Philanthropy and Innovation

Earlier today, Bill Gates released his second annual letter as co-chair of the Bill & Melinda Gates Foundation. The letter is well worth your time, particularly if you are interested in efforts to improve education and global health.

One passage that caught my eye was his description of the foundation’s strategy:

Melinda and I see our foundation’s key role as investing in innovations that would not otherwise be funded. This draws not only on our backgrounds in technology but also on the foundation’s size and ability to take a long-term view and take large risks on new approaches. Warren Buffett put it well in 2006 when he told us, “Don’t just go for safe projects. You can bat a thousand in this game if you want to by doing nothing important. Or you’ll bat something less than that if you take on the really tough problems.” We are backing innovations in education, food, and health as well as some related areas like savings for the poor. …

We have a framework for deciding which innovations we get behind. A key criterion for us is that once the innovation is proven, the cost of maintaining it needs to be much lower than the benefit, so that individuals or governments will want to keep it going when we are no longer involved. Many things we could fund don’t meet this requirement, so we stay away from them. Another consideration for us is the ability to find partners with excellent teams of people who will benefit from significant resources over a period of 5 to 15 years.

There are five principles here: do things that others won’t do, think long-term, take risks, choose strong partners, and target eventual self-sufficiency. All are important, but the fifth deserves particular emphasis.

The classic “fail” in development efforts is to finance upfront investments–building a school, for example–without giving thought to how beneficiaries will later manage it–e.g., how students will get books, who will teach, etc.

To go for the “win”, Gates thus focuses on investments — creating new vaccines, developing new crop varieties, or inventing new teaching methods–that can be self-sustaining by beneficiaries (or their governments) once the upfront costs have been covered.

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