Paul L. Caron

Friday, August 20, 2010

WSJ: Business Success Helps Society More Than Philanthropy

Wall Street Journal op-ed, Gates and Buffett Take the Pledge, by Kimberly O. Dennis (President, Searle Freedom Trust):

Wealthy businessmen often feel obligated to "give back." Who says they've taken anything?

Bill Gates and Warren Buffett announced this month that 40 of America's richest people have agreed to sign a "Giving Pledge" to donate at least half of their wealth to charity. With a collective net worth said to total $230 billion, that promise translates to at least $115 billion.

It's an impressive number. Yet some—including Messrs. Gates and Buffett—say it isn't enough. Perhaps it's actually too much: the wealthy may help humanity more as businessmen and women than as philanthropists.

What are the chances, after all, that the two forces behind the Giving Pledge will contribute anywhere near as much to the betterment of society through their charity as they have through their business pursuits? In building Microsoft, Bill Gates changed the way the world creates and shares knowledge. Warren Buffett's investments have birthed and grown innumerable profitable enterprises, making capital markets work more efficiently and enriching many in the process. ...

Successful entrepreneurs-turned-philanthropists typically say they feel a responsibility to "give back" to society. But "giving back" implies they have taken something. What, exactly, have they taken? Yes, they have amassed great sums of wealth. But that wealth is the reward they have earned for investing their time and talent in creating products and services that others value. They haven't taken from society, but rather enriched us in ways that were previously unimaginable. ...

While businesses may do more for the public good than they're given credit for, philanthropies may do less. Think about it for a moment: Can you point to a single charitable accomplishment that has been as transformative as, say, the cell phone or the birth-control pill? To the contrary, the literature on philanthropy is riddled with examples of failure, including examples where philanthropic efforts have actually left intended beneficiaries worse off. ...

I do not mean to belittle philanthropy. I represent a foundation and believe it can accomplish a great deal of good if it achieves its donor's objective, which is to free individuals to pursue their ambitions without the burden of intrusive government. My point is simply that there is nothing inherently better or nobler about using one's resources for charitable purposes than for any number of other ones. If anything, the marketplace does a better job of channeling resources toward where they are most valued, and of punishing failure. Companies shut down all the time. How many philanthropies close because of poor performance? ...

Let's hope the philanthropy of those who do sign the Giving Pledge achieves great things. But let's not fool ourselves into thinking that businessmen are likely to achieve more by giving their money away than they have by making it in the first place.

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The problem with philanthropy is this, it becomes an easy access for people who have no intention of fulfilling the mandate of the philanthropic foundation to secure the money they can use for other means. Case in point, the Chicago Annenberg Challenge, the 160 million dollars did not benefit the children in Chicago's public school system, but it sure help Ayers and company grease some influential officials with the needed money to support their agenda. With business, it's different, you have to show that you are making a profit or making a difference and improvement or else.

Posted by: Will | Aug 21, 2010 1:56:47 PM

Anyone here ever work at a non profit?
Remove the profit motive and a soft corruption takes hold. Being noble is expensive. Rank and file employees of non profits are paid less than market rate (you get what you pay for). So are the upper management, but they get "perks". Costs and efficiancy are not important. They may all start out with noble ambitions but time will revert them to the political organizations that they are. The sleaze will rise to the top.

All that said, I do contribute to charitable organizations, but very, very few big ones. Mainly I like small, around 30 employees, Christian charities that do specific work for a targeted segment of deserving individuals. Most of the organizations I contribute to are audited by the Evangelical Council for Financial Accountability. That does not insure against fraud but it is an added layer of protection.

In my opinion these massive foundations created by capatalists will in the end revert to powerful propaganda machines promoting socialism. They will do more harm than good.

Posted by: Anyone | Aug 21, 2010 11:27:32 AM

The people that create jobs do more to help the needy than any charitable organization. And they don't create jobs with philanthropic motives, by and large. The only reason to create a job, from a business perspective, is to improve the bottom line. So then, if only government would accept this fact of life and allow for them to respond to their natural incentives, instead of heaping burdens and obstacles on businesses, we might see a reduction in unemployment. The single biggest obstacle to job growth is government.
What does this have to do with philanthropy? Well, to read govt reports and news articles, one would think that job creation is an act of social justice or philanthropic giving. It isn't and can never be.

Posted by: Brian | Aug 21, 2010 10:53:52 AM

I am acutely aware that every time I give to charity, I am taking food out of the mouths of the hardworking people that make the kinds of things I'm interested in. Yet who among us is so hardhearted that they do not recognize that there are people around us truly in need?

I am reminded of two books advocating strong positions on this matter each one of which is the antidote to the other. They are "The Fountainhead" of Ayn Rand and "A Christmas Carol" of Dickens. If someone could just tell me which of those books has it right I think we would all be indebted.

I suspect that the truth lies somewhere in between.

Posted by: fustian | Aug 21, 2010 9:52:07 AM

Let me see if I understand this principle - Charity vs Business. I believe that charitable foundations are business and the business is to cheat you and I the taxpayers out them paying their fair share.

Gates and Buffet donate $ 60 billion to a charitable foundation avoiding paying capital gains on the stock certificates they gave the foundation. They now get a $ 60 billion dollar charitable deduction for wiping out the 50% state, local and federal income tax on $ 60 billion of ordinary income.

So, let use review how nice these men are - they get to keep $ 60 billion each (they still own the foundation) TAX FREE! They have $ 60 billion each and will never pay any taxes on that money because they will donate more to the foundation to escape any nasty death taxes the government might seek.

