Philanthropy and Wealth Creation

Steven Pearlstein directs some much merited attention towards Phil Auerswald and Zoltan Acs' article in The American Interest from last year. The article discussed the unique role that philanthropy plays in American capitalism. While heaping some praise on their work, Pearlstein spends the remainder of his precious allotment of words on the importance of unions and the government and the hollowing out of the middle class. Phil wrote a very thoughtful follow up on his blog, which you should check out (The Coming Prosperity). Here's part of what caught my attention:

Pearlstein's lament about the hollowing-out of the American middle class--while accurate as stated--misses a bigger trend moving in the opposite direction. The fact is that, on a global scale and using measures that mean more than income, inequality has been shrinking dramatically.

The bigger trend of course is the development of a robust middle class in China, and also in India, and the connection of their populations to global supply chains and to the world stage. As these countries have prospered some of their entrepreneurs have succeeded wildly, just as entrepreneurs like Bill Gates have done here. But this begs the question of what role these new entrepreneurs will play in society. One road is to follow Russia and lock them up (a gross simplification and over generalization, I know). Another path is starting to take shape in China (WSJ Wealth Report):

Bill Gates and Warren Buffett corralled some big names when they released a list of 40 rich donors who pledged to give more than half of their fortunes to charity. But the list was underweight in one area: billionaires outside the U.S.

So the question was a natural one for Li Ka-shing, the Hong Kong billionaire who ranks as one of the richest men in Asia as well as the world. Mr. Li is already a pioneer in this area: In recent years he pledged a third of his wealth to his Li Ka Shing Foundation, which supports Chinese colleges and other causes and was among the first major charitable endeavors of Asia’s new ultrawealthy class.

(similar stories abound). Will China, India and Mexico follow the US example and incorporate successful entrepreneurs into the growing philanthrocapitalist movement or is our case something unique, another element of the American Exceptionalism that Seymour Martin Lipset wrote so eloquently about? There are countless examples of how we might treat the truly wealthy, and we've just touched on a couple of options - and I don't mean arguing about the Bush tax cuts.

But once we start thinking about the role of public policy in an entrepreneurial economy, we really hit on some of the core issues of what it means to be an American (or Chinese, or ...). Our society has a clear story built around success and potential. We believe strongly in equality of opportunity and we take great pride in rags to riches stories, however representative they may or may not be.

As developing countries begin to wrestle with these issues, they will have to define more explicitly what type of society they are and what values they hold dear. Some might go in the direction of Finland or France while others might choose a course more similar to our own. While growth is not inevitable, the rapid success in many parts of the developing world, and the fact that we are even talking about the role of billionaires in these societies, is clearly the most important development of this century.