Tag Archives: money

How Mark Zuckerberg Should Give Away $45 Billion – The Huffington Post

It’s complicated.

Source: How Mark Zuckerberg Should Give Away $45 Billion – The Huffington Post

For a long time, the way philanthropy worked was simple: Rich people gave their money to museums and churches and opera houses and Harvard. Their names went up on buildings, charities gave them made-up awards, their grandkids went to rehab, the Earth went around the sun.

But philanthropy is changing. Today’s billionaires are less interested in legacy institutions, less obsessed with prestige and perpetuity. Part of this is a function of their age: In 2012, 4 percent of America’s biggest charitable donations were made by people under 50 years old. In 2014, a quarter of them were.

The other factor driving the new philanthropists is how they earned their money in the first place. Last year, six of the 10 largest charitable donations in the United States came from the tech sector, solidifying Silicon Valley’s place as the epicenter of the newer, bigger, disrupty-er philanthropy. There, tech billionaires form “giving circles” to share leads on promising charities, and they hire the same consultants to vet them. They use terms like “hacker philanthropy” and “effective altruism.” These guys—they are mostly guys—believe that they became successful businessmen by upending existing institutions, by scaling simple ideas, by “breaking shit.” And, with few exceptions, that is how they plan to become successful philanthropists, too.

All of this became much more relevant in December, when Mark Zuckerberg and his wife, Priscilla Chan, announced that they were giving 99 percent of their wealth to charity. The total amount they pledged, around $45 billion in Facebook shares at current valuation, exceeds the endowments of the Rockefeller, Ford and Carnegie foundations combined. If Zuckerberg gives away the upper limit of what he announced in December, $1 billion per year for the next three years, he will likely become the world’s second-largest charitable donor after Bill Gates. He is 31 years old.

Zuckerberg’s ability to remake the world in his own image, in his own lifetime, is unprecedented. Andrew Carnegie opened his first library when he was 68, and only managed to get around $5 billion in today’s dollars out the door before he died. John D. Rockefeller, generally considered the most generous industrialist in history, launched his foundation when he was 76, and only gave away around half his fortune. If he wanted to, Zuckerberg could eradicate polio, or de-neglect half a dozen tropical diseases, or fix all the water pipes in Flint, or give $9,000 to every single one of the world’s refugees.

But $45 billion, as a former Bill & Melinda Gates Foundation grantee put it, is “a 1,000-pound gorilla.” You don’t give away that much money without changing the places and institutions and people you give it to, sometimes for the worse.

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the hard part about social change “is that it doesn’t scale like a social network.”

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Nearly every social advance in history has technology somewhere near the center of it—the aqueduct, the steam train, the birth control pill. And whenever you start asking people about the life-altering potential of Mark Elliot Zuckerberg and the tech-based philanthropy he represents, the first words you’re likely to hear are “The Green Revolution.”

In 1975, nearly three out of five people in Asia lived on less than $1 a day. Rains at the wrong time of year meant the difference between starvation and survival. Then, researchers funded by the Ford and Rockefeller foundations created new crops—varieties that grew taller, needed less water and could be planted year-round. Over the next 30 years, this innovation radically improved the lives of hundreds of millions of people. Rice yields spiked by 1,000 percent. Wheat got cheaper, healthier and more abundant. Norman Borlaug, the scientist who developed the new wheat varieties, won the Nobel Prize.

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“Technology,” Toyama says, “is the easiest part of any solution.” The hard part is everything that comes afterward. Take car crashes, which kill more people every year than tuberculosis or pulmonary disease. The technology to prevent these deaths—seat belts, motorcycle helmets—is not rocket science. It’s just that no one has figured out how to make it appeal to the people who need it, especially in the developing world, where 90 percent of these deaths occur.

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he should acknowledge that the silver-bullet promise of technology only works at changing the world when it’s combined with political will and popular demand. Until he finds a way to engineer those (please don’t), he should focus on the small ways, at the margins, where technology can improve people’s lives, 8 percent at a time.

In 2001, the Gates Foundation gave PATH and the World Health Organization $70 million, 10 years and a simple objective: Develop a vaccine for meningitis A and make it affordable for every single person who needs it.

