A National Treasure

We were cheered and intrigued to learn that the trustees of one of Britain’s oddest foundations are looking at changing its mission. The National Fund was created in the 1920s with a donation of £500,000 by an anonymous donor with the purpose of paying off Britain’s national debt. For more than 80 years it has been investing and squirrelling away the profits in the hope that the miracle of compound interest would grow a big enough pile to make this big patriotic gesture.

They have done well: the Fund is now worth more than £300 million (at today’s prices the original gift would be worth about £24 million) and has grown at a faster rate even than the national debt. The bad news is that it is still a very long way off achieving its goal: the original gift would have paid off 0.007% of the national debt in 1927; today it would make a 0.04% dent in what the nation owes its creditors.

Hmmm. Given that the National Fund is not going to meet its goal within any meaningful timeframe we applaud the decision by Barclays Fiduciary Services, which took over the trusteeship in 2009, to re-examine its mission.

Unsurprisingly the voluntary sector has been getting rather excited at the prospect of some new cash. But how should it be used? Even if the National Fund paid out, say, 5% of its assets each year, that would amount to little more than £15 million a year of new grantmaking. So there would be no funding bonanza. Also, without a founder’s vision for its grant-making role, there is a risk that all the money would be handed out through mushy-thinking “spray and pray”, or would merely by used to prop up uncontroversial ‘national treasure’ type causes. So how the National Fund should spend its money is an important and interesting debate.

We believe that philanthrocapitalism means that donor intent does matter – both morally, since it was an individual’s decision to give the money away, and practically, since the donor can provide focus to the giving strategy. For the National Fund, this suggests that its giving should contribute to the goal of reducing Britain’s indebtedness. So here are five ideas that spring to our minds:

1) In America, Pete Peterson has endowed a foundation to work to put the country’s government finances on a sustainable footing, through a mixture of research, lobbying and supporting mass activism. Perhaps the National Fund could play a similar role in Britain?

2) Debt is as much a private problem as it is a worry for government. Total private household debt is around 100% of GDP. Reckless lending and high interest charges are also particular burdensome for the poorest. So perhaps the National Fund could play a strategic role in boosting financial literacy and improving credit services to the poor.

3) The burden of debt is dependent on how much you are earning. As we are seeing in the Eurozone at the moment, slow or negative growth makes debts much harder to pay off. Britain desperately needs growth. Even splurging the whole endowment of the National Fund would have a negligible real impact on the UK economy. Yet maybe some strategic giving could stimulate innovation that boosts future competitiveness. In America, the Kauffman Foundation has become an influential backer of policies that favour entrepreneurship, which again might be imitated in Britain.

4) More boldly, how about funding more blue sky research by science boffins? There is quite a lot of public and private money going into technology at the moment but less into ‘pure’ scientific research. Philanthropists looking for measurable results can be shy of funding unpredictable blue sky science. Yet it is from such discoveries that the next technological breakthroughs will come. One of the interesting stories in Tim Harford’s excellent book ‘Adapt’, which we reviewed earlier this year, is about how philanthropic donors, willing to back researchers for the long term, generated more impact than short-term public funders. So how about a National Fund for Science?

5) The donor who created the National Fund seemingly did not want to do grants. So why do grants? Instead, turn the National Fund into a pioneer social investor. This is a new market in which many hopes are pinned on Britain’s newly-created Big Society Capital. Turning the National Fund into a competitor in doing wholesale funding surely would spur innovation and increase the chances of social impact investing taking off. Doing this would (if all went to plan) preserve the original donor’s capital (albeit probably with a lower rate of growth than if it were invested simply for profit) and put private money into tackling social problems that would otherwise cost the government money to solve. It might also help the UK financial sector to develop a new area of  expertise for the City that is not only socially useful but potentially a source of global competitive advantage in the future.

Those are our ideas. What are yours?