The Good Blog

With the new shoots of recovery just starting to sprout out of the recession’s frozen dirt, people are very interested in how best to encourage the fragile new growth. Nowhere was that more evident than at this weekend’s Berkshire Hathaway annual general meeting, otherwise known as the “Woodstock for Capitalists.”

The attendees were there both to see Warren Buffett, who is as much a folk hero as he is the world’s best investor, and because attending Berkshire Hathaway’s AGM is as much “a very subtle way of saying I’m very smart and I’m very rich,” as a way to learn from the high-profile capitalist think-tank.

But investment think-tank it is. So it’s somewhat surprising that although many in attendance made mention of how Buffett, the world’s third wealthiest individual, promised 85 per cent of his total fortune (a $37 billion total lifetime pledge) to the Bill & Melinda Gates Foundation in 2006, few people want to discuss it.

Certainly no one was asking questions about it at the AGM or elsewhere. Nor do they have opinions about how that money could best generate financial and social rewards. Possibly because, like many who give to charity, Buffett himself seems unconcerned.

It’s a shame, because if he were to concern himself with how charity should best “invest” in public good and maximize returns instead of just using his donation to eliminate his estate taxes, both he and the world would benefit.

Perhaps he thinks it’s too complex a problem. While it’s relatively simple math to calculate the tax deductions from charitable donations, it is much more difficult to quantify the social return: that is, how much good the money will do, whether that’s feeding, educating, or curing people. But investment is never simple; it’s always a puzzle, and it’s one he’s used to.

But instead of applying himself to the problem, Warren Buffett has effectively absolved himself of the question by giving his money to the world’s richest man to disburse.

It’s not his usual approach. Buffett made Berkshire Hathaway into the world’s most successful investment vehicle by refusing to distribute dividends and carefully investing all of its cash flow into businesses that would yield high returns. Now he has done the exact opposite with his charitable investment. Donating to the Bill & Melinda Gates Foundation is not an imprudent decision; however, the charitable world is gaining only Warren Buffett’s wealth, not his wisdom.

Listening to Warren Buffett answer questions about his estate and charity at the AGM left me feeling disappointed that he has taken such a traditional, hands-off approach to charity. With Bill Gates sitting in the front row, I wanted to propose a challenge to both of them: What if they invested $50 million each to find a cure for malaria, Buffett for-profit and Gates through his charity. In five years, we could measure which route achieved, or at least came closer to, a cure and which was most effective in distributing its scientific achievements to those in need.

Properly structured, tax deductions for pursuing scientific research are as good or better as charitable donation deductions. And if successful, the corporation is better positioned to take the science to production and market. If it goes to market, then the corporation, unlike the charity, will replenish its coffers and have a more sustainable model for accomplishing enduring public good.

This approach, sometimes called investment philanthropy, is not a new idea. Gatorade, for example, was a University of Florida invention with beginnings in 1965. Back then, water was thought to give people cramps, so researchers at the university set out to find an alternative. The university paid for the research and then sold the results. Between 1973 and 2003, Gatorade’s royalties have meant $80 million in revenues for the university. That for-profit venture has arguably done more social and educational good than if that same original “donation” led to research that was simply made public for free.

But the idea of investment philanthropy surprised most of the people I spoke to at the AGM. A few said charity and profit should never mix.

And it certainly doesn’t work in all cases.

Let’s say you’re trying to find the cure for a disease where there are many sufferers, including many in the developing world. If a cure were found, it would be highly marketable. So you could generate income and create a legal entity whereby all proceeds of that cure went back into research to maximize social good as well.

But if you’re trying to find a cure for a disease where there are only 50,000 sufferers worldwide, meaning there’s no real market for the drug, then charity would be the best social vehicle, with the tax savings as the financial benefit.

There is no simple answer to the question of whether investment philanthropy is better than distributive charity. However, things might become clearer if the world’s most successful capitalist set up a Social Investment Berkshire Hathaway to invest in projects that meet some sort of social benefit criteria in addition to making a profit. Even diverting Berkshire’s approximately $20 billion annual tax bill to public benefit investments would be an important first step that would help the common good as well as provide social satisfaction to the investors.

Maybe the world’s most successful capitalist would simultaneously become the world’s most successful philanthropist – and without giving away a dime.

John D. Rockefeller famously said it’s easier to make money than it is to give it away wisely. With a declining government role in providing social services, and serious social, educational, and health problems to overcome, we need great minds working on how to maximize the social and financial benefits of the money we give away.

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Tags: AGM, Berkshire Hathaway, Bill Gates, Blake Bromley, charitable giving, Charity, for-profit, Gatorade, giving, non-profit, philanthropy, Warren Buffett
Categories: Charity, People