How to be a Good Billionaire

While the overall reaction to this week’s Giving Pledge has been positive, there have been a few critical voices. Rather than knocking the generosity of the individual billionaires, critics have focused on the wider questions about inequality, taxation and plutocracy. These are important issues that we discuss in detail in the book. As we argue, there are three key tests of a ‘good billionaire’.

First, how did they earn their money? America’s billionaires mostly have a good claim that they have earned their money fairly. “In America, there is equality of opportunity”, argues the Peruvian economist Hernando de Soto. “At the end of the day,” he says “the argument that Bill Gates can use against anybody in the U.S. is ‘you could have done it, too'”. But what about Microsoft’s brushes with anti-trust regulators in the U.S. – surely that means that at least some of his gains are ill-gotten? Well, that’s actually de Soto’s point – in America and other advanced economies the rules of the game mean that corporations are held to account and if they cross the line, as Microsoft was judged to have done, they have to pay the price. In the developing world, however, this may be a different story, where spectacular wealth has been acquired, in some cases, by ripping off the public in dodgy privatisations or through monopoly power. If Gates and Buffett roll the pledge out globally, this is going to be an important question for some billionaire donors. Yet  even in America it is right to question the individual donors about their business practices – making money through shoddy labour practices or pushing sub-prime mortgages on poor people who cannot afford them does deserve criticism – but this should be done on a case by case basis, rather than assuming that all wealth is the product of exploitation.

Second, yes, billionaires need to pay their taxes and billionaires who choose to pay more tax, say by refusing to move to a tax haven, should be given credit for doing so. Some of the critics seem to assume that the wealthy are all a bunch of tax avoiders who would resist paying more tax at all costs. Yet Buffett, along with other billionaire donors like George Soros and Ted Turner, spoke out against President George W. Bush’s abolition of inheritiance tax, observing that he is not a believer in the “lucky sperm club”. Of course there will be anti-tax billionaires on the other side but, again, it’s about judging the super-rich on a case by case basis.

Third, how much do they give? We support the Giving Pledge because it sets a sensible benchmark of half their wealth as a measure of billionaire generosity. As important as how much is given, however, is how the money is used. Some critics rightly point out that American philanthropy enjoys a generous tax subsidy and we would back a British-style public benefit test for charitable donations as a sensible compromise between the rights of the donor and their public responsibilities. We also hope that the pledgers will get on with their giving sooner rather than later – channelling the donor’s own passion and harnessing the donor’s skills is likely to mean that the money is better used rather than just being posthumously dumped into a foundation for some philanthrocrat to give away.

The really important question is how do the rest of us harness this new wave of giving so that it delivers the maximum benefit for our society and our environment?  We believe passionately that for the philanthrocapitalism revolution to achieve its full potential there needs to be transparency from donors – about their failures as well as their successes – and a willingness on all sides to join in the debate. For that reason one of the most important spinoffs of the Giving Pledge is the way that is has, hopefully, started that crucial discussion.

23 replies on “How to be a Good Billionaire”

How do we harness the new way of giving? Well I can offer one way, and it’s also a 50% pledge but in this case a formal interpretation in a business model in which “at least fifty percent of profits go to stimulate a given local economy, instead of going to private hands”.

it was proposed as a theoretical model in a 1996 paper and used in a proof of concept project to source a development initiative in 1999. This was in Russia where one would be hard pressed to find a “good” billionaire. This came in the wake of their 1998 economic collapse where the absence of democracy ensured that little reached the general population.

Several models along similar lines have appeared since including the CIC, B-Corporation and L3C. Grameen has prototyped ‘social business’ with several corporations like Danone and BASF.

In 2004 this profit-for-purpose model was introduced to the UK and used to fund operations in Ukraine, where corruption was considered absolute. Were just 4 of the wealthiest moguls to have donated some of their wealth, it was calculated, that all children might be placed in family homes to bring an end to a the vicious cycle of poverty which begins with being abandoned to the state, graduation onto the streets and more children being born into poverty and abandonment,

There were also US funds available from MCC and Ukraine had managed to improve corruption indicators to qualify for threshold status.

