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Throwing money does not solve problems

In undergrad I read books like Guns, Germs and Steel, Why Nations Fail, The Dictator’s Handbook, Oligarchy, and a bunch of similar books. Those books made me aware that we have a lot of deep, structural problems that makes it hard for Indonesia to catch up to developed economies and make life better for everyone.

I don’t really want to solve these massive problems, it’s very hard, might require multi-decade, if not multi-generational, worth of effort. But I want to live in a nice society, But such society is not here yet, so some of us need to work to make it happen.

After entering the workforce, it was immediately obvious to me that solving problems will take a lot of time, and focused, dedicated effort. This is true for usual business / corporate problems that I faced daily, so I imagine that the required effort will be massively bigger for the deep, structural problems out there.

But there are so many problems and so little time. Solving every problem is not practical, so prioritization is important because we are working with finite resource and time. But selecting which problems to solve will also mean that there will be other problems not being solved for the time being. Division of labor is surely important, as different people are just so much better at solving different types of problem. But I don’t think progress is materializing at a fast enough rate. More problems need to be solved. Trying to solve many massive problems simultaneously will seem like being greedy, unrealistic, and impractical. Eventually we might not achieve anything because our resources and our focus are spread too thin across these multiple frontiers.

So I thought to myself during undergrad years: If working directly on problems will limit ourselves into solving a few problems at a time (and these few problems can consume a lot of our lifetime if they are large and important enough), what if we just work on it indirectly?

My running answer since undergrad is: just have a massive amount of financial resources. It will allow me to work indirectly on so many more problems by allocating resources and enabling progress. Sure there will be some trade-off in this approach, such as I won’t be able to work on problems in a super-detailed manner, but I am betting that the elasticity of scope enlargement vs lower effectiveness from a more hands-off approach will produce a higher net benefit. That was the line of thinking that made me embark on these career choices so far. There is so many more loose ends to tie up and unsolved questions, though. But I’ll figure out the rest along the way, one day at a time.

There are three independent question with this approach:

  1. How to have that massive financial resources
  2. What makes people deploy (or do not deploy) financial resources towards a specific goal
  3. Whether financial resources is enough to produce desired change in that specific goal

Problem #1 is an entire challenge of its own, but it is not impossible for some people. Just look at UHNWI surveys by global banks and we can count the number of people with net worth above a certain defined threshold, (e.g. above USD 30MM) and map how they get there (e.g. liquidity event, inheritance, strategic bet on certain economy sector, rent-seeking, etc.).

Problem #2 is extensively discussed in the book Oligarchy by Jeffrey Winters. The central argument is that oligarchs or people with massive financial resources will deploy wealth in such a way that it defends their wealth. Winters called the reason for this behavior is “existential” (i.e. oligarchs need to keep being oligarchs). So there is a lot of financial resources allocated to ensure tax advantage, or influence beneficial legislation to their financial interest, or, less controversially, just pursue more growth in their businesses. These may or may not be addressing structural problems of Indonesia. For example, an industrial tycoon arguing for infant industry protection against imported products may help to boost Indonesia’s industrial base (and thus making Indonesia manufacturing sector stronger vs China), even if the original intention is plain self-interest (e.g. just want to make more money without competing with imported products). An opposite example can be coal or oil oligarchs blocking development of renewable energy to protect their wealth, even at the expense of the overall national growth.

Problem #3 is the main crux here. Even if you have such means of financial resources and willing to deploy it, does it even matter?

This example by Paul Tudor Jones will be quite instructive. He is a US hedge fund manager with net worth of USD 5.1 Bn (around 15 times richer than Sandiaga Uno). This excerpt is from a random commencement speech he gave to middle-school students graduation, but the content touched on intellectual capital vs financial capital.

“…by now you are thinking, how much longer is this loser going to keep on talking. My kids are all teenagers, and whenever
I’m telling them something I think is important, they often wonder the same thing. But the main point I want you to take away today
is that some of your greatest successes are going to be the children of failure. This touches upon the original reason I was invited
here today.

