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The Business of Giving

Exploring philanthropy, non-profits and socially motivated business, from the Gates Foundation to your donation. A fresh look at the economy of good intentions.

June 17, 2010 at 4:51 PM

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Income inequality and philanthropy

Posted by Kristi Heim

The Gates/Buffett billionaire pledge drive provoked some thoughtful analysis as well as barbed commentary. Among the more interesting questions raised was this: why now? Why are wealthy Americans more interested in philanthropy, and if not, why do their peers think they should be? One answer is that they have a lot more money to give away.

The United States has seen a rise in income inequality over the past several decades. The sheer number of billionaires has also increased steeply. Take a look at this chart from Gapminder to watch the yellow billionaire balloon shoot to the top.

The U.S. has one of the best business environments for people like Buffett and Gates to make their fortunes. Yet when you look at wealth per person, several countries are doing better than the U.S. without many billionaires. Norway's GDP per capita, for example, is $49,000 compared to $43,000 for the U.S., and it has 4 billionaires compared to 415 in the U.S.

Gini_Coefficient_World_CIA_Report_2009.jpg

By the middle of this last decade, the U.S. had one of the highest levels of income inequality of any developed country, measured by something called the Gini coefficient. Since 1975, that number has steadily increased here, from .35 then to .45 today, according to OECD figures. (Click on the map to see more detail)

Arul Menezes, a principal architect at Microsoft Research, grew up in India and came to the United States in 1988. He told me an anecdote about his experience living here that I found striking.

One of the things that drew him to the U.S. initially was the relative equality and meritocracy of the society, education system and economy, he said.

"There wasn't an entrenched elite with all the power and wealth," he said. "It was a society where there was opportunity to almost anyone from almost any background to achieve almost anything."

Houses built 40 years ago were much more modest than the mansions of Medina today. And yet on comparably less, people found the money to pay for infrastructure and community centers, he said.

Of course, Microsoft has helped produced quite a few of those Medina millionaires and several billionaires, but Menezes speaks to a broader trend.

"People didn't have granite counters but they had good roads, good schools and good universities," he said. "Instead we have 6,000 square foot houses -- time will tell whether that was a good choice."

Lack of money for education, a jobless recovery and massive public debt is creating whole new problems for philanthropy to solve. No matter how laudable the personal causes of billionaire philanthropists, the upshot is that too much decision making power is concentrated in the hands of a few.

"A lot of countries have settled into long periods of time into the status quo of an endemic elite and disenfranchised majority with little movement between the two," Menezes said. " I don't think the U.S. is anywhere near there, but I can see the risk."

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