A Billionaire Defends Modern Philanthropy

Reid Hoffman may be best known as the founder of the networking site LinkedIn, but these days he’s more of an investor than inventor. Hoffman, who is worth an estimated $3.2 billion, is a partner with the venture capital firm Greylock, which invests in companies such as Groupon and Airbnb. He also spends a lot of time and money on philanthropic causes, giving multimillion dollar gifts to nonprofits such as Change.org and LLCs like the Chan Zuckerbeg Initiative.

Hoffman is also a funder of Code for America, a nonprofit that tries to make government more efficient through technology. Code for America has built services that help people access food stamps and clear their criminal records using their mobile phones, for example. Hoffman contacted me after seeing my story, “The Problem with Modern Philanthropy,” which looked at the influence rich Americans have on public policy through philanthropy. Hoffman argues that, even with its flaws, modern philanthropy has its uses, especially when it works to make government more efficient.

We talked about his approach to giving and how to limit outsized influence of the wealthiest Americans on public policy. The conversation has been lightly edited for length and clarity.

Alana Semuels: Do you disagree with the implications of my piece, that philanthropy may give the wealthy too much influence in the public-policy arena?

Reid Hoffman: There’s differential power among people. Some people are in positions of strong political power and other people aren’t. Some people are wealthy and other people aren’t. There are probably better systems. We haven’t discovered them yet.

Then you say, well, do the wealthy have disproportionate influence in the world? The answer is yes. Is philanthropy a channel by which some of this influence is then realized? The answer is of course yes. But many of us are pretty skilled at how to apply capital to effective projects. It’s part of how we got to where we are. It’s part of creating LinkedIn, part of being a venture-capital investor. It is actually in fact a good thing and not a bad thing.

Does that mean that, sometimes, some people use it to potentially less good ends? The answer is yes. But broadly speaking, I think having people who know how to apply capital and leverage effective methods, doing that for social and philanthropic good, is a good thing. You just have to be careful about politics and about abuse.

Semuels: Inside Philanthropy calls your approach to philanthropy capitalistic. It suggests you look at how your money can reach the most people, rather than funding causes that might not be as efficient. Are there flaws to that approach?

Hoffman: Are there some flaws to a capitalist approach? Yes. Are there some flaws to the way that people might be giving their money, whether it’s to religious organizations or to the opera or to the thing that makes them feel better rather than the best possible impact? The answer is absolutely yes.

An effective-altruism point of view is: If you have wealth, and at least a reasonable moral compass, to ask, “How do you create the most good for the most people?” I’m not saying this is the perfect system. But what’s the better system? If you say, “form a democratic committee where everyone votes on everything,” well, then you get Congress. It’s a question of, what system gets more of the really good outputs? It’s not at all saying that a capitalist system or an investment-oriented system has nothing to correct and nothing to improve. That’s foolishness to say that. However, it has a lot of strengths that contribute a lot of good outcomes.

Semuels: Are philanthropists more effective than government in effecting change?

Hoffman: If you contrast the productivity that comes from a networked or capitalist distribution of resources versus a centralized planning system, frequently referred to as communism or socialism, the network approach does much better when it’s applied accurately. There are arguments for when not to apply it accurately. For example, I’m not a big fan of private prisons, and I’m not a big fan of private militaries.

Semuels: There are some things in which government is not effective. Does that mean we should trust government less to do things and ask philanthropists and private businesses to step in more?

Hoffman: I think that’s a bit of a false dichotomy. I think the answer is both: Help government improve and do private philanthropy. Should we say that we are helping police do their job better so we shouldn’t have a neighborhood crime watch? It’s not an either/or kind of thing.

I do think there are some irreducible inefficiencies in government. But we still need to have government, we still need to make government effective if we can. In the Code for America case, private philanthropy helps amplify government effectiveness.

Semuels: So Code for America is a way you are using philanthropy to improve government.

Hoffman: Yes. For example, the government spends like $470 billion on safety-net functions. Philanthropy, on parallel, spends $42 billion. So the government is at a much larger vector of how many resources are put to work on the safety net. What Code for America says is, we can direct some of the philanthropic money to build interesting pieces of technology. Doing things that a nimble, small group of engineers can then add into that government process and make it that much more effective. It’s a democratically selected thing, democratic politicians, but then we’re using this kind of philanthropy to help make that much more effective.

For example, through Prop 47 in California, 8.4 million people could clear their records, which helps with getting jobs, renting places, making them economically much-better integrated through opportunity. Code for America made that easier to do.

Semuels: Prop 47 was supported by a lot of philanthropic funding. Why should we trust philanthropists to fund propositions that are in the best interest of everybody?

Hoffman: I think life has a lot of grays. One of the things that happens that’s challenging within the democratic process is that people say, “Look at this failure, so we should totally change this whole thing.” And then you add in tons of bureaucratic process, and checks and balances, and all of a sudden it doesn’t work that well. Broadly speaking, I think you have to allow for some error. It’s good public policy to say, broadly speaking, the portfolio of outcomes is very good, and there’s occasionally an error and we try to tune against it.

As I recall, I think it was the Robert Wood [Johnson] Foundation that helped set up 9-1-1. It’s really good we have a 9-1-1 system.

Semuels: Like many philanthropists in the tech world, you’ve said you wanted to spend your money in your lifetime. Why is that a priority?

Hoffman: I believe I’m pretty good at this kind of capital allocation for massive-scale results in entrepreneurship, in technology, in backing projects and people. I think I have a good track record, both in commercial investing and in philanthropic investing. I don’t have any interest in creating a named foundation, I have an interest in really good impact for capital. I think I’m pretty good at doing it, so I’m going to apply myself to doing it in my lifetime.