I write this paper in response to some feedback I have gotten from others in the EA community regarding the length of my prior post. So here’s a shorter version.
Please note that we are now using the term "Profit for Good" (here described as Guided Consumption). For the companies that direct all or the vast majority of profits to charities we refer to them as "Profit for Good Companies" or just "Profit for Goods" (here described as Guiding Companies).
TLDR: Businesses that are either owned 100% by or direct 100% of their profits to charities would have a competitive advantage over traditional companies that benefit shareholders. This is because charities are more popular than normal investors and there is no additional cost to being a charity as opposed to a normal investor. Thus, these businesses working for charities, which I call Guiding Companies, could offer goods and services at the same price and of the same quality as ordinary businesses. Consequently, the project of creating and making the public aware of these companies-working-for- charities is potentially very high-impact, because these companies could tap into the profits in the broader economy and generate billions of dollars for effective charities.
Charities as Profit Recipients of Businesses
In most contexts today, consumers, or buyers of goods and services, are mostly unaware, and/or given little care to, who is on the other side of the transactions they engage. If you buy some laundry detergent or cables for your phone, usually some company’s set of shareholders is gaining profit from your purchase. In any case, companies seldom advertise who is profiting on the seller side. Consequently, there is a dimension of difference in the global consumer economy on which almost no sellers compete:: the identity of the entities that benefit from your purchase, often, owners in some form. An attempt to compete on shareholder/owner identity could be very effective, given that there is no strong public sentiment in favor of company shareholders or the other existing stakeholders. This use of seller-identity to compete could be seen where a consumer has a friend that owns a business, such as a barbershop, and the consumer chooses her friend’s barbershop out of a desire to help her friend. In that case, the consumer would be choosing on the basis of where the profit would go, without necessarily sacrificing quality of haircut or paying more.
One set of entities that could potentially occupy that shareholder position would be various kinds of charities. This makes sense because people donate millions of dollars to Oxfam, for instance, but they do not donate any money to Amazon. Consequently, if a charity or charitable trust acquired a company (through a set of wealthy philanthropists funding the acquisition- perhaps through a leveraged buyout) and advertised this fact to the public- that they could advance popular causes by buying through the firm owned by a charity instead of its competitors- it should enjoy an advantage. This effect could also be achieved by a company that explicitly directs all of its profit to charities. I call this Guided Consumption because this situation would enable consumers to further their values by buying through specific firms that specifically communicate the identity of their owners. I call the companies that are either owned by charities or explicitly direct 100% of profit to charities Guiding Companies.
A few conditions would be needed in addition to Guiding Companies, such as systems that ensure that Guiding Companies are doing what they say that they are doing. Another condition is effective marketing to tell the public about Guided Consumption, where they can channel their purchases to advance a charitable cause. If you are interested in reading my descriptions of these conditions, feel free to check out Section II of my longer paper. But the main concern, in my view, would be whether or not the networks boosting Guided Consumption would be able to penetrate the public understanding such that consumers would adjust their behavior to favor Guiding Producers over normal producers. This level of public awareness, to be the most powerful, would likely require a social movement, although a Guiding Company would likely enjoy a degree of advantage correspondent with a Guiding Company being able to communicate this feature with its customer base.
I am optimistic about the prospects for a movement developing because of what it allows for consumers: they get the same product, at the same price, but profits benefit charities rather than shareholders. Essentially, it is a no-brainer from the consumer perspective. Unlike asking someone to sacrifice 10% of his/her income or radically change his/her diet, the consumer can do good without losing money or changing habits. I think that Guided Consumption, helping worthy causes through consumer awareness, is likely to have traction with thought leaders, celebrities, and others who can see that this could be a powerful tool to direct resources toward important causes. A movement that enables everyday people to help charities without sacrificing anything personally should be much easier than one that demands people give significant things up or even mildly inconveniences people.