In 1986, I adopted a class of Bedford Stuyvesant 6th graders and promised them if they graduated from high school, I would pay for their college. For those of you who don’t know, Bed-Stuy is one of New York City’s toughest neighborhoods. Even the rats are scared to go there at night. Statistically about 8% of the class I adopted would graduate from high school, so my intervention was designed to get them all into college. For the next six years, I did everything I could for them. I spent about $5,000 annually per student taking them on ski trips, taking them to Africa, taking them to my home in Virginia on the weekends, having report card night, hiring a counselor to help coordinate afternoon activities and doing my heartfelt best to get them ready for college.

Six years later, a researcher from Harvard contacted me and asked if he could study my kids as part of an overall assessment of what then was called the “I Have a Dream” Program. I said sure. He came back to me a few months later and shared some really disturbing statistics. 86 kids that I had poured my heart and soul into for six years were statistically no different than kids from a nearby school that did not have the services our afterschool program provided. There was no difference in graduation rates, dropout rates, academic scores, teenage pregnancies, and the list went on. The only thing that we managed to do was get three times as many of our kids into college because we were offering scholarships whereas the other schools were not. But in terms of preparing these kids for college, we completely and totally failed. Boy, did this open my eyes. That was the first real-time example for me of how intellectual capital will always trump financial capital. In other words, I had the money to help these kids, but it was useless because I didn’t have the brains to help them. I had tried to succeed with sheer force of will and energy and financial resources. I learned that this was not enough. What I needed were better defined goals, better metrics, and most importantly, more efficient technologies that would enable me to achieve those goals.

What that whole experience taught me was that starting with kids at age 12 was 12 years too late. An afterschool program was actually putting a band-aid on a much deeper structural issue, and that was that our public education system was failing us. So in 2000, along with the greatest educator I knew, a young man named Norman Atkins, we started the Excellence Charter School in Bedford Stuyvesant for boys. We set the explicit goal of hiring the best teachers with the greatest set of skills to be the top performing school in the city. Now that was an ambitious goal but last year in 2008, Excellence ranked #1 out of 543 public schools in New York City for reading and math proficiency for any third and fourth grade cohort, and our school was 98% African American boys. We never would have done that had I not failed almost 15 years earlier…”
Source: Dropbox – PTJ – Failure.pdf – Simplify your life

I do think that throwing money alone will not be enough, there should be a hygiene level of other things to be addressed. But I did not expect that the design element, the intellectual capital will play such a bigger factor here.

The conclusion that I take is this: throwing money does not solve problems effectively, but we need to figure out a way to be a better patron.

This is running list on what I think needs to be done to make the financial allocator role more effective and be a better patron:

  • Have better understanding of how the world works
    • Especially important if you want to solve problems outside the sector where you have made your fortune. Understanding that certain problems are important came from experience in your formative years. Lacking that experience, you will have less inclination to go out of your way to start making structural impact.
    • This will make it easier to scan the world for structural problems to be solved, specific bottlenecks in solving those problems, and how the financial resources can come to play in solving them (or complement other factors)
    • Better understanding will avoid harm from financial resources deployment such as from unintended consequences.
  • Convert money into talent
    • Talented people suitable to solve problems you care about might exist in the market already (e.g. working in consulting, think tank, governments, companies, university, or even in another country). But there might be no market incentive for them to work on that problem yet. Deploying financial resources to recruit these people is inventing market mechanism to ensure these people work on the right problems (instead of whatever they are doing right now).
    • Have flagship or platform programs to train people. Some problems are just so novel that existing talent in the market have no immediate experience working on it (e.g. nobody has made a rocket to transport people to Mars, but they can make rockets to deliver satellite to orbits as a preparation for the ultimate goal).
    • Invest in finding intellectual titans. In history, the biggest problems were solved by the brightest intellectual titans working on them where other qualified people might have worked for decades but still fail. These intellectual titans are on a qualitatively different level vs the rest of human being.

Should anyone is interested, I would welcome any discussion on this topic.

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