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Marc LaForce headed the team in charge of bringing the vaccine to market. He says it wasn’t just the scale of the Gates donation that mattered, but its duration. In those days, most grants were capped at two or three years, with check-ins every six months. Years of work could be wiped away if a donor decided progress was moving too slowly and pulled out.
“If you want to do something major,” LaForce says, “you need the ability to go two steps forward, then one step back.”

Plus, the Gates team left LaForce alone. Back then, the foundation only employed about a dozen people who worked out of a small office in a residential neighborhood of Seattle. Staffers spent their time making lists of diseases, ranking them by annual fatalities, then calling around to find out which ones were closest to being cured.

“We didn’t need to be specialists,” says Gordon Perkin, the foundation’s first director of global health. “We just needed to know which organizations had the judgment and the infrastructure, and we gave them money.”

This story doesn’t just illustrate the potential of philanthropy. It also demonstrates that how Zuckerberg gives away his money will be just as important as what he gives it to. Because one way to look at his $45 billion is that it’s a lot of money. Another way to look at it is that it’s about what the United States spends on prisons every six months. Or education every four weeks. Or health care every five days. Even at a scale that large, efficiency matters.

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The Gates Foundation, as it’s expanded to more than 1,300 employees, has become prone to the same bloat, the same “expert-itis,” as a former grantee calls it. “They hired Ph.D.s in biotech and all they wanted to do was the science that the grantees were doing.”

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It’s hard to overstate just how un-Silicon Valley all of this is. “Money is sitting there to make the world a better place, and to dole it out cautiously is antithetical to why it’s there,” says Freada Kapor Klein, a partner at the Kapor Center for Social Impact, a foundation set up by Mitch Kapor, an early investor in Uber and other unicorns.

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Zuckerberg shouldn’t be afraid to fail; he should approach philanthropy like a venture capitalist, testing out ideas to scale up later on. Bypassing legacy institutions is what Silicon Valley CEOs are good at, right? All those consultants must strike them as the charity equivalent of taxi medallions.

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What Zuckerberg actually announced last December wasn’t a big fat donation to charity. All he did was establish a limited liability company (LLC) and issue a promise that he would use it for good. Much of the reaction at the time was suspicious, speculating that an LLC was a scheme for Zuckerberg to avoid taxes (which isn’t true) or that it would allow him to spend mountains of money without disclosing how he was doing so (which is).

But the corporate approach actually makes a lot of sense. Under the standard philanthropic model, billionaires set up a foundation and give it a huge endowment. Every year, the foundation has to give away at least 5 percent of its total value. Meanwhile, the other 95 percent gets invested in blue chip stocks, hedge funds, foreign currencies, whatever will keep the total endowment the same size. That’s how foundations like Rockefeller and Ford exist in perpetuity: Do-gooders work on one side of the building finding things to donate to, while bankers work on the other side, making sure there’s more to donate next year.

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“This idea that philanthropy is only about nonprofits is an outdated model,” says Paula Goldman, a vice president at the Omidyar Network. Pierre Omidyar, the founder of eBay, was one of the most prominent tech billionaires to merge his investing and grant-making. The foundation still gives donations, but the LLC provides loans and seed capital and invests in things like solar-powered lighting startups, Brazilian test-prep companies and funds that discover Indian entrepreneurs.

Zuckerberg is going even further, giving up on a foundation entirely and putting all of his charity money in a corporate form with no limits on how to spend it. He’s not interested in making his money back. He just wants the flexibility to fund charities or companies or both. Which explains why one of Zuckerberg’s most recent donations wasn’t a donation at all. It was $10 million in seed capital for an education startup called Bridge International Academies, a chain of private elementary schools that wants to deliver education to the world’s poorest students.

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The primary appeal of Bridge, especially to investors like Zuckerberg, is the $6 per month it says it charges its students. Operating as a business rather than a charity gives each school an incentive to deliver a decent education and ensures that it’s not going to wither away when development agencies or donors move on to the next idea.