Other Advantages for Guiding Companies
Vincent van der Holst, who is the founder of BOAS (basically a sustainable Amazon donating all profits to charities), opened my eyes to other advantages Guiding Companies would likely enjoy from other market participants. In his experience, he has been able to secure advisors to his company who work for free, despite charging hundreds of dollars an hour to other companies. He has also seen brands that he sells on his site offer higher commissions than they offer other companies, because BOAS benefits charities, not shareholders. Vincent has been able to secure higher discounts for advertising through influencers, and even some that would work for free. In short, market participants other than consumers are often willing to provide favorable treatment for worthy causes, either because they want to do good themselves, or because they want to be associated with Guiding Companies doing great work, like BOAS.
Which Market Sectors?
So, where would some sectors be that would be ideal for Guiding Companies? One way of approaching this that I think is helpful is thinking of creating the “no-brainer” for the consumer. This could make it sensible to introduce Guiding Companies to sectors where there is not much difference between products. Although there’s some degree of brand loyalty in most consumer sectors, people just may not see much of a difference between varying brands of toilet paper, ketchup, paper towels, etc. In low-differentiation sectors, it may be easier to construct a “no-brainer” where a consumer is genuinely ambivalent as to two products. Given this ambivalence, they can go with the brand that, for instance, helps prevent kids from contracting malaria. Conversely, in sectors where there are a lot of different ways that products are differentiated, other factors are likely to overwhelm the consideration of who gets the profit. For instance, if you are going to a restaurant, you’re likely going to be considering how much you like a restaurant’s offerings, the convenience of the location, the ambience, the quality of service, etc. It is hard, in such cases, to think that anything close to the “no brainer” could be constructed.
Another approach is to capitalize on virtue-signaling, perhaps through products that could enable a consumer to conspicuously show that they bought through a Guiding Company. Perhaps many people would be willing to pay a premium to show that they purchase in a way that benefits charitable causes. I think both approaches could be fruitful avenues for Guided Consumption and likely an exploration of both is warranted.
Which Benefiting Charities?
For this question, I think an EA should be looking for where there is alignment between causes that are very effective at doing good and causes that are popular with the general public. I think that charities dealing with Global Health and Development, such as those endorsed by GiveWell, would be a natural fit. I think that causes looking to improve animal welfare, even farmed animal welfare, may also be a good fit. It is worth considering some causes that may not be as effective as the EA community typically endorses, for the purpose of resonating with a broader section of the public, perhaps in addition to Global Health and Development and Animal Welfare. Of course, it would be incumbent on those advancing Guided Consumption to endeavor to advance the most effective charities in a given cause area.
Why Prioritize Guided Consumption?
IMPACT: As a group, the companies on the 2022 Global 2000 account for $47.6 trillion in revenues, $5.0 trillion in profits. EAs urge people to donate money to programs, for instance, endorsed by GiveWell, stating that the expected utility from donation to an effective charity is 100-1000x greater than that money’s use by most people in wealthy countries. I suspect the utility difference resulting from the diversion of money from the average shareholder in a company to an effective charity is likely even greater, as the distribution effect of investment tends to be regressive, enabling further accumulation to the wealthy. But even if you (for some reason) believed that shareholder wealth accumulation had 10x utility related to that of the average person to whom the argument to give 10% of income is directed, there is still a 10-100x greater utility from the diversion from normal stakeholders to effective charities.
If Guided Consumption directs 1% of Global Economy Profits (through dividends or asset value accumulation) to charities, in a world of $10 trillion in global profits, this is $100 billion dollars. If 15%, $1.5 trillion dollars. Furthermore, if EA is involved in ensuring that significant portions are going to effective charities, significant headway may be possible in cause areas where effectiveness and popularity overlap, especially given that much of the general public support for charities tends to not flow to the most cost-effective, impactful charities. Particularly noteworthy is that, in the United States, only 5% is donated internationally, though charities in the developing world usually are far more cost-effective. Even if the competitive effect of Guided Consumption is less potent than hoped, it still may be a powerful fundraising tool in some contexts.
