A Second Golden Age of American Philanthropy?

Warren Buffett and Bill and Melinda Gates ask the members of the Forbes

Taking a page out of Andrew Carnegie’s book, The Gospel of Wealth, in which Carnegie railed that “the man who dies thus rich dies disgraced,” Warren Buffett and Bill and Melinda Gates have challenged America’s billionaires to pledge to give away the majority of their wealth to charity either during their lifetimes or at death. In an article published on June 16, 2010 in Fortune and an interview with Warren Buffett and Bill and Melinda Gates by Charlie Rose earlier this month, the three billionaires said they would start the initiative with the Forbes 400—those individuals who in 2009 were estimated to be worth $1.2 trillion. If the entire Forbes 400 gave away half of their wealth, that would mean $600 billion going to charity. That’s why Fortune titled its article, “The $600 Billion Challenge.”

The three principals have been noodling over this for over a year, honing their idea for a pledge through a series of small dinner parties with philanthropic billionaires, including the likes of New York City’s mayor Michael Bloomberg, Oprah Winfrey, George Soros, Ted Turner and David Rockefeller. To date, four billionaires, in addition to Buffett and Bill and Melinda Gates, have committed to the pledge. They are: Eli Broad, a Los Angeles billionaire; John Doerr, a Silicon Valley venture capitalist; John Morgridge, a former bigwig at Cisco Systems; and Gerry Lenfest, a media entrepreneur. Information about the pledge, along with a letter from Warren Buffett describing why he’s giving away 99 percent of his fortune to charity (mostly to The Gates Foundation), can be found at www.givingpledge.org.

Statistics and Philosophies

Why is there a need for such dramatic and public peer pressure by Buffett and the Gates family? Their motivation is both statistical and philosophical. Statistically, the Forbes 400 give between 8 to 11 percent of their income to charity each year and about 15 to 20 percent of their estates to charity. Increasing the giving of the Forbes 400 to more than 50 percent should result in hundreds of billions passing to charity that otherwise might not. But this is just the beginning: Buffett and the Gateses want to ultimately extend the pledge beyond the Forbes 400 and beyond the United States. If successful, this endeavor could mean more than a trillion additional dollars passing to charity over the next decades. Giving USA estimates that total U.S. charitable giving in 2009 was approximately $304 billion, so such an increase could be transformative for the charitable sector.

But it’s not just the increased amounts passing to charity that Buffett and the Gateses are interested in. Just as important—if not more so—is that they’re concerned about using the increased dollars passing to charity most effectively. This is where the philosophy part of the motivation comes in. We’ve all recently read about venture philanthropy and philanthrocapitalism, but these are not completely new concepts. Carnegie described in great detail many of these concepts in The Gospel of Wealth over a century ago, in which he set forth the foundations for effective philanthropy. In fact, long before Buffett pledged to The Gates Foundation the bulk of his assets ($31 billion), he gave Bill Gates a copy of Carnegie’s book.

Carnegie’s Legacy

Carnegie was a diminutive Scottish-born steel magnate who began engaging in philanthropy in the 1880s and significantly increased his commitment after 1901, when he sold his share of U.S. Steel to J.P. Morgan for $225 million.

So what was Carnegie’s philosophy on philanthropy? He begins The Gospel of Wealth with the following sentence: “The problem of our age is the proper administration of wealth, that the ties of brotherhood may still bind together the rich and poor in harmonious relationship.” Carnegie rejects the idea of passing wealth on to descendants. He cites the indolence and corruption of the landed aristocracy of Europe. He also believed that the wealthy shouldn’t sit on their wealth until their deaths. To discourage this practice, he favored a punitive estate tax, stating that “By taxing estates at death the State marks its condemnation of the selfish millionaire’s unworthy life.” Carnegie suggests that the best way for a wealthy man to handle his surplus is to give it away during his lifetime. He warned that philanthropic capital should be used wisely and felt that of every $1,000 passing to charity, “it is probable that nine hundred and fifty dollars is unwisely spent--so spent, indeed, as to produce the very evils which it hopes to mitigate or cure.” Carnegie didn’t believe in handouts; his was a philosophy of self-help.

For example, he built over 3,000 public libraries across the United States. But for a town or city to get a library, it would have to match Carnegie’s gift. Those towns or cities that didn’t contribute, didn’t get a library.

