’Tis the season for giving: What does the FTX collapse mean for ‘effective altruism’?

The expression long precedes the shenanigans of the crypto world, writes Hamish McRae

Many people looking at the mess created by the collapse of FTX will be tempted to think of effective altruism as a cover for catastrophic commercial practice (Getty Images for CARE For Specia)

Christmas is a season for giving – and for many charities, it is the most important time of the year for raising funds. But this year, the collapse of the cryptocurrency exchange FTX has provided a new perspective on the role of charities in our society, and an uncomfortable one at that.

The reason is that FTX’s founder, Sam Bankman-Fried, has been both a substantial donor to charitable causes but also an enthusiastic supporter of the concept of “effective altruism”, the rough idea being that people should make money in order to be able to give it away.

Many people looking at the mess created by the collapse of FTX will be tempted to think of effective altruism as a cover for catastrophic commercial practice. If billions suddenly go missing, or were never there in the first place, then the moral backcloth of the whole operation seems a bit phoney.

The idea of using a charitable foundation as a way of bolstering social status and deflecting attention from sharp business behaviour goes back centuries. Many of the great philanthropists, such as the Scottish-American steel magnate Andrew Carnegie, made their fortunes in pretty rough ways. (Carnegie’s peak wealth, by the way, would be $309bn (£252bn) in today’s money, well ahead of Elon Musk, now back to the top of the Forbes billionaire ranking at $189bn.)

But if the crash of FTX also kills off the concept of effective altruism, that would be a shame. The expression long precedes the shenanigans of the crypto world, going back to the ideas of the Giving What You Can movement, which are not simply to give away money but work out how to do so in order to get the best outcomes.

In 2011, a group of students in Oxford coined the phrase to draw attention to the fact that altruism had to be effective. The key person in that group was the Scottish moral philosopher and Oxford don, William MacAskill, who became a de facto mentor for Bankman-Fried. MacAskill has subsequently tweeted his dismay and disapproval of Bankman-Fried’s behaviour, and had nothing to do with the business activities of FTX or crypto more generally. But the damage is done.

A lot of charities that had expected to get money from FTX’s charitable arm, the Future Fund, won’t get funding, and the whole idea behind it carries a taint.

So what happens next? We won’t know the outcome of the FTX scandal for at least a couple of years, but all corporate charitable activities in the US and elsewhere will come under closer scrutiny. It is one thing for business owners to give their shares to a foundation, and ensure a complete separation between the commercial and charitable arms. The Bill & Melinda Gates Foundation has been a fine example of that. But there will be other charities where the motivation of the giver is suspect, and the whole idea of charitable status will come under increasing challenge. Is it just a tax dodge?

To keep up to speed with all the latest opinions and comment, sign up to our free weekly Voices Dispatches newsletter by clicking here

In a way, this is refreshing. A lot of charities are fronts, driven by self-interest rather than altruism. But we should all be worried if the “effective” bit of the movement gets lost, because the idea of measuring the effectiveness of any gift is really useful. If a commercial enterprise makes an investment, there is an easy rule of thumb to assess its effectiveness. Does it make a profit?

But if a foundation funds a charitable project, it is much harder to judge whether the money is wisely invested or not. You can always create an argument that supports the case – that is what anybody that receives grants gets good at. But most of us know from personal experience that a lot of charitable funding is not simply ineffective. It is wasted.

So what I hope happens is that much more attention will be paid by donors, large and small, to how recipients deploy these donations. Leave aside the motives for giving, the “altruism” bit – because I am afraid they will often be murky – and focus on the “effective”.

The charitable sector can do wonderful things, operating with nimbleness and speed that other types of institutions cannot match. Let’s celebrate that – and as the law takes its course over the behaviour of the people involved in FTX and its associates, use this unhappy experience to push all charities to lift their game.