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28 July 2006 Building a Culture of Philanthropy There were headlines around the world last month when Warren Buffett, the hugely successful investor, announced that he was giving $31 billion of his wealth to the Bill and Melinda Gates Foundation, roughly doubling its size. This philanthropic initiative was roundly applauded, and rightly so. It is no accident that it happened in America. Not only is the United States the world's most successful commercial nation; it is also the standout nation for philanthropy. This is no paradox, as another wealthy American, Steve Forbes, recently explained. “In fact, philanthropy and capitalism are two sides of the same coin. To succeed in business in a free market economy, one must meet the needs and wants of others … and take risks. Misers do not found companies like Microsoft.” Although the United States is sometimes described as having an excessively individualistic culture and a deficit of community spirit, generally speaking the opposite is the case. And it is not just a matter of the so-called ‘rich'. Many ordinary Americans make a practice of giving a week's income a year to charity and engage in much volunteering. Philanthropy is not a feature of socialistic countries. Indeed it was an explicit part of the socialist programme to undermine charities as competitors to the state. Nor is philanthropy about ‘giving back'. This is a misleading phrase because it implies that something was taken from others in the first place. To the contrary, Bill Gates has done far more for ordinary people in the world through the creation of Microsoft's software and operating systems than he will ever do through his foundation. By making firms and economies more productive, it has improved the lives of people almost everywhere. Why is charity less of a feature of countries like New Zealand? Key reasons are that the state has taken over so many welfare functions and high taxes mean people have less income to give. As a prominent New Zealand journalist wrote to me, “I cut back my own charitable giving after the government raised the top tax rate to 39 cents because it was explicitly predicated on providing more social services, which was a clear signal less of my contribution was needed or wanted.” Some argue that the tax deduction for charitable donations should be increased to encourage more philanthropy. But it is a common New Zealand flaw to want to give subsidies or tax concessions to something just because it is good. Such concessions make the tax system more complex, create difficult boundary problems between charitable and non-charitable activities, and cause tax rates to be higher to make up for the lost revenue. A better approach is simply to cut taxes. Following the Reagan tax cuts in the 1980s there was a striking increase in charitable giving in the United States. The voluntary sector in New Zealand should join forces with those who are pointing out that the state is doing a poor job in areas such as the provision of social services, where it has over-reached itself. If it progressively drew back and taxation were reduced, it would allow those on middle-class incomes to take greater responsibility for their own needs, and voluntary organisations would be able to do more to provide the personalised care for people that government bureaucracies, necessarily constrained by rules, cannot do a good job of providing. Charitable organisations should also publicly recognise and applaud people engaged in philanthropic activity. Too often those who get media attention are the self-promoters, not those who are privately more generous. If it is run in a hard-headed way, the Gates Foundation may stand a better chance of doing good than many government aid programmes. It is fatuous of people like Sir Bob Geldof to call for more official aid without recognising that much of it has done more harm than good. What matters most for curing poverty is not transfers of money or new technology (such as miracle drugs) but good government. Here people like Gates and Buffett, despite their outstanding success in business, will have a whole new trade to learn. They and others like George Soros have had odd ideas on economics and public policy. When Buffett, for example, says “a market system has not worked in terms of poor people”, one would think that the rise of China in recent decades had passed him by. Good government, in the form of sound institutions and policies, is the key to economic growth and poverty alleviation. These cannot be simply transplanted; they must develop indigenous roots. If I were Gates and Buffett, I would devote a good part of their foundation's resources to supporting the free-market thinktanks and university institutes that are pushing for reform of the institutions and policies that are holding back progress in poor countries. [Roger Kerr is the executive director of the New Zealand Business Roundtable.] |