Isabel Guerrero on CNN

Yesterday CNNe invited me to comment on Bill Gates’ latest donation of $5 billion US to the Bill & Melinda Gates Foundation Trust. Xavier Serbia, host of CNN Dinero wondered about the motivation behind this gift. Is it to contribute to world development? To get tax benefits? Or to build a legacy beyond their children and grandchildren?

These are the questions  in people’s minds when hearing about Gates and philanthropy in general.

When Bill and Melinda Gates started their foundation in 2000 (with a major donation by Warren Buffet in 2006), the development community took notice of the large dollar amounts. But we never imagined how much of a game changer the Gates Foundation would become.

The Gates Foundation has changed the world of philanthropy in three ways. First, most of the money will be spent during the founders’ lifetime. All the assets of the Gates Foundation Trust (a separate entity that manages the endowment assets) and the affiliated Foundation will be spent within 10 years of Buffet’s death and 20 years within Melinda and Bill Gate’s. This is a welcome change from traditional philanthropy and answers Xavier’s question on legacy.

Second, they focus on a few specific development challenges that have measurable results and in fact encourage improvements in data and better monitoring systems through their grant making processes. Their focus started in the health sector internationally and education within the US — the goals are clear and measurable: eliminate malaria, eradicate polio, decrease maternal mortality, etc.

Third, they looked for scale and global impact, and partner with large players for leverage. The World Bank has been a partner, for example, working with large government programs in health.  When I was a Vice-President for South Asia at the World Bank, I saw how Gates’ leadership allowed the Bank to move out of some areas in primary health and focus on other pressing health issues.  Investment in global initiatives such as the Global Alliance for Vaccines and Immunizations (GAVI) also extended the Gates’ impact well beyond traditional philanthropy, creating lasting public-private partnerships to address global health issues.  Today the Gates Foundation has an annual program of around $6 billion US per year, but achieves much more through partnerships and global alliances.

The tax savings question was easy to answer. While it is important to have accountability for taxes saved through being a non-profit, the yearly donations to the Gates Trust are so high that they exceed manifold annual income of the donors. The Foundation estimates in its website that the tax savings for Buffet and the Gates are around 11%, which is much lower than the tax rate paid by high net worth individuals.

So answering Xavier’s question, even though the time is ripe for another game changing moment in the world of philanthropy (which is the subject of another blog), the Gates Foundation seems to be in it for the development impact.  After Bill Gates visited Africa in 1990 and saw first hand the huge difference in health services in poor and rich countries, he read a World  Bank Report that showed that these problems could be solved for relatively small investments. That was the inspiration for the Foundation and continues to be an essential part of who the Foundation is  today.

Finally, I pointed out that the philanthropic tradition in the United States is an example for Latin America. There are corporations and individuals in Latin America, with plenty of wealth that could finance social innovations to complement government programs.  With a clear focus on development challenges with measurable results, following the Gates model, could have a transformational impact in the region. What we need now is to start thinking about regulatory frameworks and tax incentives that support this and leadership from a few game changing players.