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Capitalism Vs Charity: If demography is destiny, sympathy toward humans is a superpower

This morning, I boiled eggs for breakfast, and in doing so, memories of my village days at the age of 10 or 11 flooded back. Back then, eggs were considered a luxury in our families—a special treat or a rare phenomenon. Even though, the cost of eggs was significantly lower, around INR 2 to 3.


And today, 15 years down the line, every member of my family can eat eggs daily. Of course, my parents are vegetarians, however, I eat eggs in my breakfast almost every day even though the price of eggs is 3X around INR 9. 


This is something which most of us usually miss from the progress POV. When we complain about small things including the rich getting richer we mostly forget the part that the poor are also not poor anymore or at least most of them. And most folks trapped themself in the thread of physical fallacies - this means wealth is finite - forget the basic fact that wealth is created. And when someone gets rich, they also make the poor richer. We both can debate on this topic for a long time, however, if we take History as a tool - you will find I am not wrong. 


But wait, why am I talking about inequality in an essay titled - Capitalism Vs Charity? But do you think the discussion of Capitalism is complete without discussing inequality, no right? 


The inspiration for this essay struck after reading "Does Capitalism Beat Charity?" by Scott Alexander. I pondered on the potential arguments and thought processes if the same person were living in 1950, given that India's current GDP per capita is comparable to that of the USA in 1950. This morning, while reading "Einstein: His Life and the Universe" by Walter Isaacson, these thoughts persisted. Hence, there was no choice but to interrupt my reading, grab my laptop, and pen down these reflections digitally.


Just to make sure, every argument in this essay is not the final verdict as no suggestion is a good suggestion. Since I have lived and am fortunate to have exposure to both parts of India (that many certainly lack) I tried my best to create some new rational narrative around Capitalism and Charity.  


Let’s get started...


When Einstein was near the end of his death (the unfortunate fate of known species), he was asked by the New York State Education Department what schools should emphasize. “In Teaching History”, he replied (I think we all will agree with his answer). Steven Pinker, the world’s most influential thinker and writer on the human condition in his brilliant book - Enlightenment Now - highlighted: “History shows that when we sympathize with others and apply our ingenuity to improving the human conditions, we can make progress in doing so, and you can help to continue the progress”. 


The above quote is part of an answer to a question when a student asked Steven: “Why should I live”? I remember asking the same question a few years back, and I think a good question for everyone to ask themselves.     


We will come back to the above question at the end of this essay, for now, let's move ahead…


I have previously written on topics like Power, Truth, Luxury, Love, Patriotism etc. And had expressed my admiration for Capitalism. I fundamentally believe Capitalism is a path to national prosperity. However, Charity and Civil Societies have played pivotal roles in societal progress. The debate over which is better will persist, so let's employ some math, consider second and third-order effects, and determine which approach is superior, or if both have drawbacks. After all, our unique ability to make rational decisions sets us apart from other species.


The best way to make sense of this argument is if we take a few examples and do rough math (complete math will take many weekends of work and the purpose is to publish this essay by Sunday night, so it would be a rough math). 


Let’s travel back just 7 years back - 2016. Assume you are on the higher end of the money and utility spectrum hence no amount of money will add any utilitarian value to your life (because such propagation follows S-curve). You heard the news of the farmer's suicide, being sympathetic towards humans you decided to contribute your hard-earned money to minimizing the farmer's suicides. You allocated INR 10 Lakhs for this cause. Great! 


You searched for options on Google and found multiple options. Since the purpose of your capital allocation was to minimize farmer’s suicide, you were not expecting any return. You were more inclined toward donating money to an NGO who were working towards the minimization of farmer suicides. However an Apple (the same apple that provoked Newton to discover famous physics laws, lol) fall on your head, and you decide to divide your INR 10 lakhs into two parts investing one part in an NGO and the second part in a private company working toward solving that problem from the first principle. 


At this stage of your search, you create a list of NGOs and companies and finally select an NGO - SaveTheFarmers - and a private company - Dehaat. You donated your INR 5 Lakhs to “SaveTheFarmers” and the NGO used that money for a few projects let’s assume those projects helped prevent 100 farmers from suicide in the next 7 years. In most cases it is super difficult to track or measure the objective quantitative impact hence let’s assume. To understand the net impact we have to uncover the 2nd order of impact. 


Let’s assume the average age of these saved farmers from suicide was 40, and taking their life at that age means we will have economic losses - farmers' contribution to the economy for the next 20 years (assuming that farmers would have worked till 60). Let’s assume a farmer creates INR 10,000 of value each year - this means the net value created by your charity/year = INR 10,000*100 = 10,00,000. This means in 20 years, your donation will create an impact value of 20X (20*INR 10,00,000). Please remember this is just a super simplified version of the entire math, if we will go into the details it will take many hours of work. Let’s assume this number for a while.


You also invested INR 500,000 lakhs in a private company Dehaat, in 2016. The company believe in improving farmers' earnings by providing free advisory, delivering high-quality farm inputs at a lower price due to scale impact, and also purchasing their farm output from those farmers at their farms. All these activities help individual farmers to save time, money, and better farm production. All these lead to an improvement in farmer’s income by 30 to 40%. However, to an intuitive understanding of your investment apart from ROI (in the multiples of your investment), we need to get a sense of impacted farmers due to your investments.  


