A road map for philanthropists.
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I once asked Jim Wolfensohn, who was then president of the World Bank, why he wanted a third term in office. I had spent hours with Wolfensohn before posing the question: There had been interviews in his office, where the ledge along the back wall was forested with trophy photographs, and interviews at his home in Jackson Hole, Wyo., where I was shown the pictures of Wolfensohn hosting a birthday party for Bill Clinton. Clearly for this schmoozer who had left Wall Street with a sizable fortune, the World Bank presidency was a ticket to the global top table. But when I asked him why he wanted another five-year term, his reply was disarmingly simple: "This is a job in which you make a difference."
I'm reminded of those words each time I read about a billionaire busting his way into philanthropy. The urge to make a difference is what animates hyperachievers; they see no contradiction between working to accumulate millions of dollars and then working to get rid of them, because in both cases they are stamping their will upon the world and, in some way, changing it. Philanthropic giving is sometimes thought of as a self-denying act, but more often it's a self-affirming one; it is not the compensating flip side of a healthy ego, but rather an extension of it. In his younger days, Richard Branson wowed the media by arriving at a press conference hanging James Bond-style from the bottom of a helicopter. Now he wows the media by pledging $3 billion of Virgin's profits for alternative fuels. He is merely consistent.
The question for Wolfensohn, as well as for Branson and his fellow billionaires, is how to make a difference. The World Bank is criticized for squandering part of what it lends, and if 10,000 development experts can contrive to waste money, what hope is there for philanthropic neophytes? As they wrestle with this question, not all the neophytes are coming up with smart answers. And so the wonderful explosion in philanthropy—bequests plus living donations are expected to more than double in constant dollars from now to 2017—may not realize its potential.
The threshold test for philanthropists is: Will my money cause something to be done that would not have been done without it? The aid industry is littered with case studies of donors who finance a big push in, say, education, only to find that the recipient country responds by cutting its own education budget in favor of palaces and weapons. Equally, the aid industry is sometimes guilty of assuming roles that business might have played better. Take education again: The biggest factor behind the growth in India's school and college enrollment is not government or aid agencies but rather the private sector.
It should be obvious what the private sector can be relied on to provide: everything that's profitable. But this hasn't stopped some new-breed philanthropists from declaring that they will finance for-profit ventures. Pierre Omidyar, the founder of eBay, began this trend two years ago by creating a $200 million investment fund to back socially useful businesses. His example has attracted followers: The Google Foundation contributes to both nonprofit and for-profit outfits. But why? It's perplexing that Internet moguls, of all people, should be implying that the private sector won't seize profitable and socially beneficial opportunities without philanthropic prompting. After all, both eBay and Google style themselves as world-improving firms. eBay's trust-based online marketplace was premised on the company mantra, "people are basically good." Google's corporate motto—"Don't be evil"—is similarly imbued with the idea that business can be idealistic.
If overlap with the private sector should be easy to avoid, not duplicating government is more complicated. A century ago, when the Carnegie Corporation was endowed with $135 million, that amount represented almost a fifth of the federal government's annual budget. Today the endowment of the Bill and Melinda Gates Foundation, which weighs in at $32 billion, represents less than 2 percent of annual federal spending. The Carnegie Corporation laid the cornerstones for the Social Security system and the public library system because it was working from a blank sheet. Now, government has scribbled all over the page, leaving few gaps for philanthropists.
Still, gaps do exist. Traditionally, religious institutions were an obvious one, and these fittingly received a large share of philanthropy. But now, government money pours into the coffers of faith-based organizations, and a new generation of moguls who grew rich from globalization wants to support global causes. This has forced some creative thinking, given that the government's foreign-aid program dwarfs even big philanthropies such as the Gates Foundation.
The Gates people have responded nimbly. (Full disclosure: Melinda Gates is a director of the Washington Post Co., which owns Slate. So is Warren Buffet, who has pledged $30 billion-plus to the Gates Foundation.) They noticed early on that governments aren't good at making long-term aid commitments: One year they pledge money for AIDS; the next year they shift to microcredit or malaria. In the health field, this inconsistency destroyed incentives for vaccine makers: There was no point maintaining the expensive manufacturing capability if you couldn't rely on an order flow. To fix this problem, the Gates Foundation made two grants totaling $1.5 billion to a vaccine-purchase fund. New vaccine makers entered the market, and immunization rates increased. In a similar spirit, Californian philanthropists Herbert and Marion Sandler seek out "orphan diseases" that nobody else appears to care about. They have supported a medical center at the University of California, San Francisco, that hopes to find a treatment for South Americans afflicted by Chagas' disease.
Governments are subject to media and parliamentary oversight and don't want to look stupid. This leads to a second government weakness: an aversion to risking money. But a philanthropist is accountable only to himself, which confers freedom. Thus the Gates Foundation has concentrated its AIDS fieldwork in two countries—India and Botswana—rather than feeling politically obliged to spread the cash around more evenly. The hope is that, by spending intensively in one or two places, a philanthropist can demonstrate approaches that work—thereby persuading governments with the big bucks to follow after them. Philanthropists are the venture capitalists providing risk capital. Governments are the pension funds that finance the scaling up of successful ventures.
A final weakness of government lies in advocacy. The Gates Foundation has invested in DATA, an outfit founded by rock star Bono that aims to build grass-roots support for foreign assistance. But the true leaders in this field are Ted Turner and George Soros, who have backed groups that promote causes from the United Nations to disarmament, and from the decriminalization of drugs to the defenestration of George W. Bush. Whether or not you agree with Turner and Soros, they clearly pass the central philanthropic test. In the absence of their millions, would the private sector or the U.S. government support their causes? Not likely.
Sebastian Mallaby is a Washington Post columnist and the author of The World's Banker: A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations.
Illustration by Rob Donnelly.