Daily Balajisms - True charity is investment

Charity decelerates, investment accelerates.

Balaji Srinivasan compares investing in founders, through a business plan competition in Nigeria, to running a race, where everyone gets a workout, while only few win the funding. It incentivizes people to present themselves as the most convincing victors, and promote their skills.

Investment is about leveling up. Peter Thiel invested in Mark Zuckerberg, and the got much richer than him as a result. But both got richer. It was a positive-sum interaction.

Charity is about learnt helplessness, and it nudges people to see themselves as victims. People competing for grants learn eventually how to be the most convincing victim.

Charity never achieves equality. If someone has a net worth of $100,000, they are usually willing to donate 10 dollars to a person on a street, to feel good. But they wouldn’t donate half of their wealth. Suddenly it would make both people equals, and the incentive for charity would disappear. And questions would arise, like does this person deserves it? Would they be a good steward of it?

When people in Western countries complain about inequality, they don’t mean they want to be brought down to the global median of income or wealth. They want to level up or want rich people to level down to their level.

In the previous article on Bright Sun vs Black Mirror, I wrote about Balaji’s (and Taleb’s) point that we need to see inequality as dynamic and that Balaji divides countries into ascending world and declining world, instead of developed and developing countries.

Charity is zero-sum, without the upside that an investment has. Balaji is in favor of humanitarian aid, especially when neighbors are helping each other during emergencies, and he donated to Covid-19 crypto relief fund for India.

Balaji distrusts the NGO-industrial complex and sees the official development aid as less and less relevant, compared to investments like venture capital.

In 2020, the UK provided around £50m pounds to India, through former DFID and former Foreign and Commonwealth Office. This is comparable to one round of venture capital funding of a startup. In the last decade, India has created over 100 tech unicorns and overtook the UK, and now ranks third, after the US and China.  

In fact, equity investments within official development aid are still a negligible fraction. Private sector instruments (including equity, loans, guarantees, etc.) accounted for 2.27% of total development aid provided by OECD DAC members in 2021. Only 3.5% of these funds went to LDCs.          

Charity decelerates the donors and foundations, because it is zero-sum in nature. Investment accelerates both funders and founders, because it has an upside and is positive-sum.

One might square the circle with convertible grants for research that later turn into equity. Or with dominant assurance contracts that incentivize private funding for public goods such as longevity.

In the near future web3 and smart contracts might bring Cambrian explosion in such instruments.