Big Philanthropy: The Surge of New Wealth in America Is Creating a Bumper Crop of Large Foundations. History Suggests That They Can Accomplish a Great Deal. but It's Not Always Easy to Do Good

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WITH WARREN BUFFETT'S DECISION TO GIVE IT most of his fortune, the Bill and Melinda Gates Foundation has established itself as the largest private philanthropy in the world. Added to the nearly equal amount the Microsoft founder had already contributed, Buffett's commitment of $31 billion means the foundation will spend at least $3 billion annually.

Extraordinary as that amount is, big philanthropy is no longer rare. For many years, the Ford Foundation was by far the largest grant maker in the United States and often the only one with more than a billion dollars in wealth ("the fat boy in the canoe," Dean Rusk used to call it when he was president of the Rockefeller Foundation in the 1950s). But today, a foundation with a billion dollars in assets would not even be among the top 50 grant makers. Ford alone is now worth more than $10 billion, with several others within a good year's investment returns of equaling it.

Along with his donation to the Gates Foundation, Buffett gave each of his children billion-dollar gifts for their own foundations. The press generally characterized these as "small," which they were in relation to what Gates was promised. But less than a generation earlier, such a sum would have made a foundation one of the largest and most important in the United States.

Though not on Buffett's scale, more people are starting or contributing to foundations. Between 1975 and 2004, the number of grant-making organizations in the United States rose from 22,000 to nearly 68,000. According to Giving USA, an annual guide to American philanthropy, 11.5 percent of the quarter-trillion dollars Americans gave to charitable organizations in 2005 came from foundations, almost equaling the record share reached in 2001.

Not only has the number of foundations been increasing, but so too has the frequency of extra-large gifts to other kinds of nonprofit organizations. During 2006 alone, at least a dozen groups (besides the Gates and Buffett foundations) received pledges of $100 million or more, including $175 million from George Lucas to the University of Southern California's film school, $150 million from Stanley W. Anderson to the Presbyterian Church (USA), and $100 million from Mortimer B. Zuckerman to the Memorial Sloan-Kettering Cancer Center. Before the mid-1990s, it was unusual to see more than a handful of such gifts each year.

Much of American philanthropy now rests on the generosity of the very wealthy. Nine out of 10 families in the top fifth of the income distribution contribute to charity each year, writes Arthur Brooks in Who Really Cares (2006), compared to six in 10 from the bottom fifth. While less welloff donors give a larger share of their income to charity, approximately two-thirds of all giving comes today from the most affluent three percent of American households.

Why this is the case is no mystery. The high-tech boom of the 1990s not only created sizable new fortunes but helped established ones grow rapidly. (Despite the prominence of names such as Gates, Dell, and Packard on the list, most of the 50 largest foundations in the United States are products of the industrial era.) The 1990s also produced lots of givers who were apt to be more generous than the typical wealthy donor. According to a recent survey of high net worth households done by Indiana University's Center on Philanthropy for the Bank of America, "entrepreneurs," who earned at least half their fortune by starting businesses, give twice as much, on average, as rich people who inherited at least half of theirs. Those who became wealthy from increased savings, higher returns on investments, or rising real estate values lag further behind in their giving. Since high net worth households give about 50 times more than the typical American household, to the extent economic inequality grew during the 1990s, philanthropy was the beneficiary.

Nor has the "giving boom" by the wealthy mn its course. …