Yes, the current Congress and BHO are going to tax the filthy rich - shall we ask them to start with Bill and Warren?

Posted by: Lock Piatt | Aug 21, 2010 9:31:31 AM

If Bill Gates really wanted to be philanthropic, why doesn't he continue to develop and support Microsoft Windows and Microsoft Office, but give them to the world for free?

I'm sure all his employees would be glad to work for free as well. It would be so noble.

Posted by: Koblog | Aug 21, 2010 8:51:45 AM

Glenn Reynolds posts that profitable business seems less "Christian" than philanthropy.

Christianity has been so feminized that it's been reduced to "giving stuff away for free seems Christian."

Wrong. "If a man does not work, neither should he eat" and "The poor you will have with you always" are as Christian as helping one's neighbor.

However, neighbors need much less help when the community employs the Protestant work ethic.

Colonial America tried the communal giveaway system at Plymouth in 1621. They starved.

As soon as each was responsible for his own profit, everybody ate fine and wealth grew.

"Everyone under his own vine and fig tree" is Christian. "From each according to his ability, to each according to his need" is Marxist.

Christianity is not defined as giving free stuff to bums who won't work.

Want more unemployment? Keep extending unemployment benefits to "help" them.

Posted by: Koblog | Aug 21, 2010 8:48:47 AM

YES! The purely public relations idea that the large nation-wide corporation I work for is "giving back" is a farce.

We go out there Saturdays with our blue T shirts on to "clean" a beach because we are guilted into thinking that because we're profitable, we somehow took that wealth from the community we happen to have our plant in and need to "give some back."

What a crock.

First, the corporation pays HUGE taxes to the "local community." With those taxes, giant, very efficient beach-raking machines clean the sand far better than we can by hand.

It's quite humorous to stand there being lectured by some hairy-armpitted Santa Monica "Save The Bay" type about the evils of plastic water bottles and have her drowned out by a Caterpillar tractor dragging the huge beach rake behind it, cleaning every inch of the sand faster than a hundred people could in hours.

In reality, "Save The Bay" is documenting every speck of stuff picked up to add to a data base to "prove" that humans are polluting the oceans. Actually, by being there, we leave more empty water bottles, plastic bags and other trash than we ever pick up. But "Save The Bay" can report "23 cigarette butts, 15 styrofoam peanuts and 2 used condoms were collected. See? People are evil!"

Second, many more businesses spring up around our corporation to feed and serve our employees, keeping even more people employed.

You want to see what happens when business leaves a community and quits its evil "stealing" ways?

Take a look at Detroit or Cleveland.

The absolute best thing for a community is business.

Posted by: Koblog | Aug 21, 2010 8:17:40 AM

While I share your general suspicions of do-gooders, there are examples of charitable acts, though for some reason they are out of fashion with today's wealthy: Universities and colleges. Put together all the good that Stanford, U. of Chicago, Carnegie-Mellon and others have done for the world and you've got quite a bit of good. Why won't the Gates' and Buffets' of the world do what the 'robber barons' of old did? There are more people, more potential students, and plenty of research and teaching (to say nothing of Ph.D.s) to go around.

Posted by: Deckin | Aug 21, 2010 7:59:54 AM

Poul Anderson's Nick van Rijn stories explored this idea quite thoroughly. Greed is a far more reliable motivator than altruism.

Posted by: SDN | Aug 21, 2010 7:28:42 AM

Wasn't the birth control pill a product of philanthropy? Certainly support by philanthropists was critical certain junctures.

Posted by: ashby Manson | Aug 21, 2010 7:27:51 AM

Some businesses have a mission that goes beyond making a profit. This can make them more like nonprofits in their internal culture.

Moreover, some nonprofits are much like businesses, charging a fee to provide a service to customers (e.g., private education). Yet such a nonprofit has less reason to grow to meet needs, and so can be less responsive than a regular business.

Posted by: Dave Gore | Aug 21, 2010 7:20:02 AM

In principle, I agree with the WSJ editorial. In practice, I note that a lot of wealth has been "created" by bribing a bipartisanly corrupt Congress to pass trick laws. The Mickey Mouse Copyright Extension Act is an example. If the post were titled "Some Business Success Helps Society More Than Philanthropy", I wouldn't quibble.

Btw, as you noted recently, some wealthy Germans do not like the charitable initiative because they believe the money should properly go to the State. (If the wealth is accumulated via preferential legislation, they have a point.) Only ten years ago, back when this country was governed more or less competently, I would have chuckled and dismissed such a socialistic assertion.

Posted by: gs | Aug 21, 2010 6:45:25 AM

"Can you point to a single charitable accomplishment that has been as transformative as, say, the cell phone or the birth-control pill? "

OK, I'll bite: Andrew Carnegie's public libraries, John D. Rockefeller's foundation of the University of Chicago and Leland Stanford's of Stanford.

Posted by: Howard Isaacs | Aug 21, 2010 6:45:25 AM

This is what I was taught was the "Protestant Work Ethic" as opposed to the Catholic tradition of giving alms to the permanent underclass.

Posted by: Smarty | Aug 21, 2010 5:31:26 AM

“Companies are not charitable enterprises: They hire workers to make profits. In the United States, this logic still works. In Europe, it hardly does.” -Paul Samuelson

Posted by: Chicago Booth Econ Guy | Aug 21, 2010 5:25:34 AM