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Economy Lab

Tycoons, give your billions to businesses, not charity Add to ...

Mark Zuckerberg, the youthful tycoon who founded Facebook, wants to give away some of his billions and I wish he would do something less egotistical and more useful to the world's poor or disadvantaged. He has just signed up to the "Giving Pledge", a sort of club for billionaires established by Warren Buffett, the Berkshire Hathaway founder, and Bill Gates.



Mr. Zuckerberg is the latest rich American to make a public commitment to give his money to good causes rather than keep it in the family. Mr Buffett set the fashion when he decided to hand over most of his billions in tranches to the Bill and Melinda Gates Foundation, the philanthropic insitution set up by the Microsoft tycoon. Since then, a host of famous rich guys, including Paul Allen, Michael Bloomberg, Ted Turner, Carl Icahn, a Hilton and a Rockefeller have signed on.



To misquote Groucho Marx, the only club I want to join is the one that will never have me as a member and the "Giving Pledge" is it.



Warren Buffett says he will give away 99 per cent of his fortune and he is well known for his view that business dynasties are a bad thing. Better to give your money away to people who can do good things with it than give it to your children who will only fritter it away. There is ample evidence to prove the second half of his proposition: look at Ford, a car company in continual decline thanks to the deadening hand of the Ford family. As with extraordinary intelligence or artistic talent, there is in any family a regression towards the mean in succeeding generations.



Buffett is right that dynasties don't work, but he is wrong if he thinks that philanthropy is the solution. It is only a solution if your problem is that you feel bad about your wealth or you would like others to feel good about you. If your true objective is to generate more wealth for a greater number of people, there is a much better solution. You should take your capital and use it to start a new business. Alternatively, invest your money in someone else's start-up enterprise. The best way to create more happiness in places where there is misery (poverty, hunger and unemployment) is to create jobs and business opportunities, not to dispense charity.



I suspect the main motive for the "Giving Pledge" is vanity, a lingering and often mistaken sense of guilt among the very wealthy and a bit of tax avoidance from charitable contributions. These men and women may wish to believe that funding vast campaigns to lift people from poverty in Africa, to fight malaria is a great idea but that is because they have not given these projects even 1 per cent of the thought that goes into the business enterprises that made them rich.



Since the Second World War, countless billions have been invested in Third World development. It has been a colossal failure, a product of good intentions, grandiosity and woolly thinking, well-documented in William Easterly's book, the White Man's Burden. He divides these efforts into good and bad: planners and searchers. Those who plan are the big picture people with global blueprints for change: the UN and its millennium development goals, the World Bank and the big development charities, etcetera. The searchers are those who look for local solutions to specific problems. In other words, people with business acumen, a nose for sniffing out a competitive advantage. In other words, it is people like Mark Zuckerberg, who had an idea for a social networking website that would appeal to insecure students and youngsters. If only Mr Zuckerberg, Mr Gates and Mr Bloomberg went to Africa and invested in a hi-tech enterprise. Is it easier just to give it away and wear a halo?



I can understand why Mr. Zuckerberg is eager to give away his money to a good cause, but I would rather he invested it in some amazing new enterprise. Walk away from Facebook and start again. If he really wants to help the poor, he should come up with a good idea that will make money, jobs and wealth. Sadly, I reckon most of these would-be philanthropists only want to rid themselves of their monetary guilt. They hope that the Giving Pledge will wash away the dirt of money-making, absolve what sins they may have committed and they want do it in a tax-efficient way because they know that the government may do even worse things with their money than would their feckless children. It's a terrible shame and a waste.



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