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Pierre Omidyar: from eBay to Philanthropy

By Shlomo Maital   


Pierre Omidyar is well known as the pioneering founder of eBay.  That company, after it was acquired, made him immensely wealthy; by the time he was 30 he was a billionaire.  Today, he is 46,  and he is deploying fully $1 b. of his fortune for philanthropy.  But unlike Jeff Bezos, founder of Amazon, who spent $250 m. to buy the Washington Post,  Omidyar is spending $250 m. to revolutionize the media.

  According to the Economist (the Schumpeter column),  “… in 2004 Mr Omidyar replaced his foundation with a new organisation, Omidyar Network, which sees itself as an active investor, not a passive donor, and is free to put money equally into for-profit and non-profit ventures. Almost half of the 300 or so outfits it has backed aimed to make money—though Mr Omidyar has said that any profits will be recycled, with none going back to him.”  

   The Economist continues:   “With the non-profits it backs, ranging from Kiva, a microfinance website, to the Sunlight Foundation, which promotes open government, Omidyar Network practises “venture philanthropy”—developing a non-profit start-up in the same way as a new business venture, except for not expecting it to make money one day. Typically, foundations have given funds for a specific project rather than to build the capabilities of the charity itself, which makes it hard for the charity to hire and retain talented people. In contrast, the network not only provides money for its charities’ general budget, it has a human-resources department that helps them find good staff. This service seems to be universally appreciated by the charities Mr Omidyar backs, some of which say it is more valuable than the money they get. Although there are several other successful venture-philanthropy organisations, such as New Profit Inc (which helped develop the Teach for America charity), none comes close to the scale of Omidyar Network, which makes it the crucial test case for the idea.”

      Omidyar ‘invented’ on-line commerce. Now he seeks to reinvent philanthropy.   He seems to have put his finger on a key failing of many social enterprises – good management, proper staffing.  We wish him well.


From Basic Biological Science to Market Success:

How Bob Langer Changes the World

By Shlomo Maital   


Bob Langer is a renowned MIT scientist.  His famous lab has generated an endless stream of inventions that benefit mankind, including radical new methods for controlled-release drug delivery.  This is important – when we swallow a pill, the concentration of the drug in our blood rises, then falls, then rises again when we take another.  Controlled-release technology keeps the level of the drug constant, in our blood stream, so that it is more effective. 

   Prof. Langer shared his ‘secret of success’ in a recent article in Nature Biotechnology, 31 (6), June 2013.  It includes 3  “P’s”:   platform, paper, patent.

   * Platform:  develop a technology that can be used over and over in different applications and technologies. E.g., his method for controlled release drug delivery systems also found use in microspheres for food applications, e.g. fat substitutes.

   *  Paper:  Publish your results in a high profile journal;  “peer review validates the idea”.  You can of course file for a patent within a year of publishing the paper.

   *  Patent:  “ideally, file a blocking patent, that protects the platform, and all the ways it can be used and applied”. 

    Platform, paper and patent – all persuade investors of the validity of the idea.  Add to this two more P’s:   P of P,  proof of principle —   show the technology is viable.   Speed is vital, adds Langer; the more rapidly you can get to clinical trials, the better.  And you need a champion.  Langer’s champions are his doctoral students, who develop technologies in their Ph.D. theses, then go on to found companies. Langer often serves on the board, makes introductions, helps get financing.  Langer himself is a bench scientist, and focuses exclusively on scientific research.  But his vision has led to many many spin-off companies emerging from his lab.  At a time when many biotech startups fail, Langer appears to have developed a winning formula.  If I were in biotech, I would study the Langer Lab formula closely.

Can We Believe Scientific Results?

By Shlomo Maital


  The Oct. 19 issue of The Economist has “How Science Goes Wrong” on its cover. It contains a worrisome article that leads off with a quote from Nobel Economics Laureate Daniel Kahneman: “I see a train wreck coming”.  The article deals with the very foundation of credible scientific research: The ability to replicate (repeat) scientific experiments, to verify that the results are true.   It turns out, most scientific publications cannot be replicated.  The Economist reports:

     An American drug company Amgen tried to replicate 53 studies that they considered landmarks in the basic science of cancer.  They were able to replicate the original results in just six.

   What is the problem?  Why can results be reproduced?

   Here is a rather difficult explanation, by The Economist, based on work by Stanford statistician John Ioannidis, an epidemiologist.   Suppose 1 in 10 hypotheses are true.  Consider tests of 1,000 hypotheses, of which 100 are true.  These tests have a 5% false positive rate (5 times in 100, a test says a hypothesis is true when it is false).  So of 900 false hypotheses, 5% x 900 = 45 are proved true. 

