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Doing Good by Doing Well

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10/17/2010

There is a lot of talk about “social entrepreneurship” and “Doing Well by Doing Good”. What is almost completely ignored, however, is the inherent social function of all entrepreneurship. What people need to become more familiar with is the opposite of the usual phrase; they need to become familiar with the notion of Doing Good by Doing Well. A great primer on the social function of all entrepreneurship is the essay Profit and Loss by Mises.

In recent years, those who earn their wealth from regular, “non-social” entrepreneurship have been expected to give nearly all of it to charity before they die, under the prodding and the example of billionaires like Bill Gates and Warren Buffet.

Now there’s nothing anti-liberal about voluntary charitable giving (and certain kinds charitable giving are positively pro-liberty: like, of course, donations to organizations like the Mises Institute and the Foundation for Economic Education). However, much charity of the “bleeding heart” variety is rife with inherent inefficiencies and negative impacts (some of which are covered in chapter 18 of Defending the Undefendable by Walter Block), especially when compared to the alternative of investing resources in business instead.

One billionaire who, to some extent, realizes this is Carlos Slim.

From a Wall Street Journal blog post:

The Mexican billionaire, who Forbes still lists as the world’s richest man, said in 2007 that he could do more to help fight poverty by building businesses than by “being a Santa Claus.”

Mr. Slim’s signature also has been noticeably absent from the Gates-Buffett Giving Pledge. At a conference in Syndey last month, Mr. Slim said that charity accomplishes little.

“The only way to fight poverty is with employment,” he said.

The man has a point, although he makes the common mistake of thinking it’s about jobs. Ultimately, it’s not about jobs; it’s about consumers’ goods and services.

For example, Warren Buffet is obviously an extremely competent investor. Successful investing not only enriches the investor; it directs capital toward enterprises that most abundantly provide consumers’ goods and services to the masses. Rather than giving it all away to charity, Buffet’s billions would probably be directed more efficaciously for society by him personally (or by other value investing gurus commissioned by him) under the guidance of profit/loss signals.

And it’s not just money. Time, expertise, and judgment all serve humanity most effectively in the market. For example, Microsoft did a lot better under Bill Gates than it has under Steve Ballmer (as you can see from this chart). So it is arguable that, rather than spending his time on his foundation, Gates would help the needy more by returning to the Microsoft helm, and hopefully improving Microsoft’s products and the delivery of those products, which in turn could improve global white collar productivity, which in turn could make the world economy run more efficiently, which in turn would free up resources for the production of more consumers’ goods and services for the masses.

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