Sunday, January 16

Gates, Buffett & Co: Why the super-rich really donate


The intentions behind philanthropic activities and donations are basically very noble. Extremely wealthy individuals who have built up large fortunes in the course of their lives acknowledge that they will use their financial resources for charitable and selfless purposes. As a rule, the point here is that the privileged want to give something back to society in order to do something good for the common good. All in all, identified grievances are to be corrected and the world to be made a better place. Be it through redistributing wealth from rich to poor, promoting education and research, or protecting the environment. At first glance, philanthropy is a wonderful thing without objection.

But on closer inspection it becomes apparent that modern philanthropy does not work quite as it should. Although there is a real trend towards giving among the rich today, wealth inequality remains high in many countries. A redistribution of the funds will therefore probably not take place. In addition, despite their large donations, the generous donors are apparently getting wealthier instead of poorer. One possible reason for this could be that besides the sheer help and selflessness of the benefactors, other interests drive the super-rich to philanthropy.

A better image

Donations can have a high public profile and improve the reputation and standing of the donor. If you stand up for your fellow human beings and support charitable projects, this has a positive effect on your own image. For example, The Nation magazine explains that Bill Gates from “one of the cutest CEOs to one of the most admired people in the world” with his philanthropy. His aggressive leadership style earned Microsoft multiple court hearings and heavy fines for monopoly business practices. However, as the Business Insider website describes, the “washing it clean” aspect applies to innumerable philanthropists. While grievances persist in their own corporations, the wealthy owners are philanthropically active in other areas instead of ensuring better working conditions for themselves. Business Insider cites the technology giant Apple as an example, some of which manufacture its products in China under such drastic conditions that workers there would apparently regularly commit suicide. Meanwhile, almost half of the portfolio of Giving Pledge founder Warren Buffett consists of Apple shares, which means that he would at least benefit from the questionable type of production and thus also be responsible for it. So the question arises to what extent philanthropists want to buy their business dealings and improve their reputations.

Donations to the elite themselves

Not all donations are top-down in society. The Guardian writes in an article that only about a fifth of all donations go to poor people in the United States. Instead, a lot of money goes to promoting the arts, various sports teams and other cultural affairs, education and health care. A voluntary redistribution of wealth to the needy does not therefore take place in full. Furthermore, the super-rich are very happy to donate money in areas that benefit them themselves. According to the Guardian, most of the donations in the field of education in 2019 came from donations to elite universities and private schools where the benefactors themselves studied. The wealthy donors therefore mainly support schools that they or their children attended. A cycle can be seen in which the donations from the rich once again benefit the elites. The top universities have produced the wealthy upper class and are once again supported by them. According to the Guardian, the philanthropists are not so much helping to make the world a better place, but rather promoting the continued existence of the well-known system. The super-rich also donate for their own benefit.

Save taxes through donations

The more money you have, the more important tax savings become. In many countries, charitable donations are entirely tax exempt or at least associated with some relief. For many super-rich, the question arises as to whether one should bear the entire tax burden or rather be charitable in foundations. In this case, donations represent an advantageous opportunity not only to have to pay less money to the state, but also to be able to influence certain matters and use the financial means to make a difference. Instead of simply letting the capital flow away without benefit, it is better to give it to the former university or other institutions. An example from The Nation shows that this can create real win-win situations.

In 2014, the Bill and Melinda Gates Foundation donated US $ 19 million to a MasterCard corporation to increase the use of digital financial products by poor adults in Kenya. According to The Nation, the Foundation thereby supported MasterCard in its already existing business endeavors to attract additional clients in developing countries. The donation associated with tax savings thus helped the company to further expand its activities. However, the donation also had a beneficial effect on the foundation. The Bill and Melinda Gates Foundation’s fortunes are materially influenced by its ownership interests in Berkshire Hathaway. Berkshire Hathaway was again involved in MasterCard at this point, whereby its success also had a positive impact on the foundation’s volume.

Philanthropists take on the role of the state

According to Business Insider, the tax breaks for donors also have the effect that super-rich philanthropists are increasingly replacing the state in promoting charitable causes. The state lacks the money that the beneficiaries receive in taxes as revenue. The diminished financial resources leave a hole that is widening with the monetary increase in philanthropy. The lack of capital on the part of the state can no longer be invested charitable in the areas of education, health care or social affairs. Conversely, foundations with their very wealthy sponsors are increasingly appearing at this point. As a result, the state decides less and less where urgently needed money goes. Wealthy private individuals thus have the power to draw the public’s attention to a certain extent and to influence current developments. Since all these processes are based on the subjective decisions of the privileged financiers, according to the Guardian, modern philanthropy is under criticism of being undemocratic. After all, the distribution of the funds does not always match the intentions of a democratically elected government. The donated assets would belong entirely to the wealthy donors, but given the tax savings, the state could still be given a certain say. However, this is currently not the case. One reason for the super-rich to donate is therefore the opportunity to exert great individual influence.

Help the world

Despite the previously rather critical image of philanthropy, a number of donations have already done good for humanity in the past. According to the Guardian, donations from the Bill and Melinda Gates Foundation have nearly doubled global spending on malaria and polio research. This support reduced the global incidence of polio by approximately 99.9 percent and practically eradicated the disease. In total, the Bill and Melinda Gates Foundation is believed to have donated more than $ 45 billion and saved millions of lives since it was founded. Finally, Aid for the World is another reason for the super-rich to donate.

Finanzen.net editorial team

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