TRACTABILITY: Significant research is needed to determine the degree to which consumers would switch to Guiding Producers over normal producers. This research and other empirical validation is cost-effective because it relies on modest assumptions. Essentially, the value of Guided Consumption holds if consumers have some preference for the funding of charities over traditional shareholders, we are capable of informing consumers of how to engage in Guided Consumption, and we are capable of creating the "no-brainer” situation, or otherwise obtain advantage through Guided Consumption, for consumers, in some contexts, which constitute a significant portion of our economies. The ask being made of consumers is extremely modest: buy the same stuff you would otherwise buy at the same price, but through a specified company. Essentially, we are asking consumers to favor helping the neediest in the world over the most wealthy. The rejection of this is confusion or psychopathy. This message, I believe, would not only resonate with the end consumers, but also with influencers, thought leaders, and others who are influential with consumers, because it is intuitively reasonable. One variable could be the amount of time that such a process might take, but even discounting for a long time period for consumer activation, the utility derived would be tremendous.
NEGLECTEDNESS: Although there are a few examples such as Newman’s Own and Girl Scout Cookies, where charities benefit from consumer activity, there is virtually no effort to deliberately weaponize the identity of the owner of businesses’ profit in a focused manner, let alone create a movement that could divert significant portions of our world economies to effective charities. Worth noting is that Newman’s Own has donated more than $570 million for charitable causes since 1982, indicating interest in the concept, even though this feature of 100% of profits going to charities has not been aggressively advertised and many customers are not aware of this feature. One notable exception is that of Vincent Van der Holst, who created BOAS, an online store in the EU that directs 100% of its profits to charities. Another awesome example is Misericordias, which was created by a young man who read my longer essay and was inspired to create an online store selling clothing and other items, where 100% of profits are split between The Against Malaria Foundation and The Clean Air Task Force. Given the potential for good that could be done by having a significant portion of our economies going toward the most effective charities, it seems totally bizarre to me that more effort and resources are not being devoted to attempting to leverage consumer sentiment in our economies. Even with very high degrees of skepticism, the exploration of this cause area/potential tool is cost-justified.
FAQ’s and Answers
Won’t Guiding Producers Increase Costs for Consumers? Structurally, there is no reason that a Guiding Producer would produce goods and services at a higher cost. A charitable investor or set of investors buying out a firm would not necessarily have to pay more than a private investor or set of investors. There may be some cost to advertising a firm’s status as a Guiding Producer for a charity, but firms in general have costs of advertising. The inference of a cost increase may be under an assumption of a firm with normal stakeholders/shareholders that elects to give a percent of proceeds to charity. Such a firm would likely have to increase costs to cover this donation. Indeed, Vincent van der Holst, founder of BOAS, has indicated that Employees/Influencers/PR/Consultancy are willing to work for less for Guiding Companies. Vincent has also noted negotiating advantage when dealing with brands, given that they often benefit from being associated with a Guiding Company. Given the advantages Guiding Companies could enjoy, one might even expect a Guiding Company operating with the advantages of economies of scale to offer lower prices than competitors.
One caveat is that, in many contexts, the firms that can compete best on price enjoy economies of scale. Consequently, given that initial forays into Guided Consumption may not have the millions or billions of dollars to create companies that can exploit economies of scale, a consumer may have to pay a slight premium for goods from early Guiding Producers. Fortunately, the success of such firms should indicate with even greater strength that Guiding Producers would compete if able to compete at economies of scale, thus warranting further philanthropic investment.
What if selfish motivations make for the best founders/investors/etc.? The efforts of philanthropic investors are capable of being strategically deployed, meaning that they can enter sectors with stable competitive equilibria and capitalize on consumer sentiment. Founders, venture capitalists, and angel investors can create value by disrupting various industries out of a desire to enrich themselves, and this is wholly compatible with philanthropic investors entering at different points of the business cycle. If circumstances were correct, it may make sense to start a new firm. But the lack of a monopoly on brilliant talent would not prevent the tactical entry of different sectors by philanthropic investors.
Competitive firms often need to reinvest rather than make cash profit distributions to shareholders; would this be acceptable for a Guiding Producer? Firstly, some firms would be conducive to a dividend-structure. Secondly, when firms reinvest, this tends to increase the value of the ownership stakes of the business. This value appreciation (and, indeed, principal amount of the asset) can be converted to cash in various ways, such as debt to be serviced by later infusions from the Guiding Producer. There further could be a small percentage of the Guiding Producer, say 5-10% that could be privately held, which could later be absorbed in stock buybacks. Essentially, this question is a question of corporate finance that should ultimately be resolvable.
