulo tail-risk stuff, which clean water in Uganda doesn't address) technological progress and self-sustaining economic growth are ALL THAT MATTER. Just like Feynman said. They're the only things that move the needle. So if you tell me that your charity has a goal of seeding good institutions that will plausibly lead to self-sustaining growth, then I'm all for it. But if the goal is just "keep poor people from dying" then you're making no difference except transferring resources from an effective culture to an ineffective one (and keeping poor people from dying doesn't change an ineffective culture into an effective one - if anything it makes it even more dysgenically ineffective). This kind of charity makes the world worse.
>Instacart is self-sustaining: after some initial investment, its profits pay for its benefits to continue forever
Surely this is an argument *against* spending your money on Instacart? Since it can sustain itself just fine without your charitable dollars?
This would be an argument for developmental aid of various sorts (to create these self-sustaining companies), but not for investing in capitalism simply by spending money on things you want.
What a delightfully short post on some exceedingly complicated and difficult subject matter. Ultimately, I think you're a bit off the mark here, drawing a false equivalency. 'Dispensers for Safe Water' would be mostly useless if it operated exclusively within the US, similar to how Instacart would go bankrupt if it set up shop in rural Africa. DFSW is effective because it operates in poor or corrupt areas with little access to clean water, while Instacart is effective because it operates in areas with enough excess cash flow to render such basic necessities irrelevant. If we're going to place charity and capitalism in competition, we need to compare wealthy with wealthy, and poor with poor.
So, DFSW should be in competition with local water suppliers, while Instacart should be compared with, say, Toys for Tots. These examples also aren't perfect, but make for more salient comparisons. DSFW is easier to send your money to, more reliably effective in saving lives, but also outsources a segment of the local economy. Sometimes this is great, allowing locals to focus on expanding other, more lucrative ventures, and sometimes it backfires, preventing the establishment of local infrastructure which would provide clean water on a more or less indefinite time scale. You can't compete with free, after all. Toys for Tots and Instacart both serve to make people happier, but Instacart is more explicitly need dependent. If people don't have the extra cash, or aren't too concerned about convenience, then Instacart disappears. Toys for Tots, on the other hand, will supply Toys to Tots, regardless of whether those Tots need Toys, or food, or backpacks. Charity is inflexible in a way that capitalism isn't, and can potentially lead to some significant misallocations of charitable intent, often by accident.
Personally, I don't think solutions are mutually exclusive here. Capitalism is a flexible, broad system, built up by an individual, often unintentional willingness to continually improve and expand the mechanisms which drive it. This makes it excellent for long-term success, but also makes it difficult to implement. Charity is simpler, and typically much easier to put into practice. It's pretty rare for someone to complain when you offer them free money, after all. As such, charity can serve as an excellent stop-gap, when capitalism is difficult or impossible to implement. But, capitalism really does offer a better long-term solution. Good capitalist work in other countries reduces the need for charity in the first place, and allows charity funds to move elsewhere. Heck, a booming economy is basically guaranteed to contribute to charity funds themselves, which is exactly the kind of compounding good worth pursuing.
Just some random notes.
Ayn Rand's Objectivism is perfectly okay with philanthropy as long as it is a mutually voluntary action (i.e. not coerced by government), a reasoned decision motivated by one's own values (i.e. not by guilt) and without compromising one's own well-being. It seems to me that something like donating 10% of one's income to effective charities passes these criteria.
(Ironically, the people who are trying to make you feel bad about your voluntary charity donations would be the bad guys from the Objectivist perspective, as they feel entitled to dictate how you should spend your rightfully earned money, using social pressure.)
In the hypothetical world of Spherical Cow capitalism, there would be no opportunity for charity, because everyone's needs would be already satisfied by the market. By the same logic, there would also be no opportunity to start a company, because all reasonable opportunities would be already exploited by someone else. Clearly, we are not living in the world of Spherical Cow capitalism. If you can find an opportunity to start a new business (and sometimes make billions as a result), there are probably also opportunities to do a lot of good using charities. Especially considering that EA only recommends a tiny fraction of all existing charities.
