Funders of [Jeff] Bezos’s stature typically cast an open call for proposals, spending months poring over applications from nonprofits and sometimes insisting on site visits, interviews, and reams of financial data. Bezos’s team instead quietly cold-called the nonprofits he was already interested in backing, asked them for a few 500-word answers, and then wired them millions of dollars in cash or Amazon shares within about six weeks of making initial contact.
Funders are also prone to placing copious restrictions on their money to ensure it is spent on whatever it is they care about. What does Bezos do? He’s taken “no strings attached” to the extreme, effectively letting the nonprofits spend the money on anything that offers shelter to homeless families, even if the initiative was nowhere to be found on the original applications or grant agreements…
“I’ll apply for a grant for $5,000 and it’s five times the length of this one,” said Darlene Newsom, who runs UMOM New Day Centers, a nonprofit that operates homeless shelters in Phoenix. “I was a little bit in awe about it.”
… here’s the surprise: Multiple experts told Recode this strategy actually makes a lot of sense. They think philanthropies should give nonprofits substantially more leeway…
“There are a lot of interesting unknowns [Said Jeff Bezos of charity]. And sometimes I think we try to solve problems before we understand the problem”
That was a Vox/Recode piece on the philosophy of philanthropy, via Tyler Cowen.
It shouldn’t be hard to spot the similarities between decision-making for charities and for weapon system programs. The usual way about it is for those who have the money to engage in long ordeals of vetting and cost-benefit analyses. They want to target exactly a project and set of outcomes, with a detailed [business] plan to get there.
Jeff Bezos is taking a more traditional method of financial control. He is basically mission-funding the charities. As long as they are working broadly toward sheltering homeless families, their specific plans are unspecified. Continued funding depends on delivering the goods rather than justifying future actions. That means barriers to entry are lower, which also lowers the barriers to cutting off funding from non-performers.
Charities in many ways share major aspects of defense acquisition. In both, top people have the funding but no real knowledge of how to execute (asymmetic information). The organizations that get funded are basically administrative extensions of the funders. There are no price signals. Measures of quality are extremely difficult to come by. Profits are constrained or forbidden, leading to major expense control problems. Overheads go out of control, or money is misspent without oversight. There is a tendency toward mission creep and moralistic arguments for higher spending. Both involve a bit of social and technological engineering, perhaps more technology in defense and more social in charities.
Tell me how this part doesn’t sound like it could be equally applied to defense acquisition:
Vu Le, a nonprofit leader who runs an influential blog on philanthropy issues, told Recode that donors’ obsessive focus on overhead costs serves to “infantilize” nonprofits. He compared his industry’s conundrum to volunteer firefighters arriving at the scene of a blaze.
“Every three or four steps, people want to make sure the money I’m giving you is spent on the water or on the hose. I also want to make sure that any of the money isn’t spent on the rent for your fire station,” Le said. “We spend all this time trying to answer these stupid questions that we’re not fighting the fires.”
Whereas other doners require lengthy reports, perhaps quarterly, Bezos lets the charities send in whatever report they want each year.
And so the mission-funding strategy is an alterntive to the present paradigm of requirements, proposals, awards, auditing, and reporting. Sure, some money will be misspent — and when that is discovered they should be blackballed. But it also allows organizations to use money for execution rather than justification, and it gives them freedom to be innovative. The unintended outcomes may prove many times more beneficial than had tight control been exerted from the start.
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