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Warren Buffett just broke his own philanthropy record by donating $2.1 billion to the Bill and Melinda Gates foundation (up from $2.0 billion last year). The foundation focuses on projects such as ending world poverty, eliminating malaria, improving access to birth control and education, and many others.
To put that in perspective, the Gates Foundation currently has a trust of $43.5 billion, and spends about $3.8 billion per year (on grants and operations). Let us assume that all of this is really well spent.
Something to consider: at that current rate of spending (and assuming 5% growth per year via investments), the foundation would start putting Buffett’s money to use in about 2030–15 years from now. That’s assuming, of course, no other contributions.
Our initial reaction (as the authors) was that Buffett’s donation might be a case of diminishing marginal utility; put another way, that it might not be as good a use of his money as other places he could put it, whose missions are effective but not as thoroughly-funded. Could he have a more immediate and substantial impact by putting his money elsewhere and not waiting years for his capital to be employed?
One might argue in favor of Buffett’s choice, saying that extending the confident lifetime of the Gates Foundation’s money allows it to take on more ambitious, longer-term projects that might otherwise put it at risk.
Buffett is of course intelligent and well-informed. What’s driving his donations to the Gates foundation? What are the reasons for and against his donations that make sense to you?
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B&MGF has a list of very noble, long term causes. Also, (from what I have read, feel free to correct me) relatively low expenses. This puts it ahead of any number of other good causes. I suspect the species will benefit significantly from the donation.
As to why WB chose to put it here... he and BG are good friends, and there's a level of trust, and a proven track record of doing good work. Not easy to find, when one is giving away 2 billion dollars.
A good point there about how personal trust can really add a lot to the decision.
A friend of mine recently pointed out that philanthropy is a rather fascinating field. It allows very rich people to address problems that neither they (nor, necessarily, their foundations) really have the qualifications to address. Bill Gates may be very good at acquiring wealth by building Microsoft, but other than the phenomenally simplistic measurement of expense overhead, there's no reason to believe that his philanthropy actually allocates money well for societally outcomes. For example, curing Malaria sounds good, but it a poor use of dollars if the now-cured country is under water in five years due to global warming. Perhaps alternative energy sources, though not as sexy on front page headlines, would have been a better use of his funds. Or promotion of healthy, vegetarianism (half of the greenhouse effect comes from taste products of meat production).
The causes that the Foundation gives to are chosen according to whatever criteria Gates & Company sets out ... and there's no reason to believe he or the foundation are particularly wise about how to allocate that money.
Buffett's gift simply ups that ante. Now we have to hope that Gates is not only a good, ruthless computer businessman, but also a skilled interventionist in ecology, epidemiology, etc.
A few comments about this analysis:
1) It seems plausible that with extra funding the Gate foundation will be spending their money faster. Therefore marginal dollars will start being used immediately.
2) It's probably pretty hard to donate $2B without getting some decreasing marginal utility, but my impression is that the Gates foundation already does try to spend their money on relatively underfunded projects.
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