Sanjay

Topic Contributions

Comments

Launching SoGive Grants

Hi Tony.Sena, thank you for your interest in SoGive’s work.

Thank you for raising your questions about transparency. I think it’s important that sources of funding are made as accountable as possible, so thank you for this.

It is not obvious to me that this type of transparency is a good idea, and I would certainly want us to have more rigorous justification for it before we go down this route.

(To be clear, some types of transparency are great.)

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Members of the EA community might have an interest in the things you allude to, namely:

  • the ways the donors have generated their funds; or 
  • whether the donors have the appropriate ethical or moral alignment. 

Is it right that this should be monitored by the community, or put into the public domain? 

Let me illustrate with two examples:

Example 1: Bob works for an investment bank and trades derivatives. He believes he earns more than he needs and donates a substantial sum each year. He is open about his philanthropy and feels good about it.

Example 2: Charlotte inherited a large sum of money from a family business. The business works in areas which she doesn’t agree with ethically. She has spent a lot of time wondering what she should do about the money she has. Is it wrong for her to donate it, given the money’s lugubrious origins? Is it any better for her to just keep the money? After much worrying, she has decided to donate the money, but would prefer not to draw attention to herself – she doesn’t feel good about the money and doesn’t want to be associated with it.

At the moment, I believe that the funds for SoGive grants would likely have provenances that most members of the EA community would not object to. (E.g. I don’t think most EAs would object to a donor who looked like Bob)

However I have gotten to know many donors over the years, and if someone who looked like Charlotte came along, I would like us to have a strong rationale for our actions before we discouraged her from contributing funding to SoGive Grants.

In particular, I would not want us to implement a precedent for making donors’ identities public unless we had heard the relevant perspectives. 

This includes the perspective of recipient organisations.

Just because EA has billions of dollars now, it doesn’t mean that all EA organisations are awash with money. As Joey’s extremely helpful article pointed out, there may be some organisations who are doing excellent, high-impact work, but who are still struggling for funding. 

If I were to guess, I don’t think our applicants would want us to scare off the Charlottes of this world. 

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Thank you also for the interesting example in India, written, interestingly, by someone who shares my first name. 

It is true that, as that article illustrated, some recipient/”beneficiary” organisations are pushing back against the power involved in philanthropy. 

However it’s also true that the organisations in most need of funding are also the least able to push back against this power.  Which suggests that the more in need of funding they are, the less valuable they would find this transparency.

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There are a number of practical implications which we would need to consider

  • Many of the donors we work with are time-constrained; we want to be confident that it’s a good use of their time before we add another item to their agenda
  • It’s not clear exactly whose identity we should be publishing. Some donors have signed up to definitely fund the successful applicants, some are in  various “waiting in the wings” roles (e.g. donors who will step in if there are enough strong applications, or may be willing to have the application forwarded if it’s strong enough, but the application would be subject to further scrutiny). For some of these donors, it may seem odd to name them as a source of the funds for SoGive grants; yet they may be deemed to have “power” (depending on exactly how power is defined). It may also seem odd to name them if they may end up providing no funding, so we need to understand whether it still helps to provide the identities of funders after the funding has occurred.
  • We need to understand what is needed to achieve the desired level of transparency. E.g. is it sufficient to say “XYZ charitable trust”? If I correctly understand the rationale for this transparency (and I’m not sure I do) then this probably isn’t sufficient. We might need to say “XYZ charitable trust, which is funded by Bob’s earnings. Bob works at ABC investment bank.” ABC investment bank might have a policy about having the bank’s name in the public domain, and implementing this transparency policy might require Bob to undergo cumbersome bureaucracy to get permission for the bank’s name to be mentioned in the public domain. If ABC bank understood the motivation for the transparency, they might believe (correctly?) that it allows another way for the bank’s reputation to be attacked. This could end up making Bob’s life harder.
  • This round of SoGive grants is a pilot for us. We haven’t lined up enough resource to consider this transparency question carefully. In this vein, I apologise in advance if I don't have capacity to answer further comments in a timely fashion, or possibly not at all.

