Diversity in Capital: The Importance of Governmental and Philanthropic Investing

infinite resource

I’m currently reading The Infinite Resource and The Entrepreneurial State.

Both are worth reading, and both cover the importance of diverse sources of capital.


In the Infinite Resource, Ramez Naam attributes the rise of the West, in part, to Europe’s decentralized governmental capital markets.

Christopher Columbus, for example, pitched his voyage to numerous governments before Spain made its investment.

Zheng He, the great admiral whose 300 ships explored Southeast Asia and the Middle East, had his ships burned in 1424. The Emperor of the Ming Dynasty declared that there was nothing to be learned from the outside world.

In Europe, an entrepreneur could pitch multiple governments. In China, there was only one ruler; if he rejected your request, there were no alternative sources of capital.


Norman Borlaug probably saved more lives than any other human ever to exist. His development of new strains of wheat most likely prevented massive famine. Without these new wheat strains, we would have risked entering Malthusian conditions in the 1970s, with population growth outstripping food.

Norman’s research was funded by the Mexican government and the Rockefeller Foundation.


The private market has clearly delivered immense good in the form of technological innovation.

But government and philanthropic capital are important for a few reasons:

1. Governments and philanthropists can make longer bets as they are not constrained by returning profits in the short-term.

2. Governments and philanthropists can invest in areas where profits will never be high despite the opportunity for social returns (in most cases because the target consumer is in poverty).

3. Governments and philanthropists create less fragility in capital availability. For numerous reasons, private markets can lock up or go haywire; having other sources of capital is sort of an insurance mechanism against market failures.


Unfortunately, government and philanthropy – because they are not subject to market discipline – can often be poor investors.

Over the past ten years, I’ve had the opportunity to work with great people in an effort to increase the efficacy and efficiency of governmental and philanthropic spending in education.

I feel like we’ve made a lot of progress; of course, there is still a long way to go.

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