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Why critics are wrong about John Paulson's $400 million gift to Harvard

By:Katarzyna Baumann Moment Mobile

Last week Vox correspondent Dylan Matthews chastised hedge fund manager John Paulson for donating $400 million to Harvard University, and asked people to stop giving Harvard money because they'd largely be serving rich kids. "Literally any other charity is a better choice," he argued.

Now, admittedly, I'm biased. In addition to being a Vox contributor, I’m also an adjunct associate professor at Harvard. But Matthews is mistaken for one simple reason: he assumes universities only exist to educate students. That's absolutely wrong.

Universities are more than just training centers

Today, education is only one increasingly small part of a university's mission. Just look at Harvard's spending:

harvard budget

How Harvard spends its money. (Harvard.edu)

Only a tiny portion of Harvard's $4.4 billion annual budget goes to supporting its 6,700 college students. Instead, 49 percent goes to supporting its 2,400 faculty members, 10,400 academic appointments in affiliated hospitals, and thousands more research associates, lab managers, librarians, and administrators.

This means it is the other parts of a university's mission — producing knowledge through systematic inquiry (i.e., research) and promoting the use of this knowledge for public good (i.e., dissemination) — that get prioritized. Gifts to research-intensive universities should therefore be evaluated according to how much knowledge and public good they are likely to yield, in addition to how many and what kinds of students they train.

To be clear, I'm not saying that handing Harvard a fortune is the best use of Paulson's money. It's probably not. Like all places where cash is plentiful, money is wasted and fat could be trimmed. (I heard from friends that the catered food at Paulson's Harvard announcement was "epic.") I am just saying that gifts to rich research-intensive universities are still probably a relatively good use of that money. At the very least it's not a bad use of it.

A ranking system like GiveWell wouldn't have helped Paulson

paulson

John Paulson gave Harvard $400 million. (Pat Greenhouse/the Boston Globe via Getty Images)

Is there a better way for rich people like John Paulson to give away their money? Matthews's idea is to donate according to GiveWell's rankings. This works well for small-time donors — probably you and definitely me — but it's not feasible when we're talking about $400 million. There is just no way that GiveWell's top-ranked charity, Against Malaria Foundation, for example, could absorb that kind of cash when its annual operating budget hovers around $3.5 million.

The other problem with GiveWell is that it focuses on scaling up existing interventions rather than discovering new ones. Research charities are consequently excluded. The reality is that we won't save our world during any of our lifetimes without more research.

Even the most optimistic models for achieving a "grand convergence" in under-5 mortality rates between rich and poor countries, for example, depend on doubling annual research funding for neglected diseases from today's $3 billion to $6 billion. Relying on what already exists just won't get us there.

grand con

Impact of enhanced health investments on under-5 mortality rate in low- and lower-middle-income countries. (Global Health 2035)

A better strategy for donating to science: "insider giving"

If I had $400 million to give to science, I would channel the money to rising research stars who are 1) younger, 2) underfunded, 3) interdisciplinary, and 4) defying tradition. My strategy would work because I have some insider knowledge on which researchers are doing new, groundbreaking work and which are unlikely to produce transformative results.

It's a strategy that is analogous to "insider trading" on the stock market, except this strategy — let's call it "insider giving" — is legal and should be encouraged. Through it we get the benefits of insider knowledge without the accompanying jail time.

But how do rich, non-expert, busy billionaires participate in insider giving? The answer is that they can't — at least not directly. Instead, they need to give their money to people who do have this insider knowledge.

Universities, as institutions, have it in abundance. Their leaders probably know which of their top-notch scholars could make greatest use of any donation.

Harvard is also a university with a demonstrated track record of using this insider knowledge to achieve great social impact. T
here is no denying the many remarkable contributions Harvard researchers have made to society through their production and dissemination of knowledge. In the medical field, Harvard researchers discovered nuclear magnetic resonance (used for medical imaging), invented the pacemaker (which treats arrhythmias), and developed the first transgenic mouse (helpful for cancer research).

Misunderstanding universities makes us all poorer

So mega-donations to research-intensive universities like Harvard are certainly not "a gigantic, immoral waste of money," as Matthews argued. Such donations are nearly assured to achieve social impact. At the very least it's better than buying another yacht or making a donation to the National Rifle Association (which would also get Paulson a massive tax write-off).

Most critiques of Paulson's $400 million gift to Harvard stem from a fundamental misunderstanding of the role that today's universities play in our society. Such narrow and misinformed views threaten to undermine the transformative role that universities can play in producing and disseminating knowledge to address our most difficult and pressing challenges. Failing to understand that makes all of us poorer.

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