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FTX – OBSOLESCENCE PRESENTED AS INNOVATION

Dr. Joe Zammit-Lucia

Several years ago, I was speaking to an investment manager who constantly delivered a good and steady financial performance. I asked him what his investment principles were. One of them, he said, was that he never invested in anything that was labeled as ‘exciting.’ His view was that exciting things were all too often hype built on hot air and that they most would not be quite so exciting tomorrow.

Those who have lost money by investing in Sam Bankman-Fried and his FTX crypto platform might have benefited from that perspective.

I won’t, here, go into the now dwindling hype surrounding the concept of cryptocurrencies except to say that, in my opinion, crypto is a perfect example of innovation that is of no (or negative) social value. As, unfortunately, is so much ‘innovation’ in the finance industry.

Apart from crypto, the other element around which Bankman-Fried generated excitement was the concept of ‘effective altruism’ – a term coined in William MacAskill’s book ‘Doing Good Better.’ A book lauded by great philanthropists including Bill Gates. Once again, here is a so-called innovative concept that is, in reality, nothing new. In fact, it is a concept that is rapidly becoming obsolete. 

Corporate philanthropy is a concept that dates from the nineteenth century when it was driven by Christian values and was paternalistic in nature. In not so organized a form, philanthropy dates from well before that. The Medici banking dynasty were patrons of the arts. Long before that, groups of wealthy men in ancient Greece regularly paid for all the equipment necessary to stage the great Greek dramatic festivals. In ancient Rome Cicero and Seneca composed manuals on the arts of proper gift giving and receipt.

Andrew Carnegie’s seminal article titled ‘Wealth’ and published in 1889 encouraged philanthropy as a way for companies to use ‘surplus revenue.’ Before and since, a myriad of corporations set up foundations that disbursed their monies to support various good causes.

While philanthropy, is, of course, to be encouraged, these behaviours are no longer sufficient in today’s world. The idea, as expressed by Bankman-Fried, to make as much money as possible in whatever way possible so that one can then engage in ‘good works’ can become like trying to fix in the evening what you have spent all morning and all afternoon destroying. In other words, it is no longer acceptable to separate what one does with ‘surplus revenue’ from the question of how such surplus revenue has been achieved. 

What people are asking today is whether your core business activities are socially useful and conducted in line with today’s expectations. Those questions can no longer be ducked by layering on a veneer of good works through corporate foundations.

An even more fundamental question is why any business can afford to be philanthropic. Why do corporations end up having surplus revenues and surplus profits in the first place? Is it a result of rent taking from an oligopolistic market position? Is it arising from savings made through poor worker pay or even through abject working conditions in the global supply chain? Is it arising from insufficient investment in reducing environmental externalities? Why is there a surplus at all?

The public has become ever more cynical and increasingly views corporate philanthropy as mere virtue signaling unless it is integrated with one’s core business. Cohesive with corporate purpose, brand meaning and with the way core operations are run. It no longer serves as a protective layer that can generate public appreciation while deflecting attention from what businesses are doing and how they are run.

Bankman-Fried’s ‘effective altruism’ was an obsolescent idea sold as innovation in a market sector full of the blather and bravado of high-risk innovation standing on quicksand but sold as something socially useful. Maybe the surprise is not that it all came crashing down but that so many experienced investors were taken in.


Written by Dr. Joe Zammit-Lucia.
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Dr. Joe Zammit-Lucia
With extensive experience both in the business and political worlds, Dr. Joe Zammit-Lucia is an adviser focused on business leadership in contemporary culture, and an author, public speaker, and commentator in the international press on the inter-relationship between business and politics.

His latest book is “The New Political Capitalism: How businesses and societies can thrive in a deeply politicized world” (Bloomsbury Business, 2022). Previous books have included “The Death of Liberal Democracy?” and “Backlash: Saving Globalization From Itself.”

He is a founder of RADIX – a not-for-profit public policy think tank, and the RADIX Centre for Business, Politics & Society. His executive experience spanned R&D, marketing, global brand management, strategic planning, industry economics, and public policy. He then founded his own business advisory firm with offices in Cambridge (UK), New York, and Tokyo.

He also acted as a Special Advisor to the Director-General at the International Union for Conservation of Nature (IUCN) and was a member of the Dean's Advisory Board at the College of Arts, Sciences and Education, Florida International University. He is currently on the Advisory Board of the Singapore Forum for long-term investors and business leaders and an External Advisory Board Member at the CEOWORLD magazine.


Dr. Joe Zammit-Lucia is an opinion columnist for the CEOWORLD magazine. You can follow him on LinkedIn.