The Meaning of the Gates-Buffett Giving Pledge

On June 16th, Fortune Magazine broke the news that Bill & Melinda Gates and Warren Buffett are launching a campaign to ask every billionaire in the country to pledge to give away 50 percent of their wealth.

I think this development marks a major milestone in the expansion of the Second Great Wave of Philanthropy. But the importance of news is not the actual money that many billionaires are likely to pledge, but the cultural ramifications of the campaign. More about this is a minute, but first a little history.

In the spring of 2006, I was driving my 6-month-old son around town in a desperate attempt to get him to fall asleep. That was the moment that I heard the news on the radio that Warren Buffett had announced he was going to give 85 percent of his wealth to the Gates Foundation and that Bill Gates was leaving Microsoft to run the foundation. I had been playing with the idea of starting a blog for a few months, but it was the Gates/Buffett news that convinced me that something dramatic was beginning to unfold in philanthropy. A few months later I launched the Tactical Philanthropy blog.

In my past writing about the importance of Gates/Buffett decision, I have repeatedly stressed the idea that it was not the money that they were giving that had such potential to revolutionize philanthropy, but the cultural importance of their decisions. The Gates Foundation is only responsible for 1% of annual charitable giving. But the impact of the richest man in the world deciding at age 48 that running his foundation was more important than running Microsoft and the second richest man in the world deciding he would give away 85 percent of his wealth while he was still alive is simply remarkable.

I think the same sort of analysis is the best way to look at the Gates/Buffett Giving Pledge. According to Fortune Magazine, if every single billionaire signs the pledge, it would result in $600 billion being given to charity. But Americans already give $300 billion a year to charity every year. And of course, much of the $600 billion would flow into foundations or go to charity over a multi-year period. So a better way to look at the impact of the pledge is that it could trigger $30 billion per year in charitable giving or 5 percent of the $600 billion pledge. If the money flowed to nonprofits any faster, it would run out at some point and therefore not have a permanent impact on the level of charitable giving.

Now $30 billion is real money. It is roughly what all the foundations in the country currently give each year. But it would only result in a 10 percent bump in total charitable giving. It is very likely that even without the pledge, Americans will increase their giving by $30 billion within 3-5 years simply by virtue of the typical pattern of giving increasing with economic growth.

But just as the original Gates/Buffett decision in 2006 inspired many other people to get more involved in philanthropy, if the Giving Pledge is successful, it will have ramifications far beyond the exclusive circle of US billionaires. Certainly you would expect that it would motivate some non-US billionaires. But it is also likely to affect the way that everyday Americans think about their personal philanthropy.

For as long as we have data, Americans have been giving roughly 2 percent of their income to charity each year. What if the Giving Pledge acts as a sort of tipping point that helps accelerate the growing public interest in philanthropy and kick starts a gradual increase of average giving from 2 percent of income to 4 percent of income? The result would be an increase in charitable giving of $300 billion every single year. That’s 10 times what the Giving Pledge might raise if it gets 100 percent participation from the country’s billionaires.

That’s what makes the Giving Pledge a potentially really big deal. The original Gates/Buffett announcement resulted in a 1 percent increase in charitable giving, but it was important because it had the potential to trigger the 10 percent increase in charitable giving that the Giving Pledge represents. The Giving pledge might result in a 10 percent increase in charitable giving, but it is important because of its potential to trigger a 100 percent increase in charitable giving.

Big gifts make the news, but it is the giving of every day individuals that really drives philanthropy. The Second Great Wave is alive and well.

Read more stories by Sean Stannard-Stockton.