Friday, 8 February 2013

Does the Giving Pledge translate for non-US philanthropists?

By Noshua Watson

South African billionaire Patrice Motsepe recently announced that he would commit to The Giving Pledge, a club of billionaires who pledge to philanthropically donate the majority of their wealth. Motsepe’s announcement is auspicious as it marks the arrival of the black African super-rich class into the club of ultra high net worth individuals and signals the potential for well-funded indigenous philanthropic initiatives in Africa.

Led by Bill and Melinda Gates and their friend Warren Buffett, the Giving Pledge aims to encourage the wealthiest American families to give away most of their fortunes and also share their methods and results. The Giving Pledge leaders have met with Chinese and Indian billionaires to begin to spread the effort and share information about international philanthropic efforts.  They have obviously made an impression in South Africa as well.

The Giving Pledge will certainly increase giving to foundations and other causes. Signing on to the pledge does not put any limitations on to whom and how the billionaires can give. One of the implications of the pledge is that it will decrease economic inequality by slowing the reproduction of generational wealth, whilst pre-empting confiscatory tax regimes and giving the wealthy some say in how they benefit society.

But there is reason for caution in exporting The Giving Pledge model to other countries. Giving to philanthropy or charitable causes in the US implies donating funds to a legally registered organisation (called a 501c3) whose tax records (called a Form 990) are publicly available. The ability to legally register, have government oversight and employ tax incentives for philanthropy are considerably limited in Africa, the Middle East, Eastern Europe and parts of Asia.

The Giving Pledge does not explicitly recommend where and how the funds should be given. One suspects that many philanthropists won’t be able to resist the lure of giving to their own foundations. Motsepe’s bequest will go to the Motsepe Foundation. Although it is important to establish major philanthropic institutions in Africa, the burden will be on such foundations to establish and lead best practices. Outside of the US and Europe, what does giving away half of one’s wealth even mean? Many owe their riches to state-financed enterprises or joint ventures and it is more common than not to own fractions of multiple companies in intricate cross-holdings. It may be more developmentally effective for the rich in developing countries to leave their money in their business interests.

The Giving Pledge is an impressive and unprecedented mobilisation of funds. But there are major barriers to scaling it outside of the US and I fear that Patrice Motsepe will be the exception, not the rule.