Gates-Buffett Example Worth Its Weight in Gold

By Sean Stannard-Stockton
July 11, 2010 | Chronicle of Philanthropy

The collaboration of Warren Buffett and Bill and Melinda Gates transfixed the nonprofit world four years ago when they announced the biggest philanthropic merger in history, producing a foundation that will probably be worth at least $60-billion one day. But last month’s announcement that the Gateses have joined forces with Mr. Buffett on a campaign to persuade the nation’s billionaires to give 50 percent of their wealth could be an even more important milestone—especially if it persuades Americans at all income levels to increase their giving.

While much has been made of the amount of money the Bill & Melinda Gates Foundation gives away now that it has an infusion from Mr. Buffett, what is far more important is the way the personal decisions made by two of the world’s wealthiest men affect other donors.

The Gates foundation is responsible for only 1 percent of annual charitable giving. But the cultural importance of Mr. Gates deciding at age 48 that running his foundation was more important than running Microsoft and of Mr. Buffett deciding he would give away most of his wealth while he is alive was remarkable.

Those decisions are a striking departure from the historical philanthropy of America’s wealthiest individuals. Many people have undertaken their major giving late in life or simply taken care of through bequests left in a donor’s will.

For as long as we have had records, Americans have given roughly 2 percent of their income to charity each year. Today, American foundations, corporations, and individuals give about $300-billion a year.

If every billionaire decided to give 50 percent of his or her net worth, it would result in $600-billion for charitable causes.

But of course, much of the $600-billion would flow into foundations or go to charity over many years. So a better way to look at the impact of the pledge is that it could trigger a permanent $30-billion per year increase in charitable giving, or 5 percent of the $600-billion pledge. If the money flowed to nonprofit groups any faster, it would run out at some point and therefore not make a permanent impact on the level of charitable giving.

Now $30-billion is real money. After all, today all the foundations in the United States combined give a total of about $40-billion. But such giving would result in only a 10-percent increase in the amount charities receive every year.

It is very likely that even without the pledge, Americans will increase their giving by $30-billion within two to four years simply because that is what happens whenever the economy starts growing again after a downturn.

However, just as the announcement of the Gates-Buffett collaboration in 2006 inspired many other people to get more involved in philanthropy, it seems likely that their new campaign could do much to increase giving far beyond the exclusive circle of American billionaires. It will certainly motivate some billionaires outside the United States. Chinese government officials have already called on their country’s billionaires to increase their giving in reaction to the Gates-Buffett campaign.

But most important would be for the Gates-Buffett “giving pledge” to act as a sort of tipping point that helps accelerate the growing public interest in philanthropy and kick-start a gradual increase of average giving from 2 percent of income to 4 percent of income.

The result would be an increase in charitable giving of $300-billion every year. That’s 10 times what the giving pledge might raise even if every billionaire in the United States committed to the idea.

A 10-percent increase in charitable giving would elevate the resources of the nonprofit world to a level we’d normally not see for several years to come. But a 100-percent increase would mean access to resources today that otherwise would not appear for a generation.

That’s what potentially makes the Gates-Buffett giving pledge a really big deal.

Big announcements make the news, but it is the giving of everyday individuals that really drives philanthropy.

Sean Stannard-Stockton is chief executive of Tactical Philanthropy Advisors, in Burlingame, Calif., and author of the Tactical Philanthropy blog. He is a regular columnist for The Chronicle of Philanthropy.