Open the FloodGates

by John J. Miller on August 10, 2010 · 0 comments

in Articles,Philanthropy

  • SumoMe

WALL STREET JOURNAL
July 7, 2006

OPEN THE FLOODGATES

JOHN J. MILLER

When Warren Buffett announced his philanthropic merger with the Bill and Melinda Gates Foundation two weeks ago, Bill Gates described one of the motives behind dispensing untold billions: “We really owe it to society to give the wealth back.”

His statement was a cliche, but a strange one. Are we to assume that he has spent his adult life “taking away” — as if he and the other parasites at Microsoft must make amends for having sucked the life out of the U.S. economy? Surely there are better reasons to embark upon the world’s biggest grant-making program than to salve the conscience of a guy who has no business feeling guilty in the first place.

If Mr. Gates views his foundation as a vehicle for guilt riddance, chances are his grants will fail often and spectacularly. Yet if he views it as a way of furthering his already enormous contribution to society through nonprofit rather than for-profit means, then perhaps he will make a positive difference in the areas where he is focusing his efforts: global health and American education.

The Gates Foundation was the country’s largest foundation before Mr. Buffett came along and essentially doubled its assets. Some on the left, such as the National Committee for Responsive Philanthropy, have criticized this sudden concentration of resources as simply too massive — a charge they wouldn’t think to level at government even though government spending dwarfs anything the Gates Foundation will ever be able to do. Mr. Buffett’s pledge to the Gates Foundation, valued at roughly $31 billion, is hefty, but it’s only slightly larger than the nearly $29 billion that the National Institutes of Health will spend this year alone.

One thing is clear: Mr. Buffett’s cash is better off in the hands of Mr. and Mrs. Gates than in his own. Microsoft ads once asked, “Where do you want to go today?” When it comes to charitable causes, Mr. Buffett apparently would prefer to go back to the discredited doomsday theorizing of Paul Ehrlich’s 1968 book, “The Population Bomb”: His track record in philanthropy has displayed an unfortunate interest in population control. Roger Lowenstein, a Buffett biographer, has described his subject’s “Malthusian dread that overpopulation would aggravate problems in all other areas — such as food, housing, even human survival.”

Although the Gates Foundation has given $34 million to Planned Parenthood and similar organizations, its dedication to beating killer diseases in the developing world is anything but Malthusian. (It remains to be seen what influence, if any, the addition of Mr. Buffett to the board of the Gates Foundation will have.) It’s too soon to judge the foundation’s effectiveness in fighting AIDS, malaria and tuberculosis, though Mr. and Mrs. Gates have won praise for their willingness to try several approaches at once.

Mr. Buffett also could have given his wealth to another foundation — perhaps one that has a longer history of grant-making than the Gates Foundation, which was created only in 2000. Yet long histories often lead to intellectual ossification. Tom Loveless of the Brookings Institution has shown that program officers at education philanthropies hold “progressive” views about learning that are starkly different from those of parents. The philanthropoids, for example, are leery “of consequences for students who fall short of standards.” In short, they are closely tied to an education establishment that has proved woefully unable to heal itself. What is true for educational philanthropists is true for many others, locked into old habits of thought and tied to groups with settled interests.

Yet Mr. Buffett chose to work with a foundation that is dominated by its living benefactors, both of them young, smart and entrepreneurial. This is an encouraging vote for donor intent and against the mischievous trustees and bungling bureaucrats who have co-opted so many other large foundations and moved them far away from what their founders once stood for and cared about.

Mr. Buffett’s strategy of outsourcing his philanthropy recalls his approach to investment, which involves identifying good companies run by talented people and backing them. Would-be imitators have turned books such as “The Warren Buffett Way” and “Buffettology” into best sellers; perhaps Mr. Buffett will persuade other wealthy individuals to give away their fortunes through existing foundations instead of establishing their own. Ultimately, we could see a market in philanthropic capital in which donor groups compete for resources the way their recipients do now. This would be healthy, as the best foundations presumably would attract the most assets.

Even the finest philanthropies make mistakes, and the Gates Foundation has committed its share. It gives a great deal of money for breaking large schools into smaller ones, but there is precious little evidence that this practice improves student performance. Yet the foundation has also supported the charter-school movement, with tens of millions of dollars, and has aligned itself with reform-minded superintendents in several key cities, like Chicago and New York.

It is perhaps not too much to hope that the Gates Foundation will eventually embrace private-school choice and help save a system of urban parochial schools that knows how to educate kids but lacks a clientele of parents who can afford the tuition. Since 2001, 500 Catholic elementary schools have closed, according to the National Catholic Education Association. The Gates Foundation could do much worse than to dedicate itself to keeping these schoolhouse doors open.

But the chances are that, over time, the Gates Foundation will become less, rather than more innovative in its giving. At the event announcing his gift to the Gates Foundation, Mr. Buffett declared his opposition to “dynastic wealth,” meaning a financial inheritance that is passed on to generations that didn’t earn it. The challenge for Mr. Buffett, as well as for Mr. and Mrs. Gates, will be to prevent the creation of a philanthropic dynasty — an organization that exists in perpetuity, clinging tightly to its assets and ever further removed from its benefactors and their intentions. The foundation world is littered with examples of this problem; the Ford Foundation, which is second only to the Gates Foundation in size, is a perfect example of this harmful trend. Does anyone think Henry Ford would approve of seven-figure grants to the ACLU?

A simple step solves this problem: The Gates Foundation could agree to spend itself out of existence. Some of America’s greatest philanthropists have followed this course. Julius Rosenwald, the turn-of-the-century genius who helped turn Sears into one of America’s greatest companies, gave away millions in the belief that he was better able to spend his fortune than successors he did not choose or even know. And just last fall, the John M. Olin Foundation shut itself down, following the wish of its donor, who died in 1982, that the foundation not survive him by more than two or three decades.

A decision to spend an endowment now rather than protect it forever also allows a foundation to have a big impact on a knowable present instead of a smaller influence on a mysterious future. “Our foundation and its partners are tackling some of the most challenging problems in the world,” says a statement on the Gates Foundation Web site. If that’s true, then shouldn’t they be spending every last penny of resources that can be directed at these problems right now? That would really be “giving back.”

Mr. Miller is the author of “A Gift of Freedom: How the John M. Olin Foundation Changed America.”

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