In a hypothetical world of perfect freedom, zero transaction costs, and perfectly rational actors with complete knowledge, most charities would be useless, because if I can spend $1 to somehow increase your lifelong earnings by more than $1 (for example by saving your life or improving your health), such charity could be converted to a trade... and indeed it should be, because that would mean that I can later help another person using the same $1. But the actual world is not like this, so sometimes good actions in the actual world are the ones that would not make sense in the hypothetical world.
There are probably possible some very nonstandard ways to create a lot of good per dollar, for example by assassinating the world's worst dictators (and making it publicly known that if you pass certain threshold of evil, you will be killed). But there would need to be a political consensus on this, which is unlikely to happen; for example many powerful people would realize that such system might put them in crosshairs a few years down the line, so they would oppose it strongly from the beginning.
Does eating an avocado toast beat capitalism? When I spend $5 to buy and devour an avocado toast, there is a human being (myself) that enjoys eating it. Also, this human being is being sustained to be able to earn more of $5 to buy more avocado toasts in the future. If I invest $5 in stock market, I do not get to enjoy an avocado toast right now. I might be able to buy two avocado toasts in the future when my investment pays me dividends or is disposed of, but even then the enjoyment I will get will be from two toasts and not from the dividend or stock sale events. Any enjoyment of the prospect of future gains in my equity portfolio is just an enjoyment of future toasts I will be able to buy with these gains. Thus, eating an avocado toast beats capitalism.
Charity giving is a good alternative to eating an avocado toast. It subtracts one human being enjoyment of a toast, and it saves the life of another, much poorer, human being in a remote country. The tradeoff of a life vs toast enjoyment is pretty compelling on its own. We do not need to resort to second order justification for that such as "saving people’s lives allows them to engage in productive activity too". Which is just as good because these justifications are false: if someone's life can be saved for $5 it is very unlikely that they are able to engage in productive activities much more valuable than $5 (on average and possibly through no fault of their own.)
Is comparing avocado eating to capitalism a fair comparison? I do not think it is. Capitalism is the system that allows me to eat avocado toasts regularly. Other systems are known to result in far fewer toast eating opportunities. So capitalism (and improvements to capitalism) are much more important than eating an avocado toast, even though we have already established that eating an avocado toast beats capitalism. The same is true for charity.
In your Instacart example, the arithmetic should be different. It is irrelevant that Instacart provides groceries to 10m customers for $250 each. Their consumer surplus is positive but we do not have any reliable way to estimate it - may be it is $1 per customer on average, may be it is $1,000. What matters is that Instacart turned $5Bn of VS investment into $10BN of VC value (plus an unknown but positive amount of consumer surplus.) These VS could have saved many lives for $5Bn in 2012, presumably, they can save many more lives with $10Bn they have in 2023. If the life saved discount rate and inflation over this period compound to less than x2, Instacart (and capitalism) beat charity; otherwise, charity beats capitalism.
Invest in or start a company that will be a low-cost high-volume provider of goods in the countries you want to help. Econ 101 tells us that shifting the supply curve to the right increases the total surplus. You accomplish this with economies of scale, amortizing fixed costs over a larger volume of product. Think Walmart, Amazon, Costco, Home Depot, Exxon, Shell, Volkswagen, Toyota. These are the companies that make the rich countries rich. Just go on a stock screener and sort by revenue.
The "bad" companies are the ones with high profit margins based on advertising gaslighting people that their brand of poison is better than the alternatives when it isn't -- Coca Cola, Altria, See's Candies, etc.
Another way to frame the argument for charity is that charities can help particular people that capitalism has no incentive to help.
Pure capitalism will always leave some losers at the margin - people with no money, no familial support, and no marketable skills. Capitalism wants to sell them stuff, but what do they have to pay for it? If you have zero money and no way to get it, then capitalism is not particularly interested in helping you.
(Note that here I mean "pure" capitalism - not the mixed system that we actually live in in the U.S. where government programs and redistribution can fill some of the same holes that would otherwise only be filled by charity.)
The efficiency of (pure) capitalism helps improve the average case, but doesn't necessarily do anything for the worst case.
