The Meaning of the Gates/Buffett Giving Pledge

Gates Buffett Yesterday, Fortune Magazine broke the news that Bill & Melinda Gates and Warren Buffett are launching a campaign to ask every billionaire in the country to pledge to give away 50% of their wealth.

I think this development marks a major milestone in the expansion of the Second Great Wave of Philanthropy. But the importance of news is not the actual money that many billionaires are likely to pledge, but the cultural ramifications of the campaign. More about this is a minute, but first a little history.

In the spring of 2006, I was driving my 6-month-old son around town in a desperate attempt to get him to fall asleep. That was the moment that I heard the news on the radio that Warren Buffett had announced he was going to give 85% of his wealth to the Gates Foundation and Bill Gates was leaving Microsoft to run the foundation. I had been playing with the idea of starting a blog for a few months, but it was the Gates/Buffett news that convinced me that something dramatic was beginning to unfold in philanthropy. A few months later I launched the Tactical Philanthropy blog.

In my past writing about the importance of Gates/Buffett decision, I have repeatedly stressed the idea that it was not the money that they were giving that had such potential to revolutionize philanthropy, but the cultural importance of their decisions. The Gates Foundation is only responsible for 1% of annual charitable giving. But the impact of the richest man in the world deciding at age 48 that running his foundation was more important than running Microsoft and the second richest man in the world deciding he would give away 85% of his wealth while he was still alive is simply remarkable.

I think the same sort of analysis is the best way to look at the Gates/Buffett Giving Pledge. According to Fortune Magazine, if every single billionaire signs the pledge, it would result in $600 billion being given to charity. But Americans already give $300 billion a year to charity every year. And of course, much of the $600 billion would flow into foundations or go to charity over a multi-year period. So a better way to look at the impact of the pledge is that it could trigger $30 billion per year in charitable giving or 5% of the $600 billion pledge. If the money flowed to nonprofits any faster, it would run out at some point and therefore not have a permanent impact on the level of charitable giving.

Now $30 billion is real money. It is roughly what all the foundations in the country currently give each year. But it would only result in a 10% bump in total charitable giving. It is very likely that even without the pledge, Americans will increase their giving by $30 billion within 3-5 years simply by virtue of the typical pattern of giving increasing with economic growth.

But just as the original Gates/Buffett decision in 2006 inspired many other people to get more involved in philanthropy, if the Giving Pledge is successful, it will have ramifications far beyond the exclusive circle of US billionaires. Certainly you would expect that it would motivate some non-US billionaires. But it is also likely to affect the way that everyday Americans think about their personal philanthropy.

For as long as we have data, Americans have been giving roughly 2% of their income to charity each year. What if the Giving Pledge acts as a sort of tipping point that helps accelerate the growing public interest in philanthropy and kick starts a gradual increase of average giving from 2% of income to 4% of income? The result would be an increase in charitable giving of $300 billion every single year. That’s 10 times what the Giving Pledge might raise if it gets 100% participation from the country’s billionaires.

That’s what makes the Giving Pledge a potential really big deal. The original Gates/Buffett announcement resulted in a 1% increase in charitable giving, but it was important because it had the potential to trigger the 10% increase in charitable giving that the Giving Pledge represents. The Giving pledge might result in a 10% increase in charitable giving, but it is important because of its potential to trigger a 100% increase in charitable giving.

Big gifts make the news, but it is the giving of every day individuals that really drives philanthropy. The Second Great Wave is alive and well.

8 Comments

  1. Sean,

    Excellent post and analysis as usual. If this succeeds, I think it has the potential to even trigger a 500 to 1000% increase in giving. Knowing that a financial and tech genius are driving this, they would have figured that their giving has to trigger a massive increase in giving.

    Bhalchander

  2. Hmm, love the enthusiasm, but a 1,000% increase would mean people giving 20% of income. I don’t think that’s feasible. But we may very well see new sources of capital such as loans and impact investments that increase the resources available to nonprofits.

  3. Sean,
    I completely agree with you that this move is really significant in the way it will impact what every day people think about philanthropy. I love your post about the Second Great Wave–not only are individuals starting to do more than just write a check, but corporations and even small businesses want to invest their money in creating long-term solutions to the issues that impact every community. Great stuff– thanks for inspiring my thoughts on this “milestone” move.

  4. Suzanne Hill says:

    Sean,

    Yours is one of several that I’ve read concerning the Second Great Wave of philantropy, but I must say, tapping into those funds is a whole other story. It appears that the majority of much of those funds go overseas or to non-profits that already receive a great amount of money. The smaller non-profits seeking assistance are still hurting and because they are less well known are also less likely to receive these funds. I have personally been volunteering for one such non-profit that serves all of the children in the Commonwealth of Virginia and they’ve been doing this for over 30 years now.
    With recent budget cuts, Parent Resource Information Centers across the country will have their funding cut in FY11 from $39.3 million to $0. The states are scrambling to find ways to make up these funds and Virginia was cut by over $800,000 alone.
    We will go on. We will make it happen, one way or another, but it would be easier if there were an easier way to tap into the Second Great Wave of funds.
    If there is anyone out there interested in sponsoring an upcoming golf tournament, you need look no further, just contact me. I’ll be happy to help you out!

