For-Profit Charities

Tyler Cowen on for-profit charities:

---

Google is walking down this path:

The ambitious founders of Google...have set up a philanthropy, giving it seed money of about $1 billion and a mandate to tackle poverty, disease and global warming. But unlike most charities, this one will be for-profit, allowing it to fund start-up companies, form partnerships with venture capitalists and even lobby Congress. It will also pay taxes.

One of its maiden projects reflects the philanthropy’s nontraditional approach. According to people briefed on the program, the organization, called Google.org, plans to develop an ultra-fuel-efficient plug-in hybrid car engine that runs on ethanol, electricity and gasoline.

Here is the full story, and look for more of this model in the future. As wealth grows, and many large benevolent ventures do not need to fundraise, their will opt for more flexible organizational forms. Of course if these activities turn a profit, Google shareholders can take the profits home as dividends. So some of these activities will be normal corporate investments, dressed up as "for-profit charity" for public relations purposes. Here is Eric Posner on for-profit charities.

---

This is something I've been thinking about ever since going to business school. I've been involved in a number of charitable organizations over the years in a number of roles -- as a volunteer, contributor, leader, and even as a board member. I love the idea of using the model of a for-profit organization for charitable activities. To me, this seems to be good on several fronts. First, it encourages financial accountability for the organization, encouraging efficient usage of resources. Second, profit (or lack thereof) acts like a feedback signal to organizations to let them know when they are meeting a viable need and when they are not. Third, if an organization is profitable, it can become self-sustaining and does not need to rely soley on contributions and fund-raising for its operations.

I'm very encouraged to see these types of ideas put into action.

For further reading, check out Fortune at the Bottom of the Pyramid by C.K. Prahalad.