Earlier this month, Fortune magazine carried a cover story based on a bold challenge from Bill Gates and Warren Buffett to America’s most wealthy: commit to giving over at least 50% of your wealth to philanthropy either before or when you die.
While Gates and Buffett are engaged in their campaign to pull off this challenge in the US, they would probably be wasting their time if they tried to convince Australia’s richest people to give away even a fraction of that amount.
Generally, Australia’s wealthy are very poor at donating money to worthy causes. (For the purpose of this discussion, let’s call someone wealthy if they have a net worth of more than $20 million. As far as I can guess from triangulating data from multiple sources, we have at least 4000 families in Australia with at least this level of wealth).
Having spent the past 18 years learning about the history of philanthropy, talking to “rich” people in Australia and the US, more recently funding research into philanthropy, as well as being a reasonably significant donor through our family foundation, I am now pretty certain of a few facts.
Our research determined that, on average, wealthy Americans devote about 15% of their net worth to philanthropy. Some (such as Gates and Buffett) have allocated more than 90%, and there are many examples of people allocating 30%, 40% or 50%.
How do we stack up in Australia? Well in a nutshell, and bypassing the usual hand-wringing so as not to upset our wealthy, appalling would be the word. Or perhaps the better word is greedy.
Take a moment to digest the following.
- Our most consistently philanthropic, very rich families allocate less than 5% of their net worth to philanthropy.
- On average, our wealthy appear to allocate about 1% of their net worth to philanthropy.
- The largest donor (in $ terms) to Australian not-for-profit institutions over recent years is an American who doesn’t even live here.
- While we have had a couple of examples of donations in the $20 million-plus range (all one off) generally you can be a top 10 donor in this country with total donations of about $5 million-$8 million a year — a rounding error for a billionaire.
- Our largest philanthropic foundations are those created by people long departed. With the exception of the Pratt family, none of our living most wealthy have created new philanthropic foundations with significant resources involved.
At its most basic level our wealthy we do not seem to have a sense of responsibility to the society that was the platform for their success.
There is not a general sense that if you are lucky and have ended up with more than most, you should give back. We are very good at coming up with excuses as to why we should not give (our taxes are too high — actually our taxes are quite low on a fully loaded OECD comparable basis, charities waste money, etc ). Yet none of these excuses address the fact that: a) there are people and causes that still need help, and b) if you have a lot of money you should feel a responsibility to give some back.
Quite simply our most wealthy are getting a free ride.
Sadly we also have this unfortunate habit of celebrating mediocrity when it comes to philanthropic giving. It was appropriate to celebrate Greg Poche’s gift to melanoma research as this gift was a significant one off chunk of his net worth (my guess is 5%). Similarly John Kinghorn’s recent donation to the new medical research building at the Garvan Institute, as again the donation represents (I think) a significant proportion of net worth.
But when a multibillionaire gives $10 million to an institution, it is wrong to offer more than a simple thanks. Note that for someone with $3 billion, a gift of $10 million is about 1/3 of 1% of their net worth. Taking the US average, someone with $3 billion should be giving away at least $22.5 million a year (using the 15% average allocation to philanthropy) just to be in the game, let alone be someone worthy of special note.
Someone with $3 billion who wants to meet the 50% goal would need to be donating about $75 million a year, every year.
We seem to see a donation of $5 million or $10 million from a billionaire, or one with many hundreds of millions, as something wonderfully generous and worthy of a national honour. Very simply a gift of $5 million from a billionaire is less in pro-rata terms than the average giving of a normal Australian on a normal average salary.
So either we stop lauding thanks for the crumbs offloaded by our most wealthy, or we start offering similar thanks to Mrs Smith whose $100 donation is a greater proportion of her net wealth.
Perhaps we might also start to turn to our most wealthy and just ask them to start to step up and meet their responsibilities. Give back to the country that provided you the markets, the customers, and the stable legal system to allow you to make your fortune.
We might also ask them another difficult question: how much you really need to live your life?
Surely someone with $4 billion could easily allocate 20% ($800 million) to a foundation that then gave away $40 million a year each year without any change in lifestyle. Can it seriously be argued that someone with $4 billion can’t just as easily live on $3.2 billion?
Or that someone with $20 million can just as easily live the same life with $16 million (assuming the 20% = $2 million is also allocated to philanthropy)?
In terms of money allocated to philanthropy, Gates is the poster child for giving but more importantly, perhaps, he is also an advocate of not passing your wealth down to your children. Warren Buffett seems to agree with this philosophy, having been quoted many times about the “lucky sperm club” and how you should not be rich just because you are the product of rich people.
Both men (and in Bill’s case his wife, Melinda) are advocates for more giving, and this in a country that already has the highest level of philanthropy, either as a measure of GDP or in terms of net wealthy allocated to philanthropy.
Many will point to the influence of religion on giving (i.e. the concept of tithing) or the lack of a deep social net in the US as reasons for giving. While both of these characteristics of American society are clearly influencers, one could also point to the existence of death or estate taxes as one of the reasons there is higher level of philanthropy by the wealthy in when compared to the wealthy in other countries, including Australia.
While living in the US I found another characteristic that seemed to be a significant driver of giving: the sense of fairness. An understanding that wealth does not attach itself necessarily to hard work nor roles that more benefit society. Warren Buffett best describes this concept when he says:
“My luck was accentuated by my living in a market system that sometimes produces distorted results, though overall it serves our country well … I’ve worked in an economy that rewards someone who saves the lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into the billions. In short, fate’s distribution of long straws is wildly capricious.”
While travelling and working with Bill Gates he would often tell me how his mother — also a leading American philanthropist — would often talk about the responsibility of wealth. In short this translates as “if you are lucky enough through hard work and opportunity to end up with a lot of money then it is your responsibility not your choice to engage in philanthropy and give back to the society form which you earned your fortune”.
“A market economy creates some lopsided payoffs to participants. The right endowment of vocal chords, anatomical structure, physical strength, or mental powers can produce enormous piles of claim checks (stocks, bonds, and other forms of capital) on future national output. Proper selection of ancestors similarly can result in lifetime supplies of such tickets upon birth. If zero real investment returns diverted a bit greater portion of the national output from such stockholders to equally worthy and hardworking citizens lacking jackpot-producing talents, it would seem unlikely to pose such an insult to an equitable world as to risk Divine Intervention.”
Gates and Buffett, as well as many others I have met, talk about the responsibility to do the right thing, to acknowledge that they have not worked any harder than many less fortunate people and that they can still live a life full of trinkets and toys while also giving back meaningful amounts.