Jhunjhunwala isn't Buffett - not while giving it away

Last Monday, Rakesh Jhunjhunwala, arguably India’s best-known stock market investor with zillions to his name, said he would give away a quarter of his paper wealth to charity.

Since The Economic Times says that three other industrialists - Azim Premji of Wipro, Shiv Nadar of HCL and GM Rao of GMR Group - have also committed themselves to distributing a substantial portion of their wealth for worthwhile causes, it is quite likely that many more wealthy individuals will find it worthwhile to make similar announcements - at their own pace.

The thought of giving has always been there in India, but the idea of making public pledges is new, and emanates from Warren Buffett’s Giving Pledge campaign of 2009, where he has asked America’s billionaires to publicly commit to giving away their wealth to charity. At last count, there were 69 pledges from billionaires ranging from Bill Gates to Mark Zuckerberg (Facebook) to Vinod Khosla, Michael Bloomberg and Larry Ellison (Oracle).

Guilt and gratitude seem to be the two driving forces behind the American drive to give their money away. While Buffett denied the element of guilt associated with making so much money from mere investing, there is no other way to analyse his giving pledge.

Jhunjhunwala is different. His style of raking it in may mirror Buffett’s, but not his style of giving.

Indians, who are relatively new to super-high personal wealth have been less squeamish about leaving it all to their ungrateful progeny, and Jhunjhunwala’s pledge marks a compromise between the Buffett approach and the Indian way. The Economic Times quoted Jhunjhunwala as saying: “I treat charity as my fourth child and will divide my wealth equally among my children.” That’s how the newspaper calculated that he was going to give away a fourth of his wealth for good causes, since he has three children.

Contrast this with what Buffett said when making his giving pledge: “My wealth has come from a combination of living in America, some lucky genes, and compound interest. Both my children and I won what I call the ovarian lottery. (For starters, the odds against my 1930 birth taking place in the US were at least 30 to 1. My being male and white also removed huge obstacles that a majority of Americans then faced.) My luck was accentuated by my living in a market system that sometimes produces distorted results, though overall it serves our country well. I’ve worked in an economy that rewards someone who saves the lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into the billions. In short, fate’s distribution of long straws is wildly capricious.”

Though Buffett goes on to say his decision to return 99 percent of his wealth to society was driven by gratitude for his good fortune, the reference to “luck” and “ovarian lottery” and “fate’s distribution of long straws” suggests that there is some guilt lurking underneath.

Public pledges are ways of dealing with guilt. This is why Larry Ellison, boss of Oracle, who has been giving to charity privately , joined Buffett’s pledge with huge misgivings. He said: “Many years ago, I put virtually all of my assets into a trust with the intent of giving away at least 95 percent of my wealth to charitable causes. I have already given hundreds of millions of dollars to medical research and education, and I will give billions more over time. Until now, I have done this giving quietly - because I have long believed that charitable giving is a personal and private matter. So why am I going public now? Warren Buffett personally asked me to write this letter because he said I would be “setting an example” and “influencing others” to give. I hope he’s right.”

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Two points need to be made here. If guilt is the main reason for doing charity, you might as well keep your money. Money does some good whether you give it away to the poor or to your banker or your stockbroker.

Secondly, charity is not the only way of benefiting society. A businessman serves society by creating jobs and growth. So whether he makes more money from it or less, he is helping remove poverty anyway. Charity thus makes sense if it comes from within and is not meant to be a public show.

In fact, a businessman using his wealth to create more jobs is doing better than someone who is merely serving the poor. The first act creates self-sufficiency in an individual and ennobles, the latter creates dependency and reduces us - though, one must acknowledge, that not all charity creates a dependency.

Let’s see what happens when huge wealth is created. If the money is saved in legitimate avenues - banks, or stocks or bonds - it goes to fund economic activity through lending, or investment. If, on the other hand, wealth is spent lavishly, again it creates demand and jobs. The only useless wealth is the one stashed away under your bed or salted away in Swiss banks - one benefits no one, and the other serves some other society, not ours.

The other aspect of wealth is its taxation. If businessmen pay tax, the money goes to the government’s kitty, from where it presumably goes to help the poor or build infrastructure or feed its babus. If they don’t pay tax, or somehow evade it, the savings again create a round of economic activity - except when the money is salted away in the wrong places without economic use to the nation.

Jhunjhunwala’s approach to charity is similar to his approach to investment: getting the “biggest bang for my buck.”

This begs the question: if business is going to be better at charity than government - which is the fundamental assumption in Warren Buffett’s Giving Pledge and also Jhunjhunwala’s approach - why should we depend more on government than business to lift us out of poverty? (To compound his wealth, Buffett has for decades avoided paying dividends or taxes. He is clearly not a believer in letting government do the work of the wealthy).

The argument is made - often by Right-wingers - that government should get out of business and focus its resources on education, health and public services. But this calls for a counter-question: if government cannot run even simple for-profit businesses efficiently, how can it run an infinitely more complex enterprise like the education system or health services better than businessmen?

There is thus a strong case to equate charity and taxes: businessmen investing in social goals should be enabled to treat the money spent as taxes paid. Maybe, the Jhunjhunwalas and Azim Premjis of the world may make a better business of charity and social goals than the government. More power to their elbow.

For the time being, though, giving it away to the poor is morally superior to giving it to the government.