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It’s tempting to stop there, to say capitalism perverts philanthropy, full stop, and advise Zuckerberg to just go back and form a foundation. But that’s not right either. One of the most successful private-sector development projects of the last 10 years is M-PESA, the mobile-money system that allows people in Kenya to transfer money via their cell phones. Before the system launched, Kenyans sent money to each other by mail, or by giving envelopes full of cash to bus drivers. Replacing an inefficient, expensive system with a regularized one made everybody better off. That’s not as easy to argue, in the long run, about education.
So, when Zuckerberg hears pitches from companies seeking to solve the world’s problems, he shouldn’t ask them if they have a plan to grow, or an ambition to exist in perpetuity. He should ask himself whether he really wants them to replace the systems that already exist, or simply make them better. Because successful companies don’t just disrupt other companies—they disrupt economies, governments and the people who depend on them. That’s not something that Zuckerberg ever had to worry about, but he has to start.

In 2009, four grad students came up with an audacious idea: Instead of giving poor people the things we think they need—bags of food, stacks of clothing, a pair of goats—what if we gave them enough money to decide for themselves?
They called their charity GiveDirectly, and in 2011 they started doing exactly that. They went to villages in Kenya, found the poorest people living there and transferred $1,000 straight to their cell phones. Later, they came back to ask the villagers what they did with the money. Mostly, it turns out, the villagers spent it on better roofs, better food, paying off debts, starting up businesses. All the stuff the development system used to buy for them—but without any overhead.

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In the end, though, Zuckerberg’s greatest impact might be in the model he sets for other philanthropists. The Giving Pledge, which encourages billionaires to donate the majority of their wealth to charity, has attracted more than 142 commitments totaling more than $400 billion. The Founders Pledge has convinced 151 startup executives—most of them look about 19—to devote a portion of their exits to philanthropy. Charitable giving in the United States has nearly quintupled since 1994, and shows no signs of reverting back to opera houses and Harvard.

China Has Overtaken the U.S. as the World’s Largest Economy | Vanity Fair

China Has Overtaken the U.S. as the World’s Largest Economy | Vanity Fair: “”

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When the history of 2014 is written, it will take note of a large fact that has received little attention: 2014 was the last year in which the United States could claim to be the world’s largest economic power. China enters 2015 in the top position, where it will likely remain for a very long time, if not forever. In doing so, it returns to the position it held through most of human history.

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China did not want to stick its head above the parapet—being No. 1 comes with a cost. It means paying more to support international bodies such as the United Nations. It could bring pressure to take an enlightened leadership role on issues such as climate change. It might very well prompt ordinary Chinese to wonder if more of the country’s wealth should be spent on them.

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Tectonic shifts in global economic power have obviously occurred before, and as a result we know something about what happens when they do. Two hundred years ago, in the aftermath of the Napoleonic Wars, Great Britain emerged as the world’s dominant power. Its empire spanned a quarter of the globe. Its currency, the pound sterling, became the global reserve currency—as sound as gold itself. Britain, sometimes working in concert with its allies, imposed its own trade rules. It could discriminate against importation of Indian textiles and force India to buy British cloth. Britain and its allies could also insist that China keep its markets open to opium, and when China, knowing the drug’s devastating effect, tried to close its borders, the allies twice went to war to maintain the free flow of this product.

Britain’s dominance was to last a hundred years and continued even after the U.S. surpassed Britain economically, in the 1870s. There’s always a lag (as there will be with the U.S. and China). The transitional event was World War I, when Britain achieved victory over Germany only with the assistance of the United States. After the war, America was as reluctant to accept its potential new responsibilities as Britain was to voluntarily give up its role. Woodrow Wilson did what he could to construct a postwar world that would make another global conflict less likely, but isolationism at home meant that the U.S. never joined the League of Nations. In the economic sphere, America insisted on going its own way—passing the Smoot-Hawley tariffs and bringing to an end an era that had seen a worldwide boom in trade. Britain maintained its empire, but gradually the pound sterling gave way to the dollar: in the end, economic realities dominate. Many American firms became global enterprises, and American culture was clearly ascendant.