Won’t there be moral objections to activities that normal businesses use to compete, such as extreme executive compensation, environmental effect, low worker pay? This is a tricky question, but for one, it is not clear to me that bad behavior is necessarily the most effective business strategy, and firms may enjoy a premium for avoiding acting poorly. But even if Guiding Companies engage in activities that consumers take issue with regarding traditional firms, such as competitive (i.e., princely) compensation for CEOs, it is not clear why this would cause a consumer to choose a company that enriches shareholder over a company that helps fight global poverty. People all over the world choose the “lesser of two evils” in the political contexts routinely.
Why hasn’t such a movement for something like Guided Consumption happened already? Because Guiding Companies, by definition, generate profit for charities instead of traditional investors, a major issue they face is that Guiding Companies cannot access the same investment pool of private equity and angel investors for seed money. One solution to this would be to seek financing from philanthropists, particularly those who are looking to spend their money to advance the same cause area as the Guiding Company. However, the question remains: if Guided Consumption is a more effective means of funding charities than direct donation, why has this not been more fully explored already? I suspect that the reason stems from a deep-seated psychological separation between the way that people think about the business world, essentially a rather competitive, dog-eat-dog mindset and the kinder, more magnanimous mindset involved in charity work. The notion also seems to violate intuitions about sacrifice involved in charitable contributions, although these intuitions do not hold with the deliberate substitution of traditional stakeholders for charities. I would also note that some further red-teaming can be found in the comments of the longer paper.
Are there other possible advantages Guided Consumption might enjoy? Why thank you- nice not to be raked over the coals for a minute! Yes! Employees may be attracted to work for Guiding Companies because many employees find it important to work for companies that do good, This allows for competitive advantages in hiring and morale. Guiding Companies may get discounts due to their worthy mission enabling lower prices than competitors. There may be some tax advantages. Potentially, Guiding Companies could enable greater consumer choice in charities. Advertising from organizations such as the Consumer Power Initiative which promote Guided Consumption could help Guiding Companies spend less on advertising individually, lowering costs vis-à-vis competitors.
Guiding Companies should enjoy an advantage over normal companies because they serve a more popular master - charities- than normal companies - rich shareholders, thus enabling consumers to benefit popular and worthy causes through normal purchases. This advantage is not balanced by other factors, and thus Guiding Companies, once created and known by consumers, should expand throughout market sectors and deliver profits to charities many multiples of costs incurred in their creation. Critical to note in considering attention/funding Guided Consumption is not just the initial funds generated for effective charities, but also the move towards an economy where profits are enjoyed not just by the already wealthy, but by effective charities.
I’m Convinced: How Can I Help?
First things first, if you think this idea has potential, please share it with 3 people. If you don’t think it has potential, please share why you think so in the comments so we can improve or learn and address your concerns. I have started a nonprofit called the Consumer Power Initiative, with the purpose of promoting Guided Consumption. I could use insights from all kinds of people wanting to share thoughts about directions the Consumer Power Initiative could go. I could use advice and guidance from those who have worked in the profit or nonprofit spaces. I could use technical assistance, such as people who have worked on websites, especially Shopify or other ecommerce experience. I could not begin to think of all the different categories of insight which might be useful to this project. Finally, I could use funding, although I will defer this request until 501(c)(3) status has been finalized.
My email: email@example.com
Consumer Power Initiative website: https://www.consumerpowerinitiative.org/
Longer paper: https://forum.effectivealtruism.org/posts/4j7CsFvG2ADsj33FD/guided-consumption-funding-charities-by-leveraging-consumer
I just skimmed. I like the idea. That plausibly only works for sufficiently memetically fit charities (which varies based on the product/service), but that's probably still a significant number.
If this is thesis is true, then it means donors (of charity that have companies with a consumer based that is memetically fit for that charity) should buy companies and transform them into Profit for Good (at least assuming they're able to hire a good CEO, and maybe providing other incentive-based pay for the CEO if they don't have shares), because this would increa... (read more)
A friend of mine sent this to me and I'm interested in hearing how you see this playing out in practice. I want to start by saying I think this is a great idea, but I don't think it would work much better than current structures. My bias here is that I'm very anti-capitalist and see profit as one of the driving forces behind our current economic state of disarray. So I'm interested to know how you came to some of the statements you did, as my experience working for a for-profit company would suggest you're incorrect in some of your assumptions.
