Self-made men are the biggest givers

Why no Indian Buffett or Gates? Swaminathan S Anklesaria Aiyar The Times of India Sunday, July 02, 2006

Anti-globalisers complain that multinationals are bigger than the GDP of some countries. Now, suddenly, non-profit foundations are becoming larger than many MNCs. Two of the richest men in the world, Bill Gates of Microsoft and Warren Buffett of Berkshire Hathaway, have pledged over $60 billion for the corpus of the Bill and Melinda Gates Foundation. The founders of Intel, e-Bay and other giant MNCs are doing the same. A new era of giant non-profit foundations has arrived. In earlier decades, foundations focussed on charitable activities. But the new breed of foundations is different.

The Gates Foundation aims to tackle areas that governments should be tackling but are failing to do so. This includes innovations in education, health, environment and microcredit. Pharmaceutical MNCs have little interest in developing vaccines for Third World diseases: the low profit and sales in such countries would not justify the R&D costs. Logically, such R&D should be financed by governments of large countries like India: it could save millions of lives. The Indian government has far more money than any foundation. But most of its huge R&D budgets go towards bombs, space rockets and nuclear plants. It has never developed an anti-malaria vaccine, or a new drug to combat kala-azar, which kills one lakh people a year in Bihar alone.

The Gates Foundation is now doing what the Indian government should have. It has financed R&D for vaccines for malaria, AIDS and other diseases. It has recently given a grant of $4.2 billion to OneWorld Health, a non-profit pharma company, to start Phase III clinical trials for using paromomycin to treat kala-azar. We should hang our heads in shame that a foreign foundation is doing what we should have done ourselves. Charitable giving in the US is almost $300 billion a year, far in excess of the GDP of Pakistan or Bangladesh. Donations come from all sections of society. But the contribution of the richest plutocrats is notable.

In the 19th century, brash quasi-monopolistic breeds of free-wheeling capitalists dominated the US economy, and were popularly called robber barons. Yet, many of them such as Carnegie, Rockefeller, Morgan and Mellon gave away the bulk of their fortunes to giant foundations and charities that still bear their names. At the start of the 20th century, Andrew Carnegie's US Steel was the biggest company in the world. Carnegie had humble origins, and regarded his wealth as just reward for a great effort. But he saw no reason why his children should inherit all this money. He had earned it, but they had not.

And so he gave almost all his money to non-profits like the Carnegie Foundation. He said he could not have become wealthy but for the society he lived in, and wanted to repay his debt to society. Buffet and Gates have the same attitude: they too want to pay back to the society that gave them such opportunities. They will leave enough to their kids for a comfortable life, but are giving away the rest to social causes. This may sound very socialist. Yet, such notions of fairness have dominated the biggest US capitalists, including the robber barons. Many of them, like Carnegie, Gates and Buffett have favoured heavy estate duties on wealth left to their heirs.

Why does this not happen in India? Indian businessmen have long set up charitable trusts and foundations. But they want everything to go to their children, and used to find ways of avoiding estate duty even when this was levied in India. One reason is that the biggest Indian capitalists are small by global standards. It is easier to give away your wealth when you are at the very top than when you are struggling to catch up with bigger global competitors. A second reason is high taxation. Indira Gandhi raised income tax to 97.75%, and added a stiff wealth tax. So businessmen sought, by hook or crook, to save their assets from extinction by taxation, not give them away to foundations. Only with the abolition of wealth tax and estate duty in the 1990s do we see increased giving today.

But I would like to suggest one additional reason. New entrepreneurs who build empires from scratch— whether they be Carnegie, Gates or Narayana Murthy — are highly conscious that they owe a debt to the society which enabled them to grow rich. But second and third generation capitalists do not have the same feeling. They know they owe their riches less to society than to legacies from parents. This explains why only new entrepreneurs tend to give away the bulk of their fortunes. Self-made men are the biggest givers. That is one more reason to create a competitive economic system where newcomers can keep beating the old guard.