American Philanthropy

His many aficionados in the investing world have long admired Warren Buffett’s lapidary writing style. The newsletters he sends to investors are in their own right literary gems, full of deadpan humour, folksy observations on current events and studied understatement.

It was this last device that was most noticeable in the letter he sent this week to the Bill and Melinda Gates Foundation. In it he pledges an initial “material” contribution of shares in his investment company worth about $1.5bn and then adds that over the next few years he expects those contributions to reach an “eventually substantial” sum.

I suppose that only in the small world occupied by Bill Gates and Warren Buffett could a personal gift not be considered “substantial” until it rises well above $1.5bn towards the $30bn the donation is expected to reach.

The generosity of Mr Buffett puts the Sage of Omaha in a rare class of the greatest American philanthropists in history. In narrow financial terms, and translating large donations and legacies of the past into current purchasing power, it is certainly up there with those of the Carnegies, Rockefellers and Guggenheims.  Unlike theirs, Mr Buffett’s generosity is literally self-effacing.  The great contributions wealthy Americans have made to educational, social or cultural betterment – including that of Mr Gates himself - have usually come at one small but enduring price – eponymity.     But in Mr Buffett’s case, the decision to donate to an already existing foundation means he has passed up the opportunity to be memorialised directly by edifices and institutions in his own name. There will be no Buffett Endowment for International Peace, Buffett Museum of Fine Arts or Buffett Scholarships

It is a reminder again of how voluntary giving, rather than involuntary expropriation by the state – and legitimised by the electorate - is such a critical part of the American economic landscape.

The Gates/Buffett annual outlays should, when both men’s contributions have been fully disbursed into the fund, rise to well over $3bn in today’s money, of which about three-quarters is currently directed towards international assistance to the very poorest in the world.  For comparison, Unesco, the United Nations Educational, Scientific and Cultural Organisation, distributes about $700m   In Britain, the Department for International Development channelled about 4.2 bn pounds ($7.7bn) in aid to less developed countries.  Two American philanthropists alone, in other words, will have contributed more to alleviate poverty and disease than the UN’s principal development arm.  They will between them have given a sum amounting to about a third of the entire official UK contribution.

No other nation on earth has the capacity to produce individuals with the wherewithal and the motivation to extend such generosity.  Though official aid is famously lower in the US than in most of the industrialised world, Americans are of course, more inclined to give to charity than is almost any other population. Last year they contributed a little over 2 per cent of their gross domestic product, compared to 0.7 per cent in the UK.   Of course the bulk of US giving is directed at domestic needs – much of it in the form of giving to local communities and churches.  But that doesn’t detract from the sheer scale of  American generosity. Why is it so large?

Income distribution presumably plays a role.  Inequality has risen dramatically in the US in the last 25 years. The top 5 per cent of households made more than 21 per cent of total income in 2003 – up from 16 per cent 40 years ago. At the very top, of course the growth in income has been even more spectacular.  Last week, in these pages, I railed against the corporate greed exhibited by many chief executive officers in the last decade.  The incentives to manipulate financial accounts for the goal of personal enrichment are too many in US financial markets (and ironically, Microsoft has been among the cleverest in this field).  But it would be uncharitable not to acknowledge that the flipside of all this wealth is that a class of Americans has an ever increasing capacity ( and for many a sense of moral imperative) to give back some of the accumulated wealth to those who need it.

A second factor, of course is the favourable tax treatment of charitable contributions. 

The deductibility of  donations from personal income taxes acts as a powerful incentive to contribute cash or financial assets.  It is a classically American sort of redistribution by the state – indirect and voluntary.

Third and perhaps the strongest element is the culture of individualism that still animates the US economy. Too much can be made of this. It’s often forgotten in debates both inside and outside the US that America has some extremely generous expensive social insurance programmes. Social Security, for example, the public pension system, is actually rather more generous than many in Europe – including Britain’s.

But there’s no denying that in terms of their own perception of their relationship to the state and its role in their lives, Americans are substantially different.  US universities – among the largest beneficiaries of philanthropy – are a case in point.  The endowments even many mid-sized American colleges are larger than those of Oxford or Cambridge these days. Alumni – even those like Mr Gates who dropped out of Harvard – feel a sense of personal debt and loyalty to their alma mater that encourages them to contribute. In Britain, even wealthy graduates figure the state is responsible for the financing of universities, so why should they contribute anything in addition to their taxes?

In a global economy it looks increasingly as though the US economic model may be more efficient than that of its rivals. Mr Buffett and Mr Gates have shown that they can go some way to repairing some of its evident inequities.

Comments

[Bela Somssich]

Loved the use of the word 'eponymity'! I did a quick check around and found a handful of instances on the web. Oh, and I liked the article!
Regards, Bela.

[kweku frimpong]

Sir i am very happy for u have made it in life,both you and your family we leave comfortablely