Can Philanthropy Fix Our Inequality?

In a blog post not too long ago, Bill Gates criticized Thomas Piketty for not focusing enough on the role of philanthropy in alleviating inequality.

Noted Gates: “Philanthropy also can be an important part of the solution set. It’s too bad that Piketty devotes so little space to it. A century and a quarter ago, Andrew Carnegie was a lonely voice encouraging his wealthy peers to give back substantial portions of their wealth. Today, a growing number of very wealthy people are pledging to do just that. Philanthropy done well not only produces direct benefits for society, it also reduces dynastic wealth.”

Gates — now the world’s wealthiest or second wealthiest person, depending on the week — has committed to leave the bulk of his wealth to charity.

It’s not clear exactly what Gates felt Piketty should have said. That we should address inequality by relying on the altruism of those who have accumulated — and continue to hold — wealth far beyond their conceivable needs and the conceivable needs of their next five generations of descendants? For all his widely acclaimed generosity, Gates himself still is sitting on over $80 billion in wealth.

Does the Bill Gates argument that philanthropy can save us from inequality have any merit? In a word: no. A recent Family Wealth Transfers Report from researchers at Wealth-X, a Singapore-based consultancy, and the NFP financial services company suggests just how misplaced Gates’ faith in the generosity of his peers happens to be.

The world’s ultra-wealthy — those with fortunes of $30 million or more — will pass $16 trillion in wealth at death over the next three decades, this new report projects. Only $300 billion of the total, less than 2 percent, will flow to charities. And a sizeable portion of those relatively stingy charitable transfers will undoubtedly flow to family foundations, from which the children of the ultra-wealthy will draw handsome salaries for deciding how to dribble out the income of those foundations to real charities.

The takeaways from this? First, philanthropy is not and never will be a solution to inequality. Second, we should be highly skeptical when a member of the plutocracy tells us how to address inequality.

Bob Lord, an Institute for Policy Studies associate fellow, practices law in Phoenix.