The proposal was to apply the for-purpose business model on a national scale in a mix of components, such that the most profitable subsidised that with less than full cost recovery but the greatest social benefit. A microeconomic ‘Marshall Plan’ as it was described which would included a social investment fund for seeding all forms of social enterprise.

The concept of a Social Innovation Fund in the US and Big Society Bank in the UK are based on much the same idea, to seed fund social enterprise on a national scale.

I’d suggest that a ‘Marshall Plan’ approach could be replicated on an international scale and as the plan above suggests, private contributions might boost the total amount available for greater social impact.

Well…I’m least bothered about how to be a good billionaire coz I am not a apart..I’m really very very very HAPPY that more billionaire are joining the pledge @Donating half of their money to charity…I’m sure things would turn around if every penny spent for the poor people..

My hope would be that billionaires would divide their wealth into segments, with a smaller part, maybe 25%, budgeted toward innovation and creating new solutions, and the larger part, dedicated toward providing flexible, on-going, funding, for many years, so those innovations have the consistent, long-term support needed to become solutions.

I would personally prefer a society to exist where wealth was more fairly distributed and people couldn’t become billionaires, good or otherwise. Given that billionaires and millionaires do exist, it’s good that they should be generous – though their generosity can never replace what the state should provide to its citizens as of right but doesn’t.

On the whole, I think your three tests of a ‘good’ billionaire make sense, but I would take issue with your comment that ‘billionaires who choose to pay more tax, say by refusing to move to a tax haven, should be given credit for doing so’. Paying the correct taxes in the country you live in is what we should expect of anyone, billionaire or not. Moving to a tax haven is a way of avoiding obligations and not doing so surely shouldn’t be seen as a cause for congratulation. But all credit to Buffett, Soros and Turner for their stance on inheritance tax.

As a former investment professional, wireless entrepreneur and most recently a social impact investor I have a different view of the Pledge. If the history of philanthropy is any guide the overwhelming amount of these pledges, assuming they are fulfilled, will go to traditional sources – the old school, a hospital wing, the museum or a cause that has touched that individual’s life. I support all of these and believe they are important to society. However, they should only receive a small portion of this capital.

Almost none of it, based on history, will go to affecting significant systemtic societal change that would help to unleash the collective genius of the world’s poor. People, who with appropriate access to resources, could come up with solutions for their most pressing life challenges. It would be a bottom ups approach to change rather than a top down one. Philothrocapitalism is the next step of what Easterly talked about in the White Man’s Burden. 30 years from now some academic will write that book.

I find it interesting and ironic that the rich who made their own wealth, created something of value for society, faced many obstacles back when their ideas were on knapkins. All they had was their talent. But they drove the process to achieve their vision and they did not let the financial community dictate to them on how to build their dreams. Today, now in the same position as the financial community, they want to control the whole process and dictate, based on their individual and/or institutional requirements, to social entrepreneurs on a global basis what should be done. I think it would be far more productive if the wealthy invested their money in funds managed by highly qualified social impact fund managers on a global basis. Worst case they will end up in the same situation as if they gave their money away – they won’t have it any more. Best case that money will have been invested in a wide range of new ventures that will build to scale any number of new enterprises that will address global challenges, create new wealth and jobs as well as to help to empower millions of people on a global scale. It is time to leave the mindset of make a lot to give some back to invest a lot to create meaningful social and financial value on a worldwide basis.

I have so much respect and admiration for anyone giving away wealth. Howwever, how can 40 of the richest people in our country be so out of touch? We are experiencing record unemployment not one of those letters talks about creating a job! The answer to poverty is a job and a home! I have a plan to create 30,000 jobs in CA and after having called over 40 foundations, none of them can invest in a solid plan to create jobs in America. No amount of wealth will solve any social ills if our society is unemployed. Mr. Gates if you want to impact the country get them employed again. Then you create more money in the system to give back..hire ten people a day from each of your billinonaire circles and perhaps in 6 mths, one city has 100 employment1
Now that’s giving smart! The computer revolution had more impact on unemployment than anything in our country in 100 years. Whats about making your lifes work creating one job an hour that the computer took away from a salesman on the street selling wares instead of ebay.

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