Which is heavier, feathers or lead?
Is the title actually a sensible question?
Your summary of Instacart doesn't make much sense to me. Surely if it's a successful company, it should be making money, not losing $500 per customer as your summary suggests. Anyway, the companies that do good things but lose money are kind of like charities, so let's focus on the ones that do make money.
Profitable companies have good (hopefully) impact on the world and make their investors richer, charities have good (hopefully) impact on the world and make their investors poorer. Given this summary it's clear that most people are already investing in companies, so I'd expect charities to be relatively underinvested -- if you have $1m that you don't need, give it to the charities.
A new post on EA Forum shares suggestions from Tyler Cowen and others on what you might call "Capitalist Charities": https://forum.effectivealtruism.org/posts/oTuNw6MqXxhDK3Mdz/economic-growth-donation-suggestions-and-ideas
I'd add Atlas Network to the list, which supports market-oriented think tanks around the world
Scott, could you expand on "I have a high prior that any nonprofit that hasn’t been rigorously shown to be good is probably bad"?
"(also, I’m concerned that even though rich countries got rich because of capitalism, it’s no longer that easy for poor countries to get rich with the same type of capitalism - existing rich countries will outcompete them "
This completely ignores comparative advantage.
It's interesting to me that you chose Instacart to compare to a charity, because when judged as a business it's lost money for its owners since inception and continues to. In some ways it is a charity. According to their most recent filing, owners have put in $6,395 billion and business has lost $2,734 so far. It costs them money to give you that service. The stock price goes up, but the company is bleeding economically.
Every business analyst is pretty much perplexed why it and so many of its peer companies are trading at the prices they are. The ONLY way it's worth that figure is if they're able to turn wildly profitable in the future. We haven't seen the full story yet.
The 1500 lives saved per million dollars per life saved seems too cheap. That's like $667 per life saved. GiveWell estimates their top charities save a life at 3.5 to 5.5k usd. So maybe we're talking closer to 150 lives saved rather than 1500 lives.
Still doesn't change the basic argument, but good to get the facts right.
I don't know whether this comment is a violation of ACX comments policy so I'll broach the subject carefully. If you look at rich, successful Japan and compare it to poor, disease-ridden Africa that doesn't have clean water, the actual explanation for the difference isn't to be found in the relative merits of markets versus charity.
It is to be found primarily in what I shall call Heinous Bad Discourse, also known as the Voldemort topic.
If you won't discuss that then the whole post is a waste of time.
In cases where the Voldemort topic doesn't apply like North vs South Korea it's pretty obvious that markets are better than charity as far as creating wealth goes. Singapore is another example - good governance plus markets.
I feel that EA as a whole walks around with a massive blind spot. Voldemort is pretty much the most important thing about the world when it comes to generating good outcomes. But EA cannot discuss Voldemort because it's Forbidden. So you have this comical situation where the world's society for good outcome production can't talk about the most important causer of outcomes. Lol. Lmao, even. It's been like this for over a decade now. Africa is still a disaster. Some countries even got worse. The world overall is clearly in a worse state than when EA got started. And here we are, in 2024, discussing markets vs charity. Sigh.
This is just poorly argued. Of the many charities and for-profit corporations, this is at best speculative and worst just lazy.
Feels like content for content’s sake.
Do you have a citation for instacart making $500 million? Their most recent financial statements show them losing $2.3 billion: https://finance.yahoo.com/quote/CART/financials?p=CART
The current cost to society of allowing instacart to exist is not its market cap, or paid capital. If instacart ceased to exist that value wouldnt go anywhere it would just show up as a loss to investors.
The cost to society is some version of its annual expenses. In particular the payroll. If instacart ceased to exist, these workers would do other things, along with other resources instacart may have tied up, like its building lease. This is the economic way of discussing the idea that instacart doesnt create jobs. It consumes them and creates deliveries.
If you wanted to altruistically invest in capitalism you would want to invest in companies you think are likely to increase worker productivity the most, directly or indirectly. Instacart is very end-consumer oriented. Doesnt seem like it has any first order effect, but maybe saving time for the professional class has a lot of long term value.