Almost as important an influence as Carnegie on Buffett and the Gateses, is the other father of philanthropy, John D. Rockefeller, who spoke of “scientific philanthropy” and the “business of benevolence.” Rockefeller was also a fan of self-help. In his essay “The Difficult Art of Giving,” he stated, “The only thing that is of lasting benefit to a man is what he does for himself.” Rockefeller was the first modern philanthropist to organize his philanthropy in 1901, reviving the Tudor concept of a charitable trust or foundation.

Starting in the 1990s, scholars began to revive some of the ideas embedded in the philanthropy of Carnegie and Rockefeller and combined them with the concept of venture capital, to create the concept of venture philanthropy. In the past several years, venture philanthropy has taken root throughout the philanthropic world.

Buffett and the Gateses don’t specifically suggest how the dollars contributed through the Giving Pledge are to be used, but there are plans for an annual summit for those who have taken the pledge to discuss and share best practices in philanthropy. It’s virtually certain that venture philanthropy ideas will play a big part in these summits.

Details of the Giving Pledge

According to the website, the Giving Pledge is an effort to invite the wealthiest individuals and families in the United States to commit to give the majority of their wealth to philanthropic causes and charitable organizations of their choice either during their lifetime or after their death. The pledge is an effort to address society’s most pressing problems by bringing more dollars to philanthropy. Each person who chooses to pledge will make the pledge publicly, along with a statement explaining the decision. It’s important to note that the pledge isn’t meant to be a legal contract, but rather a moral commitment. The pledge doesn’t involve pooling money or supporting a particular set of causes on organizations, and there’s no connection to The Gates Foundation.

Regarding the rationale for making the pledges public, the website states that the Giving Pledge is a way to help people talk about giving in an open way and encourage others to do the same. The website further states there are unmet needs throughout the world that could benefit tremendously from the type of resources these pledges can bring. Perhaps, most importantly, the website emphasizes that there is the know-how to meet these needs—both here in the United States and in the developing world. This an exciting time for philanthropy, in which innovative approaches and technological advances have redefined what’s possible.

The Tipping Point

Ten years ago, author Malcolm Gladwell wrote The Tipping Point, in which he described how small changes could make a massive difference in the world. Gladwell describes the “tipping point” as “the moment of critical mass, the threshold, the boiling point,” where “the momentum for change becomes unstoppable.” A tipping point produces an “epidemic” in which change can’t be stopped. And according to Gladwell, there are three rules in the tipping point of an epidemic: (1) the law of the few; (2) the stickiness factor; and (3) the power of context.

The “law of the few” states that “the success of any kind of social epidemic is heavily dependent on the involvement of people with a particular and rare set of social gifts, known as connectors, mavens and salesmen.” The “stickiness factor” refers to the specific content of a message that renders its impact memorable. And the “power of context” means that “epidemics are sensitive to the conditions and circumstances of the times and places in which they occur.”

Does the Giving Pledge satisfy all three rules of an epidemic? The answer seems to be “Yes.” Regarding the “law of the few,” given their wealth, philanthropy and communication skills, Buffett and the Gateses are the perfect individuals to act as connectors, mavens and salesmen. By engaging other individuals like George Soros, Ted Turner and Oprah Winfrey, along with numerous other high-profile billionaires, there are plenty of connectors, mavens and salesmen to spread the word.

Regarding the “stickiness factor,” getting a large number of the Forbes 400 to publicly pledge the majority of their wealth to charity should certainly provide the necessary content to render the message memorable.

Finally, as to the “power of context,” we’ve just witnessed the worst economic recession since the Depression and unemployment is higher than it’s been in 25 years, with no sign of a healthy economic recovery on the horizon. Twenty-four hour news coverage of the economy, Hurricane Katrina and the earthquakes in Haiti and Chile show the vast need for financial support throughout the world at a time when the major western economies that typically support these tragedies are running record deficits. And the spread between the rich and the poor is greater now than at any time since the Depression. What better time to convince the super wealthy to increase their philanthropy?

We’ve been hearing about a second golden age of American philanthropy for years now. But the statistics don’t bear it out. According to the Foundation Center, the number of private foundations (which is the giving vehicle preferred by the super wealthy) grew by the smallest percentage in 2008 than at any time since 1981. And Giving USA reports that overall giving in the United States in 2009 was down 3.6 percent, the worst result since the recession of 1974. Gifts to foundations were down almost 9 percent.

Maybe the reason that we have not yet seen a new golden age of philanthropy is that we haven’t reached the tipping point—at least, not yet. But now, in the spirit of Carnegie and Rockefeller, the Buffett/Gateses call to action moves us one step closer. The Giving Pledge may indeed represent the tipping point. Stay tuned.

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