    Most tests have a statistical ‘power’ of 0.8, meaning 8 of 10 true hypotheses are proven true.  So only 80 of the 100 true hypotheses are proven true.  This means there are 20 false negatives (true hypotheses proven false). 

     Summary:  80 true hypotheses are proven true; 45 false hypotheses are also proven true.  So 45/120  false hypotheses are said to be true, fully one third. 

   Ironically:  the negative results are far more reliable. But journals hate to publish negative results (i.e. no, broccoli is NOT great for your prostate). 

      At a festive dinner here in Paris for Technion I sat next to a researcher who runs a medical research lab with a one billion euro budget.  He told me of rising pressure to attain results, and collapsing budgets.  There is huge pressure on scientists to publish results, under the threat of grant cancellation.  One of this year’s Nobel Chemistry Laureates said he got no results at all for five years, and if he were repeating this work today, he would have lost his NSF grant long ago.

     Many journalists report scientific research, especially related to food, and many of us take it seriously.  We drink more or less coffee, eat more or less broccoli, based on it.  Perhaps we should stop and just eat and drink what we like.  Why forego coffee for twenty years just to learn the original research was erroneous?


Practical Economics from Ray Dalio

By Shlomo Maital

          Dalio       Ray Dalio

  As an academic economist, I am highly critical of myself and my colleagues, whose theories offer no help or guidance to practical policymakers trying to make our lives better.  A recent NYT op-ed defends the common anomaly of Nobel Prizes awarded for conflicting theories, by saying that, well, economics is tough, we can’t do lab experiments. 

   In his “Dealbook” column, NYT writer Andrew Ross Sorkin (always worth reading) cites a new viral video on “practical economics”,  Dalio 101, by Ray Dalio, founder of Bridgewater Associates, the world’s biggest hedge fund ($150 b.), the man worth $13 b. who saw the financial crisis of 2008 coming and also saw the recovery coming.  Check out his 31-minute YouTube video (search on Ray Dalio  on YouTube).   Here are a few insights:

     Austerity:  why it doesn’t work.  When borrowers stop borrowing and pay off debt, debt increases, because spending falls; since one man’s spending is another man’s income, incomes fall, and the debt burden rises.  Simple?

    Borrowing:  why we get into trouble.    Borrowing is a way of pulling spending forward in time.  To buy something you can’t afford today, you borrow from your future self.  In doing so you create  a time in future when you need to spend less than you earn in order to pay it back.  But if you’re addicted to debt, that becomes hard to do.  (Compare: America the ever-borrowing country). 

   Lost decade:  It takes roughly a decade or more for debt burdens to fall and economic activity to get back to normal – hence the term ‘lost decade’. 

   Monetarism and Milton Friedman:  If money M times velocity V equals a price index P and real GDP Q,  then if velocity is constant, when you boost money, either P or Q or both must rise, increasing economic momentum.   The reason this doesn’t work, is that today there isn’t much velocity, it has slowed, and only we the people control velocity (the rate at which money circulates).  It doesn’t help to create piles of money if it those piles just sit there, with banks not lending and businesses not borrowing.

     Dalio 101.    You have to listen to someone who has used simple economics to make $150 b.


You Are Subsidizing McDonald’s – Why?

By Shlomo Maital

     Big Mac

  You may be unaware, but – Huffington Post (Oct. 15) informs us, citing a study by the National Employment Law Project (NELP), that “Taxpayers are shelling out $1.2 billion a year to help pay workers at McDonald’s”. 

   McDonald’s is a highly profitable company, with 2012 revenues of $27.6 b. and net income (profit) of $5.5 b.   Why should taxpayers subsidize McDonald’s workers? 

   And it’s not only McDonald’s.  The government subsidizes the entire fast food industry to the tune of  about $3.8 billion per year, according to a a study by University of California-Berkeley and University of Illinois at Urbana-Champaign.

    How does this work?  McDonald’s Wendy’s, KFC and other companies pay very low wages, close to minimum wage.  Workers then apply for public assistance, and receive food stamps.  They can survive on McDonald’s jobs, only if they get help from the government.  McDonald’s can pay rock bottom wages only because their workers are on food stamps – a program that costs the US about $78 b. a year.   Half of food industry workers are on public assistance, compared with one worker in four for the whole US economy.  According to the experts, “in many cases, it’s not just teenagers working fast food jobs for some extra cash. These low-wage workers are often older — and in many cases are the breadwinners for their families.”

   Fast food companies say they operate on slim margins. Really?  $5 b. in profit on $28 b. in revenue?   About 18 per cent net margin?    SLIM?????  That $1.2 b. subsidy goes directly to the shareholders’ pockets.

   How could this be fixed?  Raise the minimum wage.  Make companies pay living wages.      

