I didn’t plan on posting anything this weekend, busy preparing for a presentation next Wednesday. I came across a shocking special report on The Economist and an admirable person devoting his fortune to fix problems our society is facing. I couldn’t help but write at least something short here.

The special report has a series of articles (you can find them in the middle of the linked page) that describes the fiscal problems California is facing. As a lot of people might know, especially those living in the Golden State, California has been irresponsibly spending too much while cutting taxes. This dragged the state into a budget deficit hole that became even worse after the financial crisis. When I heard about this, my first thought was, “isn’t California the center of technology innovation,  home of Hollywood and the state where rich people pay a ton of income tax?”. How could they be stuck in such a deficit?

According to the report, this all started in the early 1900s when Californians decided that direct democracy is a better way to run the state. While most countries and states allow only senators or congressmen to legislate, California allowed constituents to propose laws if they could gather hundreds of people to sign up to express approval. Called “initiatives”, the proposed laws were put on a ballot and could be legislated if they earned enough votes. Basically, anyone who could collect hundreds of signatures and convince constituents to say yes in the ballot could legislate whatever they wanted. This movement started mainly because Leland Stanford, the man who donated his fortune to found Stanford University, and his rail company bribed state government officials and politicians. Californians got fed up of corruption and decided that constituents should take over by legislating themselves. Ironically, Leland Stanford’s company would later use the initiative system to legislate laws that benefit the rail industry.

The rest is history. Simplifying a bit, Californians voted for initiatives that cut taxes and increased spending, without even knowing what those initiatives meant to them or the state in the long-term. A study showed that a surprisingly large portion of the constituents didn’t really understand what they were voting for, and sometimes would vote for the opposite side simply because of misunderstanding the initiatives. This was partly because the initiatives were written in complicated sentences with double or triple negatives. Each initiative would contain more than 10,000 words and constituents could vote for dozens of these at one time. The system also worked as a way for rich people to legislate whatever they favored. They could afford millions of dollars to gather the support by campaigning heavily using the media.

So how do we fix this? It’s hard to hold someone accountable because it’s not only the politicians, but the entire state of California that created this mess. It seems the only way is to fix the system and make it more difficult to start an initiative, but it’s highly unlikely that constituents will be willing to give up their power.

In the end of the report, The Economist introduced Nicolas Berggruen, a wealthy man who committed $20M of his own fortune to study how to fix this problem and gain support from highly recognized people in the state. According to his Wikipedia page, he was born in a wealthy family, made most of his fortune in businesses including founding a couple of hedge funds. The remarkable part is his perspective on money.

…for me, possessing things is not that interesting. Living in a grand environment to show myself and others that I have wealth has zero appeal. Whatever I own is temporary, since we’re only here for a short period of time. It’s what we do and produce; it’s our actions that will last forever. That’s real value.

He seems to be devoting his energy to the Nicolas Berggruen Institute, a think-tank investigating various policy issues, including how to fix California’s mess. I was so impressed by Mr. Berggruen that he became one of my role models on how to use one’s fortune to give back to the society. I really hope his institute can help California fix its problems.