Dominic Lawson: The sin of the rich is to seem happy

How scandalous even to imagine that there is merit in sending money to good causes without the intermediation of any state bureaucrats or committees

Tuesday 10 August 2010 00:00 BST

Verily, it is said, no good deed goes unpunished. In this country, at least, the news that a group of the world's richest men, including Microsoft's Bill Gates, have agreed to give at least half of their £150bn total fortunes to charity, has met with a distinctly cool reaction. "What's in it for them?" seems the common response – or "Beware of geeks bearing gifts", as one headline most wittily expressed this opinion.

It may well be true that by making such an announcement, these plutocrats, co-ordinated by the folksy Nebraskan multi-billionaire Warren Buffett, hope to bathe in the warm glow of public affection; and it may also be that they are not motivated simply and exclusively by the desire to improve the lot of humanity. So what?

I doubt that many of those who are most cynical about these tycoons' motives would think, when a government minister announces that his department will be spending public money on a school or a hospital: "What's in it for him?" Yet a politician would see a much more direct personal career benefit from such a pledge – votes are to him what a share price is to a business owner; and unlike the charitable tycoon he is spending only other people's money.

A number of those cavilling at the generosity of these billionaires have pointed out that in America – and these donors are all Americans – money paid to charities is tax exempt. This, they claim, shows that the likes of Gates and Buffett are in fact, not being generous, or even public-spirited, at all.

Such critics clearly think little about the power of compound interest, the mighty mathematical mechanism which more than anything else is what makes the very rich get even richer. If Warren Buffett or Bill Gates were simply to sit on their many billions, and do nothing but leave it on deposit, then year by year their pile will accumulate massively by sheer momentum, as the interest on the interest piles up.

On the other hand, as Warren Buffett is handing over billions of pounds out of his core capital each year to the Bill and Melinda Gates Foundation, his wealth and earning power are falling absolutely: that is why Buffett, having until recently been a regular number one on Forbes Magazine's annual rich list, is now gradually slipping down that league table of lucre.

A secondary argument used to disparage these donors is that because their giving is tax-exempt, it means that they are deciding how that fund of money is spent – by directing it to charities and causes of their choice, rather than the public's elected representatives, if the money had ended up in the hands of the Internal Revenue Service. True; and we all know how brilliantly governments spend every penny we give them by way of taxes. How scandalous even to imagine that there is merit in sending some of that money to good causes without the intermediation of any state bureaucracies or committees.

To see where such arguments lead, consider your donation to the Pakistan Floods appeal set up by the Disasters Emergency Committee. If you signed the box marked Gift Aid, it ensures that the DEC gets an additional donation equivalent to the basic rate of income tax that would be paid on that sum. In other words, that money, which would have been made available to the Inland Revenue, is instead heading out to the Swat Valley to help those afflicted by the floods. That is, on a much smaller scale, exactly the sort of thing that Bill Gates is doing by directing his tax-exempt donations to the fight against malaria.

It is odd that the left, which tends to criticise America for not directing a greater proportion of its prodigious wealth to the developing world, is also critical of the autonomous tax-exempt giving which in fact has had the effect of pushing many more dollars away from expenditure in the US and towards much poorer countries. This is a tendency which has grown more evident in recent years; it was only in 1999 that the Rockefeller Foundation changed its mission to one exclusively focussed on the world's poorest populations.

It is not so surprising that such men as Bill Gates and Warren Buffett are targeting their donations in this way. Like all business geniuses, they are ferociously, even manically, dedicated to the idea of maximising the utility of the marginal dollar – to send it where it will have the biggest impact and to monitor its effect with an intimidating intensity. They are absolutely revolted by the idea of spending money for its own sake, or in a way which meets some purely political objective. They are interested only in results – precisely the opposite mentality to that of bureaucrats, whose déformation professionnelle is to be interested much more in process than in outcome.

It is notable that all of the 40 and more tycoons who have signed the "giving pledge" to pass up at least half of their wealth are Americans. Perhaps that is because they are the ones whose names are in Buffett's and Gates' rolodexes and were therefore most easily available for arm-twisting; also, American tycoons are those with the biggest fortunes, and therefore the juiciest target for such cold-calling.

Yet it is also the case, however much it might irk Europeans to admit it, that Americans are as a people much more charitably inclined than we are. The UK Charities Aid Foundation published a league table of international charitable giving a few years ago, which showed that, on an individual basis, Americans were twice as generous to charity as British people. Yet the British in turn are generous by European standards: the French are startlingly mean.

It is often argued that this is simply a function of the role of government in different jurisdictions. The more encompassing the state – and France can claim to be the inventor of the idea of the all-beneficent state – the less its citizens feel the need to give privately. That may be true. The modern welfare state has stripped the notion of individual moral choice out of the transfer of funds to the unemployed, which has hardly been an unalloyed success, to judge from the state of the British benefits system.

There is also a cast of mind much more prevalent among Europeans than Americans, which regards the compulsory transfer of the bulk of honestly-acquired private fortunes into the hands of the state as an absolute good in itself, quite regardless of the particular social consequences of the redistribution. Indeed, those who subscribe to this view in its purest form act as if they believe it would be better that the money raised by way of taxes from the wealthy were buried in landfall sites and excluded from the economy altogether, if the only alternative were that its original owner had not been deprived of it by force of law.

This, I suspect, is at the heart of the unease outside America at the actions of Bill Gates and Warren Buffett. Look at them: they're actually smiling and happy as they announce how they are giving up the bulk of their fortunes. This is absolutely unbearable: a crucial function of redistribution is that it is meant to make the very well-off less obviously self-satisfied, to deprive of them of what they most want to keep.

By relinquishing so much of their fortune voluntarily, they have shot the tax fetishists' fox.

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