   McDonald’s says it provides hundreds of thousands of jobs.   This is true – however, the jobs are largely part-time, low-paying and even though those who have such a job are employed, hence not part of the unemployment statistics, they struggle to make a living. 

   Add that $3.8 b. fast-food subsidy to the enormous costs that fast food impose on health care, through obesity, diabetes, etc., and you have a strange system in which our taxpayer money is used to subsidize an industry that causes health problems that use even more taxpayer money. 


Fama’s right. Shiller is right.  They Can’t BOTH be right?  You’re right too!

By Shlomo Maital      

         Fama Shiller

Eugene Fama & Robert Shiller

 Univ. of Chicago Economics Professor Eugene Fama has won the Nobel Prize for Economics this year, for his research proving that capital markets are fully efficient and rational.

  Yale Univ. Professor Robert Shiller has also won the Nobel Prize in Economics this year, for his research proving that capital markets are irrational and inefficient.

   Wait.  Yet again?  Two economists win the Nobel Prize for proving the diametric opposite?  You say, they can’t BOTH be right?

   Well – you’re right, too.  Everybody is right.  And that’s what’s wrong with economics. 

   Sure, you can finesse this mess. You can say, well, capital markets are usually rational, but sometimes they’re not. 

   Not helpful.  When are they NOT?  When are there bubbles?  How do you know? 

   These diametrically opposite Nobel Prizes for Economics would be impossible in Chemistry or Physics.  There, you have to show clear results.  Higgs won it, for Physics, because at CERN they found strong proof that the particle Higgs theorized actually existed.  They didn’t give the prize simultaneously to someone who proved it did NOT exist.

   Economics is in a sorry state.  The Nobel awards simply reveal that.

Bob Shiller’s Nobel:  Finance IS a Force for Good!

By Shlomo Maital      


   Together with Eugeme Fama (U. of Chicago)  and Lars Hansen,   67-year-old Yale U. Prof. Robert Shiller won this year’s Nobel Prize in economics for  ‘contributions to our understanding of asset pricing’. 

     Those laconic words don’t begin to do justice to Bob’s contributions.  He was among the few lone voices who warned that America was in a housing bubble, that would soon burst.  He knew this, because he had developed a reliable, accurate measure of housing prices, the Case Shiller Index,  that is widely used.   Earlier he warned that the stock market was in a buble, in his 2000 best-seller Irrational Exuberance (the dot com bubble burst in March 2000). 

    I encounter many MBA students (some here at EDHEC) who are fascinated by the world of finance, but who are pondering whether to remain in the field, because of the downsizing and layoffs in finance, and because finance was given a bad name after the 2008-12 financial crisis, owing to a handful of scoundrels.  I urge them to remain in finance, and to innovate and reform the industry, and reinvent it.  And I always recommend that they read Shiller’s new book, Finance and the Good Society (Princeton U. Press, 2012).   Here is how Shiller frames his pitch:

“… finance should not be viewed as inherently or exclusively elitist–separating people into different income groups, or as an engine of economic injustice. Finance, despite its flaws and excesses, is a force that can help us create a better, more prosperous, and yes more equal society.    In fact, finance has been central to the rise of prosperous market democracies and is unimaginable without them.  Beyond headlines incriminating bankers and financiers as self-aggrandizing perpetrators of economic dislocation and suffering, finance remains an essential social institution, necessary for managing the risks that enable society to transform creative impulses into vital products and services, from improved surgical protocols to advanced manufacturing technologies to sophisticated scientific research enterprises to entire public welfare systems.  The connection between Wall Street and Main Street is as fundamental for society as is the connection between the brain and the nervous system in the human body.” 

    Finance specialists:  Stay the course!  Innovate, create, seek blue oceans.  Finance needs you,  Nobel Laureate Shiller says,  and I strongly agree. 

America’s DEEP Poverty: The REAL Scandal!

By Shlomo Maital

         deep poverty                  

Deep Poverty

    All eyes, all attention, all media  are focused on America’s government shutdown and debt ceiling crisis, now coming to a head.  This is indeed a scandal – no way to run a country, as the Economist cover claims. 

   But as usual, the real scandal is elsewhere, and is largely ignored by all, including the squabbling Washington politicians.

   According to the Wall Street Journal Europe (Friday Oct. 11-13, p. 7),  “Extremely Poor Fall Further Behind”,    despite the so-called economic recovery,  44 per cent of Americans who live below the poverty line  are in “deep poverty” (i.e. they have income that is half or less that of the official ‘poverty line’, which itself is exceptionally low.     Some 20.4 million Americans live at this level of income!   One American in every 16 lives in deep poverty.  This is up from one American in about 30, in 1975. 