 

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To be clear, these comments are not intended to definitely prove that your demand for transparency is misplaced, rather to demonstrate that it’s not obvious, and so we shouldn't rush in without a stronger rationale than we currently have.

EA and the current funding situation

Heartily agree with this.

For the pilot of SoGive Grants, we plan to 

(1) Provide feedback as much as we can (the only reason we haven't promised to give feedback to everyone is that this is a pilot and we don't know whether that's feasible for us)

(2) The application form is almost a copy and paste of the EA Funds application form, to make life easier for those who are applying to both

(BTW applications are still open and close on 22nd May)

I also want to echo pretty much every bullet point that Luke made about the value of feedback, which I think are excellent points.

This innovative finance concept might go a long way to solving the world's biggest problems

Thanks for this. Your main concern is a very reasonable one.

To my mind, there is (at the moment) no clear path to get investors to adopt UO, and most of them have not heard of it before. There are some asset owners who have adopted it, but they are very much the exception, not the rule.

While these challenges definitely do reduce the probability of success of this project, it also increases the impact. 

  • The counterfactual is that without this work, it would be highly unlikely that this would happen anyway.

I also agree that pricing externalities well is really hard. 

Things that help here are:

  • the standard approach to modelling externalities is to do no modelling at all -- so if we aim to outperform the existing models, we only have to produce a model which is better than nothing;
  • the financial system has successfully attracted lots of talented people -- with enough time, getting lots of talented people to think about these problems should hopefully allow us to do a better job (maybe even a good job) of creating such models
This innovative finance concept might go a long way to solving the world's biggest problems

As I've alluded to in another comment, I think you're missing part of the model. If you incorporate UO considerations, you would have two further perspectives to incorporate:

  1. Your model now includes the company's competitors, who also benefit from collusion
  2. Your model also includes the rest of the economy, which is damaged by the collusion

It is not immediately clear to me which of these would win. To a first-order approximation, it may appear that the two effects are roughly offsetting, since the cartel likely moves money from the rest of the economy to the cartel members in what might simplistically be treated as a zero sum game. To add more detail to the model, it would be worth considering that the cartel essentially constitutes a form of rent-seeking, which is generally considered by economists to be bad for the economy, which suggests that item 2 likely outweighs item 1 (i.e. maybe makes the Universal Owner less keen to take part in a cartel). I won't keep on adding more and more details to the putative model.

I think the bottom line here is that companies currently have incentives to collude, and those incentives may still survive under a Universal Ownership system.

Your point about the mechanism of that collusion is a good one. Regulations currently anticipate ways to forbid anti-competitive behaviour, and likely don't already anticipate a UO-driven mechanism, so the regulations would have to evolve. It's worth bearing in mind that if this concept does reach the companies themselves (not just investors) then it will take many years, and so there will be plenty of time for this regulatory adaptation to occur.

This innovative finance concept might go a long way to solving the world's biggest problems

I fear there may be a misunderstanding here, let me try to explain this more clearly.

Public markets investors largely are invested in the company's customers. 

There are two cases:

  • The customers are corporate bodies
  • The customers are individuals

If the customers are corporate bodies, then a universal owner almost certainly is directly invested in them.

If the customers are individuals, then a universal owner is invested in them in a natural language sense, rather than a finance sense. I.e. they don't own a legal stake in the person, but they are invested in them in the sense that they have incentives to see them being better off. 

Why?

Let's illustrate with the McDonald's example

Imagine that McDonald's decided to conspire to ensure that they somehow got the same number of meals sold, but everyone had to pay more (e.g. by some sort of collusion with other food/restaurant providers). 

Then everyone outside of the restaurant/food sector would be worse off (this is the heart of your concern).

