17 posts categorized "Annals of Wealth"

Annals of Wealth (part 3)

November 05, 2007

Vanderbilt_4BusinessWeek (citing the Business Standard, India's leading business daily) reports that the title of Richest Man in the World passed, on October 30, from Mexican tycoon Carlos Slim Helu to Indian industrialist Mukesh Ambani. I don't know how these things are calculated, but thanks to the strong performance in 2007 of the Bombay stock exchange, Ambani, chairman, managing director, and largest shareholder of Reliance Industries, now apparently boasts a net worth of $63.2 billion, edging out Slim and Bill Gates, number three on the list, each with a net worth of about $62.3 billion.

Ambani -- who gave his wife an Airbus jetliner for her birthday, is rumored to be building a $1 billion residential compound for his family in Mumbai, and, according to The Independent in London, has left "no obvious evidence of any philanthropy" -- denies the claim and is said to be "very upset by all the speculation about his wealth..."

Understandable, though I find it difficult to muster much sympathy for him. The problem, as I see it, is that Mr. Ambani is too much a product of our multicultural, hyper-sensitive, post-modern times. Imagine how much easier his life would be if he just followed the example of Cornelius Vanderbilt (1794-1877), America's first industrial-age tycoon.

When he died in 1877 at age 83, writes Edward Renehan on George Mason University's History News Network, "The Commodore" was worth $105 million. To control the same percentage of GDP today, says Renehan, the author of Commodore: The Life of Cornelius Vanderbilt (Basic/Perseus, 2007), one would have to have $168.4 billion in the bank -- almost three times what Bill Gates is worth.

But Vanderbilt was no bleeding heart philanthropist. As Renehan writes:

No cult of charity claimed [him]; no temptation toward benficence beckoned. Once, when asked to give aid to people standing on line for a distribution of free food, he noted his own impoverished beginning on Staten Island and, without a hint of irony, said: "Let them do what I have done." Not long after this, in an editorial for Packard's Monthly, Mark Twain admonished Vanderbilt to "go and do something [that will] shine as one solitary grain of pure gold upon the heaped rubbish of your life....Go, boldly, grandly, nobly, and give four dollars to some great public charity."

Several years before he died, the Commodore gave $1 million (less than 1 percent of his net worth) to fund what became Vanderbilt University. And though he didn't bother to attend the dedication ceremonies in the autumn of 1875, his gift was hailed as "the largest single act of philanthropy in American history to that time." But it wasn't without strings. Says Renehan:

Attention to the fine print...revealed that a substantial percentage of the $1 million endowment was, by Vanderbiltian order, to be kept in the first mortgage bonds of Vanderbilt's own New York Central & Hudson River Railroad.

It would be hard to imagine, say, a Texas oilman doing something like that today. But Vanderbilt wasn't through. Not long before his death, writes Renahan, the Commodore confided to one of his doctors that he had been "insane on the subject of money-making" all his life. He then drew up a will that left 95 percent of his fortune to just one of his eleven surviving children. Says Renahan:

Vanderbilt said he intended to keep his property "compact...I will not have it scattered. I will leave it as a monument to my name." Thus he left behind him the legacy he most coveted: a vast hoard of stocks, bonds, greenbacks and railroads, but next to nothing in the way of good works or improvement of society.

In other words, he died, in Andrew Carnegie's formulation, disgraced.

-- Mitch Nauffts

Annals of Wealth (part 1)

October 12, 2007

Money_tree

Further evidence ours is a new Gilded Age.

In today's Wall Street Journal, Greg Ip reports ("Income-Equality Gap Widens") that "the richest Americans' share of national income has hit a postwar record, surpassing the highs reached in the 1990s bull market, and underlining the divergence of economic fortunes blamed for fueling anxiety among American workers."

Based on an IRS analysis of tax returns, the numbers show that

The wealthiest 1% of Americans earned 21.2% of all income in 2005...up sharply from 19% in 2004, and surpass[ing] the previous high of 20.8% set in 2000, at the peak of the previous bull market in stocks.

The bottom 50% earned 12.8% of all income, down from 13.4% in 2004 and a bit less than their 13% share in 2000.

While the IRS data did not identify the source of this widening gap, Ip and his editors, citing scholars," suggest that "the boom on Wall Street likely played a part" (as it did in the 1990s), along with "technological change that favors those with more skills," globalization, and "advances in communications that enlarge the rewards available to 'superstar' performers, whether in business, sports or entertainment."

Great wealth, as anyone who has read Wharton or Fitzgerald knows, often creates big headaches, if not great problems, as another item from today's Journal reminds us. In his weekly "Wealth Report," Robert Frank reports that

A growing number of multimillionaires and billionaires, hoping to stave off costly feuds, are drawing up family mission statements -- lofty treatises filled with words like "legacy," "values" and "stewardship" that aim to carry rich families (and their fortunes) safely through the ages.

The goal of such statements, writes Frank, is

to help keep the peace in affluent families. By agreeing on a basic set of principles, families hope to avoid lawsuits between relatives about money. They also hope to draw up moral guides for future generations, so that kids and grandkids will inherit values as well as wealth.

We know that wealth and philanthropy, in America at least, are two sides of the same coin. And as Paul Schervish and others have argued, the U.S. is almost sure to see an unprecedented generational transfer of wealth over the coming decades. That, in turn, is likely to give rise -- in fact, already has -- to a Second Great Wave of Philanthropy.

One of the most astute chroniclers of the "new" philanthropy is Sean Stannard-Stockton, author of the Tactical Philanthropy blog, who in his very first post wrote:

[A]s we embark on the 21st century, the traditional hierarchical structures are collapsing. While the traditional top-down hierarchical system describes the way [John D.] Rockefeller’s foundation distributed grants to charities, which then provided services for the public, a flat organizational system is the model of the Second Great Wave.

This shift acknowledges that no one person or entity has all the answers and instead leads to a virtuous cycle of information feedback. The philanthropists of the 21st century will be smaller in size, but much larger in numbers than the philanthropists of the last century.

I agree with the first part of Sean's analysis, but have yet to see much evidence to support the second. Indeed, just as the rich are getting richer, big organizations, of all kinds, are getting bigger. I think this has a lot to do with network effects, the compounding "returns" that accrue to reputation in an attention-based economy, and other externalities.

What about you? Are we moving toward a flatter, more distributed and disaggregated philanthropic culture in the U.S., or will that culture increasingly be characterized by a few "red giants" (think Bill & Melinda Gates Foundation or the American Red Cross) surrounded by countless smaller foundations and nonprofits?

-- Mitch Nauffts

Quote of the Week

  • "[L]et me assert my firm belief that the only thing we have to fear is...fear itself — nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance...."


    — Franklin D. Roosevelt, 32nd president of the United States

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