Warren Buffett’s extraordinary $31 billion contribution to the Bill and Melinda Gates Foundation is part of a long American tradition. From the days of John D. Rockefeller, Andrew Carnegie, and Leland Stanford, great business leaders in America have also sought to be great philanthropic leaders. It is engrained in our entrepreneurial culture: Becoming a philanthropist is part of what it means to be a great builder of wealth in America. Business entrepreneurs of course have the money to embark on significant charitable projects. They also have the vision, the audacity, the passion to innovate, to build organizations, to achieve breakthrough results. And in a market economy such as ours built on voluntary exchange, the only way to build great fortunes is to serve others. It is only natural that business entrepreneurs who have served others successfully in business will seek to serve in other ways, including philanthropy.
Warren Buffett is America’s most successful stock-picker. What kind of philanthropic stock did he invest in? To begin with, he is seeking to achieve his philanthropic legacy through the Gates Foundation, not through Microsoft or the many companies where he is a principal shareholder. Buffett knows corporations very well, and it is not through corporate philanthropy that he seeks to make a difference in fields such as health and education. Instead, he makes a distinction between the corporation and the entrepreneur who built the corporation, and he is investing his philanthropic resources in the leadership of the entrepreneur.
Buffett also did not pick the stock of any of the large, staff-driven foundations that no longer pay much attention to their founders’ principles and values. Instead he recognizes that much of the intellectual vitality in the foundation world today comes from living donors who apply their business, problem-solving mind-sets to great philanthropic challenges. So committed is Buffett to guidance by living donors that he will stop funding the Gates Foundation if neither Bill nor Melinda Gates remains alive and actively engaged in directing the foundation.
The expanded Gates Foundation will be enormous. Its assets will exceed those of the seven next-largest foundations combined. But there is no overall danger of a concentration of philanthropic wealth. This is such a charitable country that even with Buffett’s billions, the Gates Foundation will still account for only 1 percent of American charitable giving.
Of greater concern for many philanthropists is that their own initiatives will be dwarfed in areas such as global health or American high schools where Gates is concentrating its resources. How can a smaller philanthropist make a difference in these fields? Won’t Gates be driving the agenda? This is a legitimate concern, and yet foundations of all sizes (even Gates) already face similar strategic questions living in the shadow of mammoth spending by the federal government. To cite just one example, the National Institutes of Health spends nearly $30 billion a year on biomedical research, almost as much as all foundation spending on all subjects combined. And yet this hasn’t stopped individual donors and foundations from making enormous contributions in biomedical research by focusing on new fields of inquiry, or unconventional hypotheses, or the work of promising early-career scientists. Indeed one reason the Gates Foundation decided to specialize in malaria funding is that it concluded this was a field where it could achieve breakthroughs and government wasn’t already actively involved.
I would like to venture three predictions about the impact of the Gates-Buffett partnership.
The first is that 20 years from now, Gates will not be America’s largest foundation. Our economy is so dynamic and so innovative that new sources of wealth will emerge to surpass the Gates-Buffett assets. Twenty years ago, when Microsoft went public, Bill Gates was #161 on the Forbes 400. The year before, he wasn’t even on the list. So, too, there are little-known entrepreneurs today who will become business and philanthropic giants tomorrow. These new sources of wealth could well spring up in unexpected places: think Buffett’s Omaha or Gates’s Seattle or Sam Walton’s rural Arkansas, none of them historically thought of as great money centers. That is part of the genius of a market economy: people can find opportunity where it’s least anticipated.
Prediction number two is that more donors will follow Buffett’s example and choose other funders to guide their philanthropic spending. They will probably take more of a portfolio approach than Buffett—giving through a variety of funders rather than primarily one, as Buffett is doing with Gates. And these contributions, in turn, will encourage funders to compete with each other for donations of new philanthropic capital. This would be extraordinarily healthy for philanthropy, as funders from the Open Society Institute to the Carnegie Corporation to the Bradley Foundation to Robin Hood to the New Schools Venture Fund to various community foundations compete with each other over who has the most effective philanthropic strategy for addressing society’s greatest challenges.
Bill and Melinda Gates, now joined by Warren Buffett, have announced audacious goals for their philanthropy: for instance, the eradication of malaria, the overwhelming majority of U.S. children graduating from high school college-ready. It is too early to predict whether their foundation will achieve its goals. But if it does, and this is the third prediction, its success will depend more on the quality of its philanthropic ideas than on the magnitude of its philanthropic resources. Money does not solve problems if it is based on unsound ideas: our government spends over $400 billion a year on K-12 education, yet 38 percent of American fourth graders cannot read. The Gates-Buffett partnership will achieve its remarkable promise only if it is grounded in outstanding ideas.
President’s Note from July / August 2006 issue of Philanthropy magazine