Doing Good by Doing Well
20th December 2015
Lord Ridley looks at the Zuckerberg ‘charity’ kerfuffle.
We have reached new depths of cynicism when a couple say in a letter to their newborn child that “our hopes for your generation focus on two ideas: advancing human potential and promoting equality” and some people can only sneer. Much of the carping is deeply confused. The Zuckerbergs have been criticised for not handing their shares to a tax-deductible charitable foundation now, which would net them a big tax break up front, and in the very same breath for not handing over their fortune in tax.
Welcome to my world.
The greatest beneficiaries, by far, of vast business ventures such as Facebook are not the founders, but the customers. When Lancashire entrepreneurs made cotton textiles affordable for all, it was all who benefited; when Rockefellers did the same for oil, or Carnegies for steel, again the overwhelming majority of the benefits flowed to the customers. One study, by William Nordhaus, found that entrepreneurs end up with less than 3% of the societal value that they have created. Some goes to financiers, but the vast bulk of the benefit turns up as consumer surplus.
Likewise with today’s magnates: the fortunes amassed by the Messrs Gates, Jobs, Bezos and Zuckerberg are as nothing to the value that has been captured by their willing customers in the form of better services delivered far more cheaply and easily.
So let’s ditch the zero-sum mentality and remember that an entrepreneur who makes something that was once a preserve of the rich cheaply available to ordinary people has done an act of philanthropy through his business, even if he also makes a fortune in the process. To reach the number of followers anybody can now have on Facebook once required either a large sum of money to spend on paper and stamps and secretaries, or an even larger sum to buy a newspaper or a radio station.
Good luck convincing the Usual Suspects that. Let’s start with Hillary Clinton.