The cost to impact one farmer = Total invested money/number of farmers on the platform = $230 million / 2 million = $115 = INR 9200 (Nice). Since you invested INR 500,000 this means your capita impacted 54 farmers increasing their income by 30 to 40%, giving them many extra hours so they could do others' work. I know you are wondering hey, my charity saved 100 farmers and here I am impacting just 54 farmers and as I don’t care about my return this is a bad proposition for me. And that’s how we made mistakes in thinking only from the first-order effect. The true impact requires a more nuanced assessment. 


Apart from improving the farmer's livelihood, the company also generated 10,000+ jobs, built the infrastructure that could improve interstate import and farmer linking, and improved the income of 10,000+ Dehaat Centres. Apart from doing all these, they have almost the same amount of money in the bank because the company has a study cash flow and the net loss is just a few hundred Cr which they can tighten the nut and bolts at any point. This means your invested money has already been circulated in the Indian economy and created infinite impact. For example, the money paid to the employees must have been spent on different consumption which leads the economic value creation for those local companies. The 10,000+ Jobs created mean better education, food, and health for their children that will create their compound impact in the next 10 to 20 years and again will contribute to the economy.


The likelihood is that you will receive returns multiples of your initial investment, even though your primary intention was to create a positive impact. This aspect showcases the unique opportunity in India, where one's contribution to societal betterment can also lead to personal wealth creation. Notably, Dehaat's founder initiated this journey with an NGO called FarmsNFarmers back in 2010. Recognizing the need to create impactful change at scale, the founders transitioned to a for-profit model, building foundational layers over the years. Today, Dehaat holds the key to India's prosperity.


Now if you combine the impact of all the layers just on the first order and second - you will realise your investment created 1000X impact compared to your charity. In any case, when we talk about charity to improve humanity and most of the charities are directly linked with consumption, we mostly miss the fundamental point - once your charity is consumed (as in most cases, it will) what will be the next? Continuing your investment in the NGO which saves some 100 farmers in a few years, the chances are in most cases, in the absence of the new doner if the problem of the farmer is not yet solved - the same farmer might commit suicide (let’s consider this hypothetically, please). This means on the net, you will have no actual data points to validate the impact of your donation. 


This does not mean all types of charity are the same. I think any charity that is being used as consumption is probably creating net negative and those charities should be with a mindset of investment. For example, I loved what the Rainmatter Foundation (Zerodha’s philanthropic arm) is doing. And it is not only the area of donation (climate), they have deployed the tools, and technology that could measure the impact of their investment. Once a tree is planted and saved for the initial few years, most probably, it is going to give us the O2 and fruits for its lifetime. 


The way there is nothing called Good and Bad capitalism, I think there is nothing called good and bad Charity. However, we have enough history to learn from and make better decisions. At the current stage of our nation, there are deep and fundamental problems that must be solved and those problems will never be solved by technology alone indeed technology will leapfrog the impact. Capitalism has to play an important role in solving those problems because that will also create wealth. And I am not writing sitting in some urban top quintiles. I am writing this sitting in India’s lowest GDP per capita state, travelling with them, working with them, observing their problems every single day. 


I understand that, like me, none of you wish to witness fellow humans sleeping on the footpath, begging on the road, succumbing due to lack of healthcare, or resorting to drastic measures. The India often portrayed is not the India that many of you are familiar with. While there's nothing inherently wrong with a hundred million affulent Indians, it's unquestionably wrong if six or seven hundred million continue to struggle to have a decent life. Prosperity cannot be exclusive; it must scale. Like any progress that isn't inevitable, the "Scale of Prosperity" is also not guaranteed—it requires our collective effort.

According to Steven Pinker, the growth in wealth will stem from technological innovation, educational infrastructure, and an increase in the spending power of the lower and middle classes. However, whether we acknowledge or not, India may not lead the next technological revolution because, like progress, technology accumulates over time, and we have yet to accumulate it substantially. This implies that technological innovation might not be the primary driver of India’s wealth. While the educational infrastructure is in place, there is still a long journey ahead. Consequently, we are left with one predominant option—“An increase in the spending power of the lower and middle classes.” Considering India has approximately a billion people in this demographic, this could be the genuine wealth creator for the coming decades. Nevertheless, Capitalism needs to be wielded as an ideal tool to unlock that wealth, albeit in a manner distinct from how developed countries approached it in the past. We must approach this challenge from first principles, as our shared goal is to solve problems and foster a prosperous world.


So, it's your decision whether you want to use your hard-earned money in charity or capitalism. In any of these decisions if it is not where it has a higher probability to create infinite return and impact - you should think again. 


Let’s conclude this essay by answering the question asked by the student to Steven. Why do I live? If you don’t have this answer, you can take time and think. But I found my answer last year: The firm realization that like every human I am going to die and no one is going to remember me, forced me to ask the same question. As I started appreciating every aspect of our world I realised everything that I see around me is the greatness of my ancestors (known and unknown) and none of them are in this world to see that. In that case, I aspire to solve just one problem in a way that billions of people like me don’t even think about drinking clean water, using electricity, transport etc people don’t have to think to access quality healthcare. And like most of the above, it took many decades, solving this problem is a multidecade journey. Hence I should live!


This is our nation, and everyone within its borders is our people. It is our collective endeavour to bring prosperity. We all have two options: a. Advocate on the stage for India’s GDP per capita to surpass $5000 and b. Contribute individually or collectively to make that possibility a reality. And I believe option b is something we all aspire - consciously or subconsciously. "If demography is destiny, sympathy toward humans is a superpower..." 


Thanks for reading, if you find this essay sympathetic, you can share. I shall see you all the next week  


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