Prem... (read more)
A few questions:
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- "creating the “no-brainer” for the consumer. This could make it sensible to introduce Guiding Companies to sectors where there is not much difference between products." - if there is low brand differentiation, wouldn't that lead to commoditised products and lower margins? Which makes the guiding company less incentive for nonprofits/philanthropists to invest in as a way of making returns that they can use for their priorities?
- Similarly, more commoditised products tend to create more conglomeration to take advantage of economies of sca
Thank you for your thoughts.
On the commodity issue: the reason that it is hard for firms to get an advantage in the commodity business is because no market actor can offer a better product at a better price than any other market actor. Now imagine, in a commodity space that one market actor was able to produce a more valuable product without incurring additional costs. This market actor would tend to monopolize that commodity market, provided that other market actors could not secure the same advantage. This is the situation that Guiding Companies are in because costs are no higher for them, yet they have an advantage with other market participants, including consumers. I am positing, and believe strongly that research will substantiate this, that consumers will value profit destination at a nonzero level. In the commodity space, this advantage should be decisive. In sectors with more differentiation, it is less likely to be decisive.
Your commodities of scale point definitely makes sense. It will be difficult to compete without hundreds of millions or billions of dollars. This is why research and working on educating the public is critical to satisfy charitable investors ... (read more)
Many large companies are owned by non-profit foundations. There's also evidence that they do outperform, but I suspect that is because they have better governance and a longer-term perspective, rather than because consumers choose them for their credentials.
"If Guided Consumption directs 1% of Global Economy Profits" - I'm not quite sure I understand the mechanism to get to this state of the world. Would this essentially require the EA community to buy 1% of the global market? Or are you suggesting we build a whole load of new companies? That is almost impossible in most mature markets unless there is some sort of disruption.
Thought it would be helpful to share an outline of the Consumer Power Initiative's functions.
Functions of Consumer Power Initiative
... (read more)
- Marketing Guided Consumption (creating a social movement)
- To the broad public (consumers)
- To EA and other and other organizations
- To nonprofits
- To public intellectuals, influencers, celebrities, academics (economists)
- To philanthropic sector
- To world governments
- Research critical to questions of Guided Consumption
- Public choice research (will consumers switch to Guiding Producers)
- Mechanism and degree of impact
- Degree to whic
I keep going beck to this part, because this is what could make this so successful.
"... they get the same product, at the same price, but profits benefit charities rather than shareholders. Essentially, it is a no-brainer... the consumer can do good without losing money or changing habits... A movement that enables everyday people to help charities..."
Because at the end of the day, people can be pretty lazy (Including myself).
Newman's Own is an example of this. You're gonna buy pasta sauce anyway, might as well go with Newman's.
Even if it just gets the ball rolling, once you know companies who do good, it's easier to know what to look for and where to look.
I know so many millennials and zoomers that do want to do better for the world and its people, but are so overwhelmed they dont know how or where to start. One spot that breaks it down to "this product you will buy anyway is also good because it does x, y, z, which is better then just lining another millionares pockets" would be so helpful for them.
So often I hear "look at this amazing thing.... that I unfortunately got from amazon... but look! It will cut down on my plastic usage/good waste/ect. So it kinda evens out." So I'm rather excited to see this get off the ground.
Hey Brad! I love the idea. I’m late to this comment section and many of my initial reactions were discussed at length. That being said here are a few ideas/questions which haven’t gotten much attention:
... (read more)
- You say that very few companies explicitly mention who benefits from their profits, but I think this is changing. More and more products state that their parent companies are woman-owned or Black-owned, etc.. I wonder if there is research about whether this sort of marketing actually drives sales. Regardless, the ubiquity of this sort of marketing is further
"Won’t there be moral objections to activities that normal businesses use to compete, such as extreme executive compensation, environmental effect, low worker pay?" - This would be my main concern about the idea. While I agree that bad behavior is not the most effective business strategy, there are a lot of behaviors that I would consider sensible (e.g. paying a CEO 6-figures, making redundancies, putting prices up when there's lot of inflation) but that many people would consider wrong (particularly in Europe). People can be very funny about capitalism. For example, many people prefer to buy from small, local companies rather than national companies, even when those national companies are cheaper and operated very morally. I suspect most consumers would choose a friendly privately-owned company over a ruthless charity-owned company. Bill Gates was an incredible philanthropist but people didn't flock to use Microsoft for that reason. Let's not even talk about Soros and his public image. I think at the end of the day you are overestimating how much difference it would make to consumers (most of whom would probably be unaware of the distinction without an expensive advertising campaign) and underestimating how easy it is to suddenly own a major corporation without paying a premium (either for a buyout or new entrant) to get there.
