July 2, 2009 | Read Time: 3 minutes
As White House officials wrestle with how to secure money from an increasingly tightfisted Congress for the social-innovation fund it approved as part of the new national-service law, they could look to the estimated $5-billion worth of warrants, or options to buy bank stock at set prices, that the federal government acquired when it bailed out the nation’s banks in the fall.
Other countries have found creative ways to tap such windfall assets in government hands to generate sizable endowments dedicated to social purposes, and the same could now be done with those warrants.
Instead of unloading these warrants quickly, at a potential loss to taxpayers, the Treasury Department could instead transfer the warrants to a specially created fund to finance innovative work by nonprofit groups.
That fund could sell the warrants in an orderly fashion, return part of the proceeds to the Treasury, and use the balance to invest in promising innovations in priority areas of national policy, such as adopting green technology and improving health and education.
That is the approach that Germany took in the early 1960s when it faced up to the challenge of unloading its ownership of the Volkswagen Corporation, originally created by Germany’s National Socialist Party to produce a “people’s car.”
Rather than simply sell the company on the open market, the German government, in the wake of the Sputnik launch, vested ownership of a substantial proportion of the privatized company’s shares in a private foundation dedicated to the promotion of German science. Today, the resulting Volkswagen Foundation boasts assets of almost $3-billion and makes grants totaling $150-million a year to keep Germany on the cutting edge of scientific innovation.
Poland took a similar course back in the 1990s when it dedicated a portion of the proceeds of the privatization of its state-owned industries to a specially created Foundation for Polish Science.
And Italy transformed its extensive network of quasi-public cooperative banks into stock companies in the 1990s but vested ownership of majority shares of the stock in a network of private “bank foundations.” Those foundations subsequently sold much of this stock, creating enormous charitable endowments that have made Italy the leading philanthropic country in Europe, and, on a per-capita basis, perhaps the world.
More recently, the Labour government in Britain decided to transfer $375-million of the proceeds from its national lottery into a National Endowment for Science, Technology and the Arts.
The endowment has now started a bold program to invest in commercial and social innovation. The warrants bequeathed to the federal government as a byproduct of the fall’s banking crisis should thus be viewed not as a problem to be solved but as a national treasure that can help America achieve long-term prosperity.
Those warrants offer a unique opportunity to finance the innovations that the Obama administration is championing in a wide assortment of critical areas without adding further to our burgeoning national debt.
Transferring these warrants to a private, nonprofit endowment that is committed to investing in promising innovations would depoliticize the decisions about when to sell the warrants and at what price as well as what innovations deserve support.
This approach seems likely to increase the proceeds from the warrants’ sale. To protect the banks from continued uncertainty, a deadline of three years could be established for the sale or execution of the warrants by the new fund.
In short, rather than unload those warrants for limited short-term gain, the Treasury, with Congressional approval, should use them to seed an American Innovation Fund, which could invest in promising innovations that would warrant our long-term future instead.
Lester M. Salamon was deputy associate director of the U.S. Office of Management and Budget and now directs the Center for Civil Society Studies at the Johns Hopkins University.