Okay, I am launching an EA ETF. its chooses companies based on this. Ground floor. This is the next ESG. Get in while you can.
Here is how I would approach this question.
Firstly, capitalism is good for QALY because it raises worker productivity. The US can meet its basic needs by employing like 5% of the population in agriculture, food processing, utilities, and home construction.
Charity as presented here works essentially be assigning high productivity workers to the basic needs of low income communities. The channel is not sending PhDs to these locations, but a) inventing things like portable water filters and b) funding the manufacture of them with donations from productive workers.
Certainly as charity is directed to QALYs, and capitalism is not. Charity get more short term QALYs. But its also the case that if in 1750 all the worlds wealthiest countries directed their entire economies to basic needs for the world we would not be able to create so much clean water with the one years income of 15 average workers today. Does each charitable indulgence destroy QALYs in the long run by reducing growth?
Growth economics tells us that growth economics comes from investment not consumption. I am not going to question that here. There has to be some non zero consumption for the investment to pursue (for future earnings) but at the margins consumption funded charity does not decrease growth and buying instacarts services does not contribute to growth. Surely their cant just be $1 dollar of national consumption either though. I think as long as interest rates are positive though we can conclude 0 effect on growth from consumption changes.
How much growth does investment cause? US investment is 20% of GDP. GDP growth is 4%. India investment is 30% of GDP. GDP growth is 7%. Similar ratios! Lets say 1$ invested creates 20c of growth on average( kind of neat that stock returns 10%, suggests rewards are evenly split between investor and society) It seems like the marginal impact should be smaller even though India got the same ratio. Again interest rates seem like a floor. So somewhere between 20 and 5c.
How much QALYs does growth create? Well most people are not EAs. So $1 of US growth creates very little charitable giving. So the only channel that US growth creates significant QALY is through efficiency in production of basic needs (inventing water filters in the example above). Basic needs production is a small fraction of the US economy though. But we could target the investment. Tyson Foods (if we ignore animal suffering) creates lots of QALYs right? It feeds millions of people with a 10% market share in US food processing, it could create more with investment. Lets assume for a moment that returns to productivity here mirror the wider economy. A 5 to 20 pct return on basic need production efficiency to me looks attractive.
But even at Tyson a lot of the investment is not optimized for QALYs. What if there was a food company with Open AI governance. It competed in the free market but focused all of its research on relentlessly grinding down the cost of the cheapest food stuffs, and never made any attempt to move up the quality curve. You might actually see something approaching a QALY return rate of 4 to 20.
There is also of course growth in the lower income countries. When I started this analysis I thought maybe since all the absolute growth is in the US that it might not be a good channel. But India gets the same absolute growth per absolute investment. And production in developing economies is probably far more targeted to basic needs and therefore QALYs than the US. The faith in capitalism play would be to favor investment in poor country's companies over any planned intervention like micro credit.
Now since all this is framed around worker productivity I have to consider does direct QALY buys raise this? There is nothing less productive than a corpse. It seems like it should, but as distasteful as it is to consider, these are very poor people being saved and they might be more of a mouth than a brain. If these QALYs were super valuable economically, would we see lots of indentured servitude financed charity? Do we see that? What it would look like?
Well overall an EM heavy investment portfolio willed to GiveWell on death seems to me a more attractive play than I considered before. And would be an easier sell to marginal EAs than a 20% oath.
Er…I feel like missing something here. Why is "donate to libertarian nonprofits" which advocate for more capitalism (perhaps in foreign countries which need it more) not on this list?
Is it correct to state that your examples constitute "giving to capitalism"? I don't see that allocating money any particular way within the framework of capitalism is what causes it. There are probably historical och cultural-evolutionary paths to capitalism, and when the institutional or cultural prerequsits are in place, capitalism is the emergent phenomena that we see in the aggregate of human interaction. In a place that lack drinking water, the cultural and institutional factors that promote the situation we interpret as "capitalism" are not (sufficiently) present, and thus resources are not allocated in an effective way, where the criteria for effectiveness include the aggregate of all human preferences, scaled by the amount of resources respectively individual controls (including money and IQ).