If they are worse off, they have less savings (bad for the banking sector) and spend less on trinkets/holidays/other things (bad for the trinkets/holidays/other things sectors).

In other words, benefiting McDonald's at the expense of the wallets of the general public is bad for the wider economy.

The upshot: the impact on the wider economy may make Universal Owners less likely to want to form cartels

If I think of myself as being purely an investor in McDonald's (i.e. no UO thinking):

  1. A McDonald's cartel means more money comes to McDonald's --> MORE PROFIT

If I employ UO thinking, then there's two factors:

  1. A McDonald's cartel means more money comes to McDonald's and the other cartel members --> MORE PROFIT
  2. A McDonald's cartel means the wider economy is worse off, which means the other companies in my portfolio perform worse --> LESS PROFIT

Is item 2 big enough to outweigh item 1? I don't know -- I haven't done the modelling. But what I can say is:

  • Without UO, the incentive to form a cartel is still there
  • With UO, investors now incorporate factors which may push in the direction against cartels

Cartels are an example here, and could be substituted with anything that has the property that collusion between companies leads to benefits to them at the expense of the economy as a whole

This innovative finance concept might go a long way to solving the world's biggest problems

having a group of people with their fingers in every pie is bad because it will lead to anti-consumer anti-competitive corporate governance interventions.

It's not clear to me that this is true. 

If an investor has a finger in every pie, then it will mean that they are invested in a company and also that company's competitors...

... but this doesn't seem that important -- they had an incentive to create cartels, Universal Owner or no.

What it does mean is that they are also invested in the company's consumers -- i.e. if one company acts to harm all consumers, this too will harm the wider economy and hence (for a universal owner) the wider portfolio.

So if anything, it seems that the opposite is true.

This innovative finance concept might go a long way to solving the world's biggest problems

Thank you for this -- I have discussed this with many people and not heard this competition critique before, and I'm always glad to encounter a novel critique.

I'm not sure I understand it though.

Are you saying that if Universal Ownership took hold, companies would collude to raise prices (or otherwise damage customers for their own benefit)?

I'm not clear on why Universal Ownership makes a difference here -- it's already in companies' interests to form cartels, and there's already regulation to stop it. 

This innovative finance concept might go a long way to solving the world's biggest problems

Thanks very much MaxRa.

  • The tweet you linked to cites a paper which looks really good and highlights the fact that ESG is not high impact now. Thanks.
  • I think your point around COVID is an interesting one. I guess one of the complications with COVID is that it initially did cause markets to tumble, but they then recovered rather handsomely, which risks skewing the incentives. (I discussed why this might have happened in sections 4.3 and repeated this in section 11.3 of this post).
  • Your query about China is a good one. In principle, UO should be appealing to Chinese investors too -- it requires no altruism on the part of the investor, it only requires the investor to want to maximise the returns across the whole portfolio... that said, I suspect it may well fail to reach certain corners of the investor universe, and China may well be one of them. In section 6, I discuss the extent to which this concept may work without covering all investors. I was going to add more in there about the international dimensions to this, but the post is long enough as it is! It's interesting to note though, that at least with regard to coal, the biggest sources of lending finance to new coal plants are Japanese (source: p8 of this Boston Uni report) My intuitive guess is that it would be easier to get these ideas to take hold in Japan than in China (indeed, I believe that Japan's government pension scheme is already interested in Universal Ownership)
This innovative finance concept might go a long way to solving the world's biggest problems

Thank you for the feedback.

For this post I sought help with the title. The advice I was given was:

  • Don't mention "Universal Ownership" in the title -- that term is meaningless to people; it should be mentioned and explained in the article itself
  • The title should make one clear point
  • This post talks about really exciting ambitious ideas and the title should convey that, since the ambitiousness of the potential impact is the one thing that someone should take away from this, that's what the title should convey

Someone suggested that wording to me and but it was I who opted to use it. So if the title is a mistake, it's my mistake.

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