When Mittals will be complemented by generosity of Buffets

Will India ever have a Buffet? Pratap Bhanu Mehta Indian Express: Thursday, June 29, 2006 Philanthropy has been a time-hounoured tradition in the country. But today, it also means controlling how the money is spent. This week had two significant landmarks in the evolution of capitalism. The first was the 21st Century equivalent of storming of the Bastille: an Indian entrepreneur, Mittal, transforming a cloistered Europe, by taking over its prized possessions. But the second story needs even more attention in India. This was Warren Buffet’s decision to give away 85 per cent of his fortune, estimated at almost $35 billion. While Indian capital is evolving in its ability to compete and take on the world, will it also inaugurate a new era in genuine and effective corporate philanthropy?

While capital should do is what it does best, generate wealth and create jobs, the role that philanthropy played, not just in the social legitimation of capital, but also in the creation of a vibrant culture and society, cannot be underestimated. Whether we like it or not, in India, capital will be held socially accountable and it could take a leaf out of the books of Soros, Gates or Buffet. India had a golden age of corporate philanthropy from the turn of the century to Independence. The Tatas, the Birlas the Sarabhais not only created genuine trusts, but also first-class institutions.

The conditions under which this philanthropy emerged were complex: the idealism of the nationalist movement; the asceticism of early capitalism which frowned upon conspicuous consumption; and even some unintended prodding from the British, as the correspondence between Jamshedji Tata and Lord Curzon testifies. After Independence, while individual giving continued, serious corporate philanthropy did not engage the public imagination. After liberalization and Indian capital’s coming of age, there are new patterns of philanthropy emerging, especially from the new economy sectors, as the Premji and Infosys Foundations testify.

Recent surveys suggest that these initiatives mirror society’s preferences. Compared to foreign foundations like Gates’, a bulk of philanthropic effort is being directed to education rather than health. Still, the extent of corporate philanthropy remains meager. Creating a philanthropic culture is not as straightforward as one assumes. And India has created genuine obstacles to professionalized philanthropy. One of the striking features of Indian philanthropy before Independence was that it was genuinely philanthropic. A lot of it was directed at creating public institutions that the donors did not control. Giving to public institutions, universities, libraries and public hospitals was common. Of the 16 largest trusts before Independence, 14 gave generously to institutions that were not under their control.

But today, much of what passes as philanthropy is really setting up your own institutions, whose purposes you direct and control. Philanthropy is not just about the object of spending but also the manner in which the money is spent. What is striking about Buffet’s donation, as with our pre-Independence trusts, is that the grants from family trusts were not in the control of the family and were deployed for purposes set by the receiving institution. So donors were not second guessing professionals. Thus, philanthropy not just sustained different kinds of activities, it allowed the creation of institutions that were autonomous, not just of government and commercial pressures, but also, to a great extent, of the donors.

While there is a lot of giving in India, it still does not amount to a creation of this institutional space, a space that can be of genuine service to democracy. One of the obstacles is that there are very few credible public institutions where donors can be confident that money will be well spent. Professional organizations outside of government are not of a critical mass and achievement to attract huge sums of money. The government further distorted the incentives by inappropriate forms of regulation. The whole relationship between the corporation and the state, between the individual and the state, in matters of taxation was so convoluted, that clean, transparent giving became very difficult.

Charities need to be made accountable, but our accountability is done in a way that deters the good and collects rents from the bad. For instance, under current law, it is still not easy to create a huge endowment of the kind that can sustain world class institutions for posterity. Although exemptions can be granted, the requirement of spending 85 per cent of income in the year it accrues, coupled with restrictions on investment, make it difficult to sustain large endowments. From the Wanchoo to the Shome Committee Reports, from the Charities Commissioner to our FCRA rules, the pervasive sense of mistrust and cynicism about private philanthropy has created a culture that will take time to overcome.

But if the demand side is plagued by restrictions, the sources of supply need to introspect as well. Other than a few fleeting experiments, Indian Capital is still a non-entity in philanthropy. It now has the resources to fill in critical gaps in what citizens require in areas like health and education. It can foster a diversity of experiments that are not possible within state structures. The pressure on capital to socially legitimize itself will grow rather than diminish with its success, as the controversy over private sector reservations suggests. Capital will be right to protect its basic freedoms, but it cannot escape scrutiny of what it does with wealth. Capitalism comes of age not just when we generate wealth, but when we also put it to good use; when the ingenuity of Mittals will be complemented by generosity of Buffets. The writer is president, Centre for Policy Research, New Delhi pratapbmehta@gmail.com