Tuesday, November 29, 2011

Should Billionaires Like Steve Jobs "Give Back?"

Insufficiently Generous?

Writing in the New York Times shortly before the death of Steve Jobs, Andrew Sorkin asked whether Jobs was a generous philanthropist and, if not, why not. (The essay, entitled "The Mystery of Jobs' Public Giving" can be found here.) As the essay points out, Jobs had a personal fortune over $8 Billion. Moreover, he declined to sign the so-called "giving pledge," orchestrated by Warren Buffet and Bill Gates, whereby signatories pledge to donate a majority of their wealth to charity. Sorkin also claimed that there is little evidence that, pledges aside, Jobs actually gave a significant share of his large personal fortune to charity. Finally, Sorkin asserted that Apple itself is less charitable than many Fortune 500 companies, "despite its nearly $14 Billion in profits last year," and that Jobs closed down the company's philanthropic programs in 1997.

Sorkin finds Jobs' failure to give more to charity "surprising," and also suggests that Jobs has received a sort of free pass not granted other super-rich individuals with meager giving records. As Sorkin puts it:

"But the lack of public philanthropy by Mr. Jobs --- long whispered about, but never said aloud raises some important questions about the way the public views business and business people at a time when some 'millionaires and billionaires' are criticized for not giving back enough while Mr. Jobs is lionized."

Sorkin points to Bill Gates, Warren Buffet and Sam Walton as billionaires who, unlike Jobs, have been criticized for not "giving back" significant parts of their personal fortune to society by making philanthropy a high priority.

Here are some thoughts on Sorkin's essay:

1. Sorkin does us a useful service by pointing out the double standard applied to billionaires on the question of philanthropy. Why criticize Warren Buffet or Sam Walton for miserly giving records, while leaving Jobs unscathed? Moreover, this blogger agrees with Sorkin that there IS such a double standard, that is, that some individuals, such as Jobs, somehow avoid public criticism for a perceived lack of charity while others with similar records come under fire.

2. However, identifying a double standard and thus concluding that the same standard should apply to all simply begs the following question: what should the standard be? Should billionaires feel obliged (albeit in some unenforceable way) to "give back" a large fraction of their after-tax wealth to charity? Is criticism directed at other billionaires fair? It's reasonably clear what Sorkin thinks, namely, that all billionaires, including Jobs, should feel some sense of obligation to "give back" significant portions of their personal fortunes to the rest of society, presumably in a way that benefits individuals with more modest financial means. At the same time, Sorkin does not expend much effort arguing this case, but instead seems to take as a given that such an obligation exists.

3. Do all billionaires necessarily possess such an obligation to "give back" to society? This blogger doubts it. For one thing, the characterization of charitable donations by billionaires as "giving back," while common, is morally problematic in a free society. Mr. Jobs (and, for that matter, Mr. Gates and Mr. Walton) did not "take" their wealth from society. Nor did society "give" them that wealth or gratuitously shower it upon them. Instead, they earned that wealth, by cooperating with others to create products and services that individuals voluntarily purchased in free markets. It thus makes no sense to refer to charitable donations by such billionaires as "giving back," as though they are returning something they have passively received. The mere fact that individuals possess wealth does not thereby oblige them to give it away, though many do. Such donations are giving, plain and simple.

4. To be sure, society creates and enforces various background institutions and rules that help facilitate the creation and retention of wealth. Without property law and police protection, for instance, Sam Walton's Wal-Mart could not earn a profit buying and reselling products manufactured by others. Without the protection of copyright law, a form of property, Microsoft could not make several billion dollars per year selling its Windows operating system. As Nobel Laureates Ronald Coase and Friedrich Hayek both recognized, the "free market" in fact depends upon institutions of private property and contract law, both institutions backed by state force.

Still, while various forms of state action might be necessary to make the free enterprise system function, this does not mean that successful entrepreneurs or the companies they create owe some special obligation to share their wealth with others. After all, when it creates and supports various market-supporting institutions, the State is merely satisfying its most basic obligation under the social contract. Under that contract, individuals leave the state of nature and grant a portion of their natural liberty to the larger community. In return, the State creates and enforces property rights and rights in personal security, sometimes interfering with the liberty and property of those who would invade such property or security in the process. Such interference can include taxation that is necessary to support legitimate government activities, such as police forces, courts and the like, activities that facilitate the creation and operation of free markets and the wealth they produce. As James Madison explained in Federalist 10, government exists to protect liberty and property:

"The diversity in the faculties of men, from which the rights of property originate, is not less an insuperable obstacle to a uniformity of interests. The protection of these faculties is the first object of government. From the protection of different and unequal faculties of acquiring property, the possession of different degrees and kinds of property immediately result[.]."

In a free society premised on a Madisonian social contract, economic success does not oblige one to turn over a portion of one's wealth to the larger community. Wealthy individuals discharge their obligations to the State when they abide by general laws, including laws requiring the payment of taxes. Indeed, billionaires such as Mr. Jobs presumably paid far more to the State in taxes than the state expended to protect their property and personal security. Neither the State nor the larger community may invoke the satisfaction of its pre-existing obligation to protect liberty and property as justification for demanding even more.

5. Assertions that these billionaires have not done enough for society ignore the enormous contributions they have already made. Mr. Jobs did not find $8 billion in his backyard. Instead, he created and led a company that created numerous products that individuals chose to purchase voluntarily. No one was forced to purchase an I-Pad or I-Phone. Moreover, the $8 billion that Mr. Jobs amassed represents only a fraction of the value that Apple's products conferred on those who purchased them. (Because demand curves are downward sloping, we can assume that most individuals would have been willing to pay more than the market price for Apple's products.) Moreover, as already mentioned above, billionaires like Mr. Jobs and the companies they run pay far more in taxes than the State pays back to them; presumably the State redistributes what is left over to others. Admonishing individuals like Mr. Jobs to give even more to others almost seems like "piling on."

6. None of this is to say that NO billionaire owes a duty to "give back" a portion of his or her fortune to the rest of the community. Some may have obtained their fortunes unjustly, as when the State grants a firm a monopoly and thus the power to gouge consumers. Others may have religious beliefs that require them to share the wealth they have created with others. Finally, some may believe that a free society flourishes when institutions that are independent of government take on charitable responsibilities that government would otherwise assume. Indeed, as explained previously on this blog, some believe that a decentralized system of higher education, independent of the State, is essential for a free society to flourish. Such individuals may feel bound to create or support private charitable institutions. None of these considerations, however, establishes that billionaires have an obligation to "give back" simply because they have amassed a large fortune.