Don't Confuse Generosity With Impact on Society

By Mark R. Kramer

With the stroke of a pen, Warren Buffett has committed more money to charity in a single transaction than anyone in history.

In current dollars, his $31-billion gift is double the total lifetime philanthropic contributions of Andrew Carnegie and John D. Rockefeller combined. Yet this noble gift also casts light on one of the most central dilemmas of philanthropy — the inadvertent sleight of hand that confuses the generosity of the gift with the impact on society.

Of Mr. Buffett's selfless generosity, there is no doubt. In contributing to the Bill & Melinda Gates Foundation, he has chosen an institution run by someone he trusts and committed to solving some of the most urgent social and humanitarian issues of our day.

Choosing a recipient that does not bear his name is a startling decision, entirely antithetical to the ego-driven naming opportunities that influence so much big-ticket giving today. It is the thoughtful and selfless act of a wise man who wants to see his money used well to improve the human condition.

However, all the attention to the gift has focused on the magnitude of the pledge and the character of the donor — so much so that the much tougher challenge of turning money into a solution for social problems gets overlooked.

The pen stroke that committed these funds to charity does not itself improve anyone's lot. Mr. Buffett may be poorer today than he was last week (hardly a fitting word), but no person in need is $31-billion richer. No medical research has yet been financed, no social services subsidized, no schools improved. The money has entered a twilight zone from which social impact will, at best, slowly emerge over many decades.

The sudden, massive, and highly publicized gift offers a sharp contrast to the slow, complicated, and unheralded work that the Gates Foundation must now undertake to deliver the benefits to society that are assumed to flow automatically from such munificence. And in this, the Gates Foundation is no different from the hundreds of thousands of other nonprofit groups that work without recognition to achieve the social alchemy that transforms billions of dollars in charitable contributions every year into the services, research, and advocacy that change people's lives.

It is an open question whether the philanthropic and nonprofit institutions of today have truly mastered this alchemy. More and more money is donated to charity every year, yet America's schools continue to fail, poverty continues to rise, and our environment seems ever more precarious. We would like to think that our contributions make a difference — and large contributions make a large difference — but there is surprisingly little evidence that this is so.

The publicity that attends gifts such as this deludes us into thinking that if only more people were more generous, the world's problems would be solved. But the $1.5-billion that Mr. Buffett will contribute each year over the coming decades is only a small addition to the total contributions from the rest of us. In fact, it is just about one-half of 1 percent of the $260-billion that Americans gave to charity last year. The knowledge of how to use charitable dollars effectively turns out to be a much rarer commodity than the dollars themselves.

Mr. Buffett is known for his wisdom in choosing investments. Let us hope that in making the largest investment he has ever made, his record of success will remain unbroken.

Mark Kramer is a co-founder and managing director of FSG Social Impact Advisors, a nonprofit consulting firm, a senior fellow at Harvard's John F. Kennedy School of Government, and a co-founder of the Center for Effective Philanthropy. He can be reached at Mark.Kramer@FSG-impact.org