Please note that I helped edit this piece and gave my feedback, and that I have left my red team points in the previous longer paper. Also note that I'm building a Guiding Company, so I'm biased.
"But even if Guiding Companies engage in activities that consumers take issue with regarding traditional firms, such as competitive (i.e., princely) compensation for CEOs, it is not clear why this would cause a consumer to choose a company that enriches shareholder over a company that helps fight global poverty."
I think consumers would actually oppose high CEO pay ... (read more)
Another example of this is Humanitix [website / wikipedia], a ticketing service like EventBrite.
I've been thinking about the Guided Consumption model as Choice Charity. Do good simply by choosing a different provider—no donations required.
With Global Income Coin we are following this model as well, except with a currency rather than a product or service.
Not sure if you are aware of this or simply consider this to be fundamentally different from your approach, but there are some companies out there who are majority-owned by charitable foundations. An example is Robert Bosch GmbH (one of the largest industrial companies in Germany). Most (if not all) of the profits go to the Robert Bosch Foundation which spends them on charitable causes (not EA-aligned though). See: https://en.m.wikipedia.org/wiki/Robert_Bosch_Stiftung
Hope this helps to assess the viability of your approach & learn from existing solutions. There are more companies like this out there, let me know if you want me to point you to them.
I think you've got a great idea and I hope to see it work. The default answer -- the obvious answer -- to the question you raise i... (read more)
A lot of the critique that we get is that we can't be sure this works because we haven't done enough research or can provide data to show that this works. That's great critique and this post addresses both.
We commissioned research (a Master's Thesis that was just successfully defended) on the economic sustainability of philanthropic enterprises (i.e. guiding companies) that donate all profits. Please note the research was completely independent but we did pay the researcher for their time.
Here is the main conclusion of the paper (I enco... (read more)
#Which Benefitting charities
I think this already exists enough with Newman's Own etc. I think we should try to focus on GH&D here and maybe some Global Catastrophic Risk prevention public goods. Animal causes: maybe, but only to some demos/products (like vegetarian stuff).
Which Market Sectors
I strongly agree with this. Focus on conspicuous consumption things.
But are there substantial profits to be had by newcomers in such sectors? The profit margins may be low for such commonplace undifferentiated sectors.
Repug... (read more)
Somewhat minor, but perhaps an important example
A lot of companies (e.g., Big Y) advertise themselves as 'American owned. '
But can we really quantify the benefit?
Charities already hold shares of companies
People already do consider the owners of companies (usually through a political lens … e.g., "Home Depot owner supports right wing causes so people boycott" or some such
How much more will shopping at a "Guided Consumption owned company" actually lead more
By the way, I'm adding comments and suggestions inline using the hypothes.is tool. Get an account and install to see and interact with these.
Some key things in threads below...
But is it possible that the company that donates its profits/revenue could indeed provide an equal product at the same price? And if not, is the price differential less or more than the donation being made? (And if it's more, why not just pay less and donate the difference? However, either is theoretically possible.)
I think the basic microeconomic issues are
Are the firms in question earning 'sup
How does this differ from eg FTX?
Maybe (albeit in a slightly different way) SBF did this, in that he founded a company, made billions of dollars, and pledged it to EA causes - to me that looks like the same outcome, but with the advantage of not having to buy an established company at market value.
I don't want to push you into feeling more guilty, but honestly I don't think directing the profit towards charities can offset the harm if the purchase is wasteful. In this case I'd focus more on the core problem, ie. what need of yours is behind the shopping binges and why they help you, rather than trying to patch the consequences of it.