Large scale philanthropy, as practised by Bill Gates and Warren Buffett, is a business of economic significance rather than clarity.
With the news that Warren Buffett will give $37bn (£20bn) to enable Bill Gates to run the world’s largest philanthropic foundation, the business of philanthropy has come of age. Charitable giving is the coins we drop in the collector’s tin, the modest cheques with which we support the favourite causes of our friends. Organised philanthropy is altogether different, a business of central economic and social significance.
A century before Mr Buffett and Mr Gates, John D. Rockefeller was the world’s richest man. He founded Standard Oil. But he also founded the Rockefeller Foundation. While every schoolchild knows that antibiotics are the result of slovenly practice in Alexander Fleming’s laboratory in Paddington in 1928, the reality is that despite the apparently obvious commercial potential of the discovery it advanced very little until the Rockefeller Foundation funded the Oxford scientists Howard Florey and Ernst Chaim to develop it in 1938. When war broke out, the British and US governments greatly expanded these resources. The outcome was the basis of the modern pharmaceutical industry.
The green revolution has made it possible to feed the explosive growth in population in south Asia since the second world war. Most of the hybrid plant varieties which are its basis were created at Norman Borlaug’s research centre in Mexico, financedby the Rockefeller Foundation.The Ford Foundation chipped inas well. Rockefeller support turnsout to have been critical to the unravelling of DNA and the emergence of a biotechnology industry. The list goes on.
Modern information technology is the result of two main strands of development. The conceptual framework is derived from the work of Alan Turing, who showed how any operation – typing this article, taking a photograph, building a car – could be described digitally. Turing’s insight was made possible by the expansive atmosphere of King’s College Cambridge in the 1930s, its historic endowment multiplied by the efforts of its bursar, John Maynard Keynes.
IT hardware depends on the transistor, discovered in 1947 at AT&T. But Bell Labs were at once the least commercial and most intellectually fertile environment imaginable in a private company. The labs were the philanthropic output of a very rich corporation. Antitrust restrictions limited the ability of the parent company to exploit its discovery and other businesses would earn billions from inexpensively licensed transistor technology.
The market is not good at producing fundamental innovations where they are of general application rather than product specific – and hence not easily appropriable by an individual firm – or where the potential applications of the discovery may be a decade or more away, a problem aggravated by the modern emphasis on quarterly earnings reports. But governments are not good at promoting fundamental innovation either. “Picking winners” is a phrase greeted with derision.
Because philanthropic funding only requires that output be of benefit, rather than of benefit to a particular company, philanthropy supports innovations of economic significance that will not be undertaken by a private company. Because philanthropy is pluralistic, has long time scales and can readily accept that many projects will fail, it supports innovations of economic significance that governments would not and certainly did not finance. The government-funded research base in the US is productive in part because it is so fragmented. The university research base in the US leads the world by miles because this pluralism of public funding is massively enhanced by organised philanthropy.
In the past decade the Wellcome Foundation has become a far more important contributor to British science than the company that gave rise to it. It is not unlikely that, a century from now, Mr Gates and Mr Buffett will be better remembered for their foundations than for the businesses that made their fortunes.