August 06, 2010
The Giving Pledge
Posted by Gordon Smith
After writing a downer post on business ethics, I feel moved to mention the feel-good business story of the week: The Giving Pledge. Earlier this summer, Bill and Melinda Gates and Warren Buffett challenged their fellow billionaires "to commit to giving the majority of their wealth to the philanthropic causes and charitable organizations of their choice either during their lifetime or after their death." So far, 40 people have signed up, though it looks to me like most of them were already on their way to doing what they have now pledged to do. Still, the letters are fun to read. Here is a sampler for people interested in corporate law personalities:

T. Boone Pickens: "I’ve long stated that I enjoy making money, and I enjoy giving it away. I like making money more, but giving it away is a close second."

Larry Ellison: "Many years ago, I put virtually all of my assets into a trust with the intent of giving away at least 95% of my wealth to charitable causes. I have already given hundreds of millions of dollars to medical research and education, and I will give billions more over time. Until now, I have done this giving quietly – because I have long believed that charitable giving is a personal and private matter. So why am I going public now? Warren Buffett personally asked me to write this letter because he said I would be “setting an example” and “influencing others” to give. I hope he’s right." (This one interests me especially right now because we just read theOracle case in my class, and in that case, the special committee directors were viewed by the court as potentially biased because of their interest in getting Ellison's money.)

Jon and Karen Huntsman: "My pledge to give my entire fortune to curing cancer and assisting related other charities was formalized decades ago. As my sweet mother took her last breath in my arms and succumbed to the cancer she could no longer fight, I realized that our humanitarian focus must center on cancer."

Ronald O. Perelman: "One of the most memorable moments in my life was at a charity dinner I was attending for a breast cancer cause. A woman approached me and said, 'I just wanted to say thank you—because of you my sister is alive.' I happened to be standing next to the man who was really responsible for that wonderful news—Dr. Dennis Slamon.... The result of [Dr. Salmon's] research was Herceptin, the only drug known to cure certain types of breast cancer. And it started helping women, like that woman’s sister whom I will probably never meet, a full 10 years earlier than if Dr. Slamon had not received my gift."

Pierre and Pam Omidyar: "In 2001, I publicly stated that we intend to give away the vast majority of our wealth during our lifetime. Our view is fairly simple. We have more money than our family will ever need. There’s no need to hold onto it when it can be put to use today, to help solve some of the world’s most intractable problems."

Of course, the publicity surrounding the launch of the website provided commentators with the opportunity to reflect on a society that produces so many billionaires. Steven Pearlstein offered this interesting, though wrong-headed, perspective:

In an article last year in The American Interest, Philip Auerswald and Zoltan Acs of George Mason University suggested that the defining characteristic of American capitalism is not only an entrepreneurial culture that generates great wealth but also a philanthropic infrastructure that recycles that wealth in ways that create more opportunity, more growth and more wealth. This virtuous cycle, they concluded, is the "inner dynamic of American capitalism and the source of its prosperity." They contrast that to socialist countries, where philanthropy is weak and government takes on the recycling role, or less-developed countries, where oligarchs' fortunes are not recycled at all.

Auerswald and Acs are known as institutionalists because of their focus on institutional arrangements and behavioral norms in explaining why economies work. Not surprisingly, their views have been embraced by business types and free-market conservatives who shamelessly use them to justify small government, low taxes and minimal regulation. 

The problem with this approach, however, is that it focuses on only one of the institutions that have corrected for the inequalities inevitably created by a capitalist system. Yes, philanthropy has been important, but so have unions, which ensured a fair distribution of corporate profits. So have antitrust laws that prevented successful companies from snuffing out entrepreneurial competition. So have norms of corporate behavior that made it socially unacceptable for top corporate executives to pay themselves 350 times what their workers made. And so have tax-supported schools, playgrounds and hospitals that were good enough to be used by rich and poor alike. 

All of these institutions accounted for the vibrancy of the American economy by ensuring that prosperity was widely shared. But with the erosion of those institutions, that is no longer the case.


We are approaching a tipping point in America. When economic growth led to more jobs and higher incomes for wide swaths of the population, it didn't matter much that some people were smart enough or lucky enough to pull way ahead. But in recent decades, there has been a dramatic erosion in both the ideal and the reality of shared prosperity that threatens to paralyze our political system and undermine economic growth. 

With its "giving pledge," the Gang of 40 has taken an important step in revitalizing America's philanthropic institutions, but it will take much more to revive the virtuous cycle by which wealth begets opportunity which in turn begets more wealth. Whether at an individual company or in the country at large, it is the feeling that we are all in it together that creates the basis for a truly vibrant economy and just society. Trickle-down alone won't cut it.

The arguments that Pearlstein wants to make here are too complicated to examine in detail in this blog post, but I am especially interested in his assertion that "the virtuous cycle by which wealth begets opportunity which in turn begets more wealth" needs reviving. Think about that as you read the billionaires' letters, observing how many of them came from very modest origins. Then consider how many people you know who are not billionaires, but who have made a similar journey up the social ladder. Pearlstein wants to "revive the virtuous cycle," but I say that it was never dead.

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