World War II was the next defining event. Devastated by the conflict, Britain would soon lose virtually all of its colonies. This time the U.S. did assume the mantle of leadership. It was central in creating the United Nations and in fashioning the Bretton Woods agreements, which would underlie the new political and economic order. Even so, the record was uneven. Rather than creating a global reserve currency, which would have contributed so much to worldwide economic stability—as John Maynard Keynes had rightly argued—the U.S. put its own short-term self-interest first, foolishly thinking it would gain by having the dollar become the world’s reserve currency. The dollar’s status is a mixed blessing: it enables the U.S. to borrow at a low interest rate, as others demand dollars to put into their reserves, but at the same time the value of the dollar rises (above what it otherwise would have been), creating or exacerbating a trade deficit and weakening the economy.

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America’s real strength lies in its soft power—the example it provides to others and the influence of its ideas, including ideas about economic and political life. The rise of China to No. 1 brings new prominence to that country’s political and economic model—and to its own forms of soft power.

Why New York Real Estate Is the New Swiss Bank Account — New York Magazine

Why New York Real Estate Is the New Swiss Bank Account — New York Magazine.

“The global elite,” says developer Michael Stern, “is basically looking for a safe-deposit box.”

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The influx of global wealth is most visible on the ultrahigh end, as Stern and other builders are erecting spiraling condo towers and sales records are regularly shattered by foreign billionaires, like the Russian fertilizer oligarch Dmitry Rybolovlev, purchaser of the most expensive condo in Manhattan’s history ($88 million), and Egyptian construction magnate Nassef Sawiris, who recently set the record for a co-op ($70 million). But much of the foreign money is coming in at lower price points, closer to the median for a Manhattan condo ($1.3 million and rising). In fact, if you’ve recently been outdone by an outrageous all-cash bid for an apartment, there’s a decent chance that, behind a generic corporate name, there’s a foreign buyer and an offshore bank account.

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The Census Bureau estimates that 30 percent of all apartments in the quadrant from 49th to 70th Streets between Fifth and Park are vacant at least ten months a year.

To cater to the tastes of their transient residents, developers are designing their projects with features like hotel-style services. And the new economy has spawned new service businesses, like XL Real Property Management, which takes care of all the niggling details—repairs, insurance, condo fees—for absentee buyers.

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Even those with less reflexively hostile reactions to foreign buying competition might still wonder: Who are these people? An entire industry of brokers, lawyers, and tight-lipped advisers exists largely to keep anyone from discovering the answer. This is because, while New York real estate has significant drawbacks as an asset—it’s illiquid and costly to manage—it has a major selling point in its relative opacity. With a little creative corporate structuring, the ownership of a New York property can be made as untraceable as a numbered bank account. And that makes the city an island haven for those who want to stash cash in an increasingly monitored global financial system. “With everything that is going on in Switzerland in terms of transparency, people are being forced to pay taxes on their capital that they used to hold there,” says Rodrigo Nino, the president of the Prodigy Network. “Real estate is a great alternative.”

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“Real estate is a wonderful way to cleanse money. Once you buy real estate, the derivation of that cash is forgotten.”

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Every year, the British real-estate brokerage Knight Frank publishes a document called “The Wealth Report.” The latest edition produces the curiously precise estimate that there are 167,669 individuals in the world who are “ultrahigh net worth,” with assets exceeding $30 million. “Of course, the big question is: are the rich getting richer?” the report asks. It answers gleefully in the affirmative, forecasting that over the next decade, the ranks of the ultrarich will increase by 30 percent, with much of the growth coming in Asia and Africa.

This new global wealth is being lavished on the usual status items—planes, yachts, contemporary art—but Knight Frank is pleased to report that the rich favor real estate most of all. Real estate can serve as a convenient pied-à-terre, an investment hedge against a wobbly home currency, or an insurance policy—a literal refuge if things go bad. Other financial centers boast a similar mix of glamour and apparent security—Knight Frank’s list of the top-ten “global cities” includes London, Paris, Geneva, and Dubai—but New York is forecast to add more ultrahigh-net-worth individuals than any city outside Asia over the next decade.

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As expensive as New York’s luxury real estate might seem, it’s a bargain compared to other global capitals; a million dollars will buy twice as much space here as it does in Monaco or Hong Kong. New York is perceived to be more stable than Miami, Shanghai, and Beijing. It is much cheaper than London, where tabloid-fanned outrage over property prices has created an uncomfortable political climate and various new or proposed taxes are aimed at foreign investors and offshore entities. In New York, by contrast, buyers of new construction often qualify for a tax abatement.