     Some 45 m. Americans live in poverty, defined as an income of $23,492 for a family of four.  So deep poverty is an annual income of $11,750, or about $240 a week.   Some of the biggest increases in deep poverty occurred in the Deep South – Mississippi, Indiana, Georgia, Alabama. 

   Many of the ‘deep poor’ have part-time jobs in retailing, and struggle to get enough hours to get by, because their jobs are for 20 hours a week or fewer. 

     I wonder how many of us could survive in the U.S. on $240 a week, to pay for food, shelter, clothing, education,  and of course paying for health insurance at that income level is out of the question. 

    So while partisan Washington squabble over politics, the deep poor sink deeper and deeper into despair.    What really could help the deep poor?  Sustained economic growth.  Only that can create the jobs they need, and convert part-time jobs into full-time ones.  But we won’t get sustained economic growth, while U.S. government spending is being slashed, because right now the government is the main, even only, source of growth in demand.  And of course the deep poor have no voice – they are silent, unorganized, with no-one to stand up and speak for them.

     Those of us who are comfortable should try to speak up for those who have so little.  But I just don’t know how to do this effectively.  Do you?

Memo to Every Country: Keep Your Bright People!

By Shlomo Maital

            Nobel Chemistry

Nobel Winners Warshel, Levitt and Karplus

  This year’s Nobel Prize for Chemistry was won by three scholars, two of whom were Michael Levitt, Stanford Univ., and Ariel Warshel, U. of Southern California.  The latter two are Israelis;  Levitt studied and did research  at Israel’s Weizmann Institute, and Warshel studied at Technion-Israel Institute of Technology.   Both did their Nobel research abroad.  Levitt told the press that he would have preferred to remain at Weizmann, but it was “not his decision”.    The three winners did research that used software algorithms to simulate and predict chemical reactions, now widely used in drug development.  Like many Nobel breakthroughs, their work combined fields not often combined:   in this case, classical physics and quantum physics.  One of the winners was French:  Martin Karplus, of Univ.  of Strasbourg.

    Both Levitt and Warshel studied in Israel; Ariel studied at my university and won awards.  Both say they would have preferred to make their careers in their home countries, but could not get academic positions. 

     I believe that one of the key ways we should judge our political leaders, is whether they do everything possible to keep our bright young people at home, and to attract those who have left to come home.   This is our future; to do less is to damage our future.  I don’t see how Israel’s government is doing anything serious to stem the massive brain drain, or attract home those who left in earlier years.  It is very small comfort to see an expat Israeli win a Nobel Prize, for Stanford or Southern Cal.   We see an exodus of brainpower from Greece, and from Spain, and other nations in fiscal trouble.  The cost of this is simply immense.   


Pittsburgh:  Last Great Undiscovered American City

By Shlomo Maital



  On Wednesday I was in Pittsburgh, Pa., and gave a talk at Carnegie-Mellon Univ.  Pittsburgh is perhaps the last great undiscovered American city.  Once a grimy steel town, with steel mills spewing pollution on the three rivers that merge in downtown Pittsburgh (Allegheny, Monongahela, Susquehana), Pittsburgh once saw the mighty United States Steel building tower over its skyline. (Its NFL football team, Pittsburgh Steelers, gets its name from that era).  In the 1950’s, I visited the steel mills that employed thousands of Pittsburgh workers.

  No longer. The steel mills are long gone.  Grimy Pittsburgh is now squeaky clean.  And the steel jobs have been replaced by health care jobs.  In place of the US Steel sign,  UPCM (University of Pittsburgh Medical Center) towers over the skyline.  Pittsburgh has become a health care center, with two great universities at its core, University of Pittsburgh (Pitt) and Carnegie Mellon.  Pitt is unusual; it is one of the only universities in the world whose core building is a skyscraper, the 40 story Cathedral of Learning. 

    Nearby cities, like Detroit, and Cleveland, are in desperate trouble. Detroit has declared bankruptcy.  Detroit lost its auto jobs, Cleveland lost its heavy industry.  Somehow, Pittsburgh fought back and found something to replace the steel jobs.  What we learn from this is simple:  Every individual, organization, city and country needs to ask,  what is it that I can do, to create value for others,  that is done better, faster, cheaper, than others?  What is my ‘differentiator’?  Every company, every city, every country needs one.  Some cities never bother asking that question, and they sink.   Of course, you need to do more than ask the question – you need to answer it wisely and then implement the answer.  Pittsburgh has done that. It is a thriving vibrant city, with a vigorous cultural life,  many young people who flock to the high-quality universities and stay after they graduate, and strong political leadership.  


Blog entries written by Prof. Shlomo Maital

Shlomo Maital
October 2013