The place of charity in an unequal society

For representative purposes.
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Billionaire Warren Buffet, with a net worth of almost $121 billion by some estimates, has maintained his pledge of giving away his wealth. In a recent message to shareholders of Berkshire Hathaway, he has mentioned a transfer of his wealth to foundations overseen by his children, a total amount of around 870 million dollars. In all, it is estimated that he has given away an amount of $52 billion.

Mr. Buffet’s recent message has captured the attention of mainstream discourse as it has outlined his social philosophy with regard to wealth and its place in society. Mr. Buffet believes that wealth should be used to equalise opportunities, that the luck that favoured certain individuals and helped them get rich should be extended after one’s death in order to help those less fortunate. While it is not wrong to amass and accumulate wealth during one’s lifetime, allowing it to build across generations is a problem for society. While it is no doubt commendable that Mr. Buffet wishes to give away his fortune, one must also question the processes generating the concentration of such wealth in the first place, regardless of whether it is to be used for philanthropy or not. Inequality is not a question of luck, but of specific policy institutions determined by society. In a world of spiralling inequality, both private philanthropy and the problems it tries to solve are two sides of the same coin, emerging from the very same set of social processes.

On luck and equal opportunity

Mr. Buffet’s ideas with regard to wealth and welfare can be seen in the context of a philosophical idea called “luck egalitarianism”, which states that no-one should have to suffer the consequences of inequality owing to bad luck or adverse situations. As Mr. Buffet repeatedly stresses in his letter, he credits much of his personal fortune to fortuitous circumstances, such as being born as a white male in the U.S. Opportunities were open to him that would not be open to women or African-Americans, and the growth of the U.S. over the years caused his wealth to grow significantly through the power of compound interest.

Some might accuse Mr. Buffet of false modesty, claiming that his fortune has been generated through his own diligent efforts and his understanding of markets. But there is truth in what he says. As Branko Milanovic has shown, a significant factor driving global inequality is the differences in income between countries. Where one is born determines how wealthy one might be relative to the global population. In that regard, Mr. Buffet does display a strong egalitarian zeal. If fortune played a huge role in the differences between Mr. Buffet and others, there is no moral justification for him to pass on his wealth to his descendants. The only moral response is to ensure his wealth can be used to boost the opportunities of those less fortunate. What matters is the equalising of opportunities, and allowing individuals a level playing field in the beginning, rather than trying to equalise final outcomes.

What about charity?

However, there are some important questions that need to be addressed. The distribution of private wealth through charity may help to equalise well-being between individuals, but the process by which this wealth was generated and concentrated has led to the differences in opportunities in the first place. In the developed world, wealth distribution was largely equal during the post World War II period. Widespread deregulation and a turn towards neo-liberal economics saw an explosion of wealth inequality from the 1980s onwards, with the ‘trickle-down’ economics of Ronald Reagan and Margaret Thatcher leading to the concentration of gains for a tiny sliver of individuals and stagnant wages for the majority. In India as well, the liberalisation of the economy may have led to faster growth, but has dramatically increased inequality and skewed the distribution of opportunities.

Differences in opportunities are not merely a question of luck, but of specific policy choices and interventions. Bill Gates’ and Jeff Bezos’ wealth came from the monopolies they enjoyed in the marketplace; this is less luck than the failure of policy to ensure competitive market practices. Mckenzie Bezos might be doing important work in giving away much of her wealth, but one must ask how it was that Amazon generated so much money for its owners while its workers suffered through stagnant wages and harmful working conditions. Mr. Buffet earned much of his wealth through the compounding of his initial equity holdings, but the widespread financialisation of the U.S. economy — concomitant with the reduction in the power of unions and stagnant wage growth — greatly aided this process.

In the face of rising inequality, societies face a choice: to either do nothing and hope that private charity increases, or devise policy to counter the negative effects of rising wealth concentration. Thomas Piketty advocates for a system of taxation and redistribution backed by the State to ensure equalisation of opportunities, rather than relying on private philanthropy. Interventionist thinkers and those on the left advocate for higher minimum wages and constraints on billionaire compensation. The use of state policy ensures that one does not have to rely on billionaire conscience to ameliorate the very processes that gave rise to their wealth in the first place.

Rahul Menon is Associate Professor in the Jindal School of Government and Public Policy at O.P. Jindal Global University.