Monday, July 12, 2010

Arab Philanthropy: MIA

One of the better ways to understand a society is to look at the way it treats its poor. Unfortunately the practically universal adoption of capitalist principles of production has created a world with a highly inequitable distribution of income. This should not be surprising because capitalism rests on two seminal ideas that are constantly at odds with each other; efficiency and equity. The belief in equality and democracy is based on the notion of equality and what is described in economic terms as perfect competition. In the Microeconomic model of perfectly competitive markets, the various actors are numerous and none of them can exert any influence on the market. What that implies is a in which each actor behaves in such a way as to improve its welfare and by doing so it does not influence anybody else since no one has the heft to influence other decision makers. This is a perfectly competitive society guided by an invisible hand to always promote the communal good through promoting self interest.

The above is true in an idealized world, it is a fiction. In reality we live in a world whose environment is best described as one of market failures, a world of imperfect competition. In such a world of monopolistic tendencies the strong take advantage of the weak and the concern with efficiency leads to gross inequities and huge concentrations of wealth and consequently deprivations. Different societies have chosen to adopt different approaches to correct such inherent negative outcomes. In the final analysis these proposed solutions become defined by the strength/weakness of the role assigned to government in each of these respective societies. Besides the crucial role performed by income tax progressivity and the strength of governmentally financed safety net there remains an important function for philanthropic institutions in alleviating the social and economic problems brought about by the failures of the market to be equitable. Philanthropy can and does help remedy some of the injustices brought about in the name of efficiency by the market forces. Philanthropy can help fund research, improve access to educational institutions, help protect valuable ecological resources, provide access to essential heath care, housing and nutritional food.

A major change in the role of philanthropy took place as a result of the beliefs of John D. Rockefeller Sr. who is credited with having institutionalized the view that wealth carries with it a sense of responsibility to give back to the community. It was Mr. Rockefeller who helped establish the view that wealth carries with it a huge social responsibility since wealth ought to be looked upon as nothing more than a privilege to help do Gods work. That was when the idea of stewardship became established.

This is exactly what Bill and Melinda Gates with the help of Warren Buffet are trying to revive. As the world already knows Bill and Melinda gates have already given away to their foundation most of their wealth. The same is true of Mr. Buffet how has already committed to give away his almost $50 billion. The Gateses and the Buffetts have joined forces to encourage the US billionaires to give away at least half of their wealth either during their lifetime or in their final wills. Luckily for the world, since most of these philanthropic efforts are global in scope, many billionaire such as David Rockefeller, George Soros, Pete Peterson and Oprah Winfry have agreed to this proposal. As of 2010 the US millionaires are estimated to be worth at least $1.2 trillion. If the gates-Buffet plan is to succeed then philanthropic activities are to receive at least $600 billion from the current crop of billionaires.

And now we get to what really concerns us. According to the records compiled by Arab Business Magazine the wealthiest Arabs have a wealth that is almost $200 billion. Wouldn’t it be fair to expect our wealthy to be as socially enlightened as those in the US? If these privileged few are to be held to the same standard of stewardship and they must then that implies that Arab philanthropies should be the recipients of $100 billion over the next few decades. A cursory analysis of the wealthiest 50 individuals in the Arab world finds that over 60 % of the aggregate wealth belongs to 25 Saudi Arabian citizens followed by 8 billionaires from the UAE whose wealth is almost 15 % of the total Arab wealth in question. The third largest wealth by nationality belongs to 6 Kuwaiti citizens who collectively account for almost 11 % of the combined net assets of the 50 richest Arabs. The remaining 14 % is spread amongst 2 Egyptians, 2 Palestinians, 2 Iraqis and one from each of Bahrain, Lebanon and Qatar.

Not everyone is a big fan of philanthropy for the misguided idea that the poor are poor because they want to be poor. As if privilege and the accident of birth has nothing to do in determini9ng who gets what. But above all the wealthy need to give even more than half of their accumulated wealth if we are to be reminded of the conditions that made that accumulation possible in the first place, a system that pays lip service to equity but gives efficiency a free hand, a system that does not encourage the government to address the resulting inequalities. A sense of fairness, a belief in Rawlesian justice and a commitment to fair play dictate that we have to give until it hurts. Isn’t it preferable to live rich and die broke and whenever that is not possible to at least give away at least half of the would be legacy for the benefit of less privileged individuals.


Sebouh Akharjalian said...

True some of the US billionaires that you mentioned in this article have already pledged to donate their wealth back to the society.

A few years ago, the CEO of Berkshire Hathaway Mr. Warren Buffett announced from the Bill and Melinda Gates foundation that he will be contributing 99 percent of his fortune to philantropic causes, via the Gates foundation. Which is an equivalent of USD 30.7 billion as of June 23 2006.
Other extreme affluent celebrities like the great financier George Soros will distribute his wealth to his “Open Society” foundation.
Whereas TV talkshow host Oprah Winfry announced a couple of years ago that after her passing her entire wealth will bequeath to the African continent.
Anyway let us ask this question to ourselves.
Why are these people so determined to share their riches with those less fortunate than them.
In my opinion, I think the real incentive is that their “tax brackets” will be much lower in comparison to what they actually pay had they not committed into philantropic activities.
Remember these funds will be payed out either through installment basis or after they kick the bucket and die.
In the case of Warren Buffett he once made a confession that instead of paying the government through higher taxes than might as well benefit the entire society with this fortune.
This strategy will bring enormous benefits to likes of Mr. Buffett.
Finally, Mr. Karam, you mentioned that the wealthiest Arabs have a combination of wealth of almost USD 200 billion.
To start with, people in the Arab world donate the required Zakat one of the five pillars of Islam. It is giving of a small percentage of one’s possessions(Surplus value) to charity, generally to the poor and needy.
The problem, however, is that non of the wealthy class individuals in the Arab world are ready to sacrifice their wealth and privileges to the make benefit of entire socity.
This is why we have a deep polarization in the Arab world in reference to the rich and poor class.

ghassan karam said...

There is no doubt that the income tax structure can act as an inducement to give a small portion of ones wealth in order to offset current income tax liability. That would have been much more the case when the income tax structure used to be so progressive as to have a marginal tax of over 90 %. That is no longer the case.
As for inheritance taxes again they are not as high and there are many ways of reducing them if one is interested in preserving a legacy.
The magnitude of what these wealthy individuals are doing goes beyond , way beyond any such crass motivation as to reduce taxes. They are motivated to a large extent by the real and genuine feeling that they are stewards of this wealth and their mission is to share it with the less privileged in the world and not in their backyard only. They do act very much like altruists in this regard. It is estimated that Bill and Melinda Gates would give during their lifetime over $100 billion to their philanthropy. If they leave their daughter with say $100 million and they will not then that is equivalent to leaving a legacy of only $1000 and giving away $990,000 for each million.
It is unfortunate that up until know we have not founded an effective philanthropic structure in the Arab World. Giving away on personal grounds to the needy is one thing and establishing a philanthropy is a completely different thing. It is the difference between your own personal business as an individual proprietor and running it as a corporation . In the former you can do whatever you want but in the latter you are subject to rules and regulations


Free Blog Counter