    • Barbara Hamaker says:

      Thank you for reminding everyone of the small non-profits that are struggling on very local levels around this country, and who would benefit enormously from just a drop or two of those billions. The question is how do you decide who is poorest and who needs help the most. Everyone has their own ideas about that–and that is what this Challenge is all about–getting billionaires to think about that before they are too old to make decisions based on their personal passions.

      However, in reading most of the comments people are making–it is all about the money. The comment about “…hoarding your money in order to reinvest in the economy…” — well if that is your passion then do that–but don’t ask everyone else to do it to.

      Just look what Jimmy and Rosalyn Carter have done with Habitat and their passion.

      No one is mentioning the human factor. No one mentions how good it makes you feel to actually know you are helping one particular person, or a club, or a family. That’s what small non-profits in this country do in our communities. THAT is actually what a democracy is about in my opinion.

      Locally, there is personal, emotional gratification in seeing someone whose life is actually transformed, made better. All the wall street professionals’ opinions about percentages and options do not seem to be grasping the real meaning behind the Gates/Buffett challenge–let’s hope it teaches THAT to billionaires.

  5. Hello Sean,

    I just finished reading your very interesting article and analysis about Giving Pledge. In fact, I just sent an email to the organization that I think you might be interested in reading! :-)

    ~~~

    Greetings, Giving Pledge, Mr. Gates and Mr. Buffet!

    My name is Ariel Zlatkovski, and I am a 16-year-old student in Eagle River, Alaska.

    Congratulations on the start of this wonderful program – it’s great to see the richest people in the world teaming up for charity! That is why I am contacting you; Giving Pledge appeals exclusively to those Americans who have vast fortunes, that can make a significant contribution to the $600 billion goal. What about everyone else? The rest of Americans might not be able to give away huge sums, but what if they want to help charity?

    Currently, I am starting a very exciting, national, youth-led organization that aims to bring in $120 million/year through $1 donations to various causes in our country – a different type every month (so disaster relief one month, cancer research the next, prevention of cruelty to animals the next, etc). OneMerica is a very special fundraising initiative, as it combines many emotionally compelling factors into one campaign: youth development, small (and therefore easy) donations, national media recognition to spread the message, and unification of our country (regardless of political affiliation, religion, social class, gender, or any other factor, Americans can come together with $1 to help each other out). It’s an entirely new combination of fundraising elements, one that can have a huge impact on fundraisers in the future, as well as society.

    We have not yet opened up OneMerica to a national scale. However, we have had local success. At a student government conference, we raised $450 out of 400 people; at my school, we raised $650 out of 900 students using the same $1 concept; a Facebook group gained over 600 people in a week, with about 100 people joining each day; and out of the hundreds of people I’ve talked to, everyone has always immediately wanted to donate. As such, OneMerica is almost guaranteed to work on a national scale once we get there, if given enough exposure. People hear about the idea, and are immediately drawn in!

    Think about the splash that could be made if our two organizations worked together! Currently, Giving Pledge unfortunately isn’t getting as much recognition as it should, because there are other pressing matters in the news. Besides, most people can only read the story, but can’t act on it, because they don’t have the money necessary to participate, and can barely even imagine the sums involved. But if OneMerica was to be held in parallel to Giving Pledge, it would give millions of Americans the chance to give a donation they can afford, which would increase publicity and thus success for both organizations. A win-win situation for us all, in the name of charity!

    If you would like more information, feel free to visit our website at OneMerica.org (currently being designed, so not complete), email at azlat@onemerica.org, or call my cell at (907) 854-4161.

    Thank you for your time, and hopefully this brief description and offer to work together to help charity has sufficiently piqued your interest in OneMerica! :-)

    Sincerely

    ~Ariel Zlatkovski
    Founder and Executive Director
    OneMerica

    ~~~

    Sean, if you and your organization are interested in knowing more about OneMerica, I would love to talk to you about it! It’s a project that is very near and dear to me (I’ve had the idea since I was 12), and I love to share it with others. Plus, it has the potential to become huge and change the way fundraising campaigns work and society itself, so you could be one of the first national people to know about it! :-)

    Thank you!


    Ariel Zlatkovski

  6. Carolyn says:

    What about the poor common individual in need. Where is the information for an individual to ask for assistance? Is there an application process? Information is always about how to donate or how much is being donated-why doesn’t the information on how to apply for help become as easily available? I send you gratitude.