Click to enlargeWarren Buffett and Bill Gates unveiled The Giving Pledge initiative in June which launched one of the most ambitious philanthropic initiatives in history and has the potential to generate hundreds of billions of dollars in gifts over the next few decades. Both Warren Buffett and Bill Gates have already pledged the vast majority of their wealth to charity and the goal of the pledge is to encourage other billionaires to do the same. Surprisingly, the initiative has generated a significant amount of controversy among those who believe that it is politically motivated.
“Publicity Stunt” or “Work of Socialists”?
Fortune Magazine recently ran an extensive cover story on The Giving Pledge which outlined the goals of the initiative and the story behind how the idea came about. According to The Weekly Standard, reader reaction to the Fortune profile was overwhelmingly negative with many comments attacking the pledge as “grandstanding”, a “publicity stunt”, or “the work of socialists”.
Apparently, some readers took issue with the concept of making a public push for billionaires to join the initiative while others seem to cast doubt on the idea of philanthropy in general. Underlying these comments is a sense that wealthy Americans are somehow being “shamed” into signing up and that the underlying message is that it is illegitimate for these individuals to wish to pass on a majority of their wealth to heirs. An even less diplomatic response appeared on GuruFocus recently where the author stated that he would “throw Buffett out. And his little buddy [Gates] too” if they came calling for his participation.
Criticism is Unwarranted
None of the points of criticism is very persuasive.
First, The Giving Pledge is obviously not a publicity stunt. Both Mr. Gates and Mr. Buffett have spent many years thinking very carefully about philanthropy and how to intelligently deploy their wealth for the benefit of mankind. Mr. Gates gave up his career managing Microsoft (NASDAQ:MSFT) in order to pursue philanthropy full-time at The Bill and Melinda Gates Foundation. Mr. Buffett has been making very large donations to the Gates Foundation as well as several family-run foundations and will eventually donate over 99 percent of his estate to charity. A publicity stunt lacks substance while The Giving Pledge is clearly the product of serious thought and consideration.
Second, the pledge is not an attempt to embarrass or humiliate people who are not on the list. Charlie Munger, Mr. Buffett’s longtime business partner and a very generous philanthropist, is not on the list at this point. Obviously, not everyone wishes to make a public declaration of support, and this most likely includes individuals like Mr. Munger who have already made substantial gifts to charity. It makes no sense to think that Mr. Buffett would do something to embarrass or alienate one of his closest colleagues.
Third, the pledge is not about politics or “socialism”. In fact, the concept is entirely the opposite and is profoundly anti-government in the sense that it encourages the wealthy to take responsibility for the disposition of their wealth personally rather than allow the government to tax their estates at death and decide on how over half of it should be distributed. One can argue that the current repeal of the estate tax should be extended beyond the end of 2010, but this is a separate public policy debate. It is true that Bill Gates and Warren Buffett both oppose the permanent repeal of the estate tax. Some might argue that they oppose repeal precisely to force the wealthy to give away their estates rather than face taxation, but it does not follow that a voluntary pledge is therefore an exercise in “socialism”.
Invest in Business Rather than Philanthropy?
Others have made the case that the very wealthy should devote their money to starting new businesses that will create jobs and new wealth for society rather than pour money into philanthropy. This concept has appeal particularly because most of the self-made billionaires are proven business leaders and have the potential to further compound their wealth in business.
However, at a certain point, it is natural for the very wealthy to look for good causes to support. America has a long tradition of philanthropy involving famous names like Rockefeller and Carnegie. Given the fact that there are plenty of individuals who fall through the cracks of a market economy, there is nothing wrong with looking to philanthropy to improve conditions. In fact, relying more on philanthropy and less on bureaucratic government efforts is an inherently conservative approach to addressing poverty and human suffering. It could even be considered the opposite of “socialism”.
Even those who are economically conservative and oppose most of the tax policies Mr. Buffett advocates (and this writer more often than not finds himself among those opposed) should have enough objectivity to avoid making a great philanthropic initiative seem like a craven political act.
Warren Buffett, Bill Gates, and Melinda Gates recently discussed the rationale behind The Giving Pledge on The Charlie Rose Show. The interview is well worth watching for those who are not convinced that the initiative is being put forward in good faith.
Disclosure: The author of this article owns shares of Berkshire Hathaway (NYSE:BRK.A).