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The first rule of selling property to the ultrarich is that you can’t try to sell them property—you offer them status, or a lifestyle, or a unique place in the sky. A marketing video for 432 Park Avenue, scored to “Dream a Little Dream,” features a private jet, Modigliani statuary, and Harry Macklowe himself costumed as King Kong. One recent morning, at the development’s sales office in the GM Building, Wallgren led me down a hallway lined with vintage New York photographs, through a ten-by-ten-foot frame meant to illustrate the building’s enormous window size, to a scale model of Manhattan.

“If you bend down like this,” Wallgren said, stooping to street level, “you can really appreciate the height of it.”

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“Rich people come to the U.S., and these people are busy,” he said. “What is, for these people, very important? I am asking you! To save the time.” Perepada doesn’t drag his clients to a bunch of open houses. He takes them to Jean Georges, gets them hockey or Broadway tickets, rents helicopters or horse carriages, sets them up with plastic surgeons. He says that by building a rapport, he is able to sell 80 percent of his properties with a simple phone call.

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“Did you see The Wolf of Wall Street?” Perepada asked as we drove. “I love this movie. You see how he works? Amazing. ‘If you trust me, you have to buy. If you don’t trust me, you need to work with someone else.’ This is my regulation: Trust me, take it.”

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Jajan believes the most important service he offers is reassurance. “The client wants an adviser here; he wants to feel comfortable knowing he has someone he can trust here in the United States.” Jajan’s firm offers a range of management functions. “We recently purchased a vacuum cleaner,” he told me. “It was for one of our high-net-worth clients that bought $15 million worth of property this year. We’re not about to say, ‘We don’t do that, we’re lawyers.’ ”

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An anonymous high-net-worth client of Credit Suisse, who spoke to U.S. Senate investigators after taking advantage of an amnesty for tax cheats, described the process by which he would manage his funds when visiting Zurich. A remote-controlled elevator would take him to a bare meeting room where he and his private banker would discuss his money; all printed account statements would be destroyed after the visit.

The theatrical secrecy is designed to build personal trust between such bankers and their clients, which is especially vital when the goal of the transactions is to conceal assets from the prying eyes of rivals, vengeful spouses, or tax collectors. Moving the money itself is a relatively simple matter: A wire or a suitcase can convey cash from China to Singapore, or from Russia to an EU member state like Latvia, and once the funds have made it to a “white list” country, they can usually move onward without triggering alarms. Concealing the true ownership of a property or a bank account is trickier. That’s where the private bankers, wealth advisers, and lawyers earn their exorbitant fees.

Behind a New York City deed, there may be a Delaware LLC, which may be managed by a shell company in the British Virgin Islands, which may be owned by a trust in the Isle of Man, which may have a bank account in Liechtenstein managed by the private banker in Geneva. The true owner behind the structure might be known only to the banker. “It will be in some file, but not necessarily a computer file,” says Markus Meinzer, a senior analyst at the nonprofit Tax Justice Network. “It could be a black book.” If an investor wants to sell the property, he doesn’t have to transfer the deed—an act that would create a public paper trail. He can just shift ownership of the holding company.

Recently, scrutiny from the United States has punctured some of the traditional secrecy of Swiss banks. But that has just pushed clients to boutique advisory firms, often run by the same personnel. “Banks like working with those firms,” Meinzer says, “because they are then legally in the clear, without the risk of going to prison.” As international blacklisting has pushed some offshore locales toward greater legal compliance, new havens have arisen. New Zealand trusts offer similar secrecy to those of the Caymans, without the stigma.

It’s a sophisticated, well-oiled system that rarely requires crude subterfuge. Though U.S. authorities track all transfers over $10,000, a wire into a real-estate lawyer’s escrow account should look perfectly routine. “A lot of times, I don’t even know where my clients are from,” says the lawyer Bruce Cohen. “But I know that certain countries are very careful about the money that leaves their country.”

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The best—though still fuzzy—global estimates say as much as $1.5 trillion in criminal proceeds is laundered each year. The United Nations figures that as little as one-fifth of one percent of that is ever recovered.