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Generous with the fortunes they did nothing to deserve
Do they expect us to be grateful?

July 14, 2006 | Page 11

ALAN MAASS examines the philanthropy of today's robber barons.

BILL GATES and Warren Buffett have grabbed headlines lately not for the usual reason of the record fortunes they've amassed, but because of the record sums they plan to give away to charity.

In June, Gates--cofounder of Microsoft and the world's wealthiest man for 12 years running, according to Forbes magazine--announced that he would retire from business to concentrate on managing the philanthropic foundation he runs with his wife.

A few weeks later, Buffett--the world's second-richest man--declared that he would donate more than 80 percent of his fortune, mostly to the Gates foundation, which promises to devote its efforts to combating AIDS, especially in Africa.

The mainstream media--never faint in its praise of these two latter-day robber barons--now seems ready to canonize them as saints.

"Billanthropy," the Economist magazine declared on its cover. "We're in awe of a Buffett or a Gates," gushed the Chicago Tribune's Julia Keller, "not just because these people made a lot of money, but because they made a lot of money and then turned around and gave a great deal of it away to causes they deemed worthy."

Gates' and Buffett's good deeds (or, more accurately, announced plans for future good deeds) were just the thing to hype in the ongoing effort to clean up Corporate America's image in an era of oil company profiteering and business mega-scandals like the Enron collapse--something highlighted by the timely death of disgraced Enron CEO Ken Lay.

Less remarked on was the grotesque fact that Gates and Buffett are bucking a trend among the super-rich--since Congress and the Bush administration three years ago lowered the top rate of the estate tax imposed on wealthy inheritances, bequests to charities from the rich have fallen steadily and sharply, year by year.

And practically no one mentioned the most obvious point--that Gates and Buffett could give away 99.9 percent of their net worth and still remain rich beyond any ordinary person's wildest dreams. The truth is that their billions in gifts to charity will have less effect on their lives than a working person giving a buck to someone who asks for it on the street.

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JUST WHAT did Gates and Buffett do to become so immensely wealthy?

Neither man is among one-third of people on the Forbes 400 list of richest Americans who landed there from birth, thanks to the family fortune. On the other hand, neither came from modest backgrounds and worked their way up the ladder either. Both started out on the upper rungs.

Gates' parents were wealthy enough to send him to the most expensive prep school in Seattle and pay his full tuition at Harvard. Buffett's father was a stockbroker and four-term Republican congressman whose son's early years were sufficiently comfortable that, at age 14, Warren had saved enough money to invest in 40 acres of farmland--not exactly a common experience for U.S. teenagers.

But the "rags to riches" myths about Gates and Buffett are misleading in a more fundamental way. The bigger lie is that the two ever did anything useful or productive to justify the vast wealth that they accumulated beyond what they were born with.

Gates is rich because the company he founded became a giant in the computer industry. But Gates has never had anything to do with actually producing or distributing the packages of software Microsoft sells.

He doesn't even design the products. Microsoft thrived by buying software developed by other people and successfully marketing it as the boom in personal computers took off in the 1980s.

Gates is rich because he owns. He and his fellow Microsoft shareholders own the means of producing computer software--the factories and offices, the machines, the patents on different technologies.

Likewise, Buffett began his business life in the owning game--as a stockbroker, buying and selling shares of ownership in different companies through stock trading.

The flagship of his empire, Berkshire Hathaway, is in reality a mammoth holding company, with investments and controlling interests in a wide range of subsidiaries. In other words, its chief business is owning other companies.

Buffett's operation is built around the most parasitic of capitalist ventures--insurance. Berkshire Hathaway's insurance subsidiaries generate enormous amounts of cash--by charging premiums from customers on the gamble that future claims won't cost as much as the premiums bring in. This huge fund of ready capital has been the basis for Berkshire Hathaway to make further investments and buy up new companies.

Buffett is known in the business world for rejecting the kind of financial shenanigans that led, for example, to the collapse of Enron and Ken Lay's notorious end. But this preference for orthodox accounting methods shouldn't obscure Buffett's record of ruthlessness at the companies he acquires--and the string of laid-off workers, closed factories and devastated communities left in his wake.

The hallmark of a Buffett-run company is a tough management devoted to cutting costs and squeezing workers. Berkshire Hathaway itself was founded as a textile company, but Buffett closed the company's mills one by one, shuttering the last more than two decades ago.

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BUFFETT AND his top executives say that their main job at Berkshire is "capital allocation." But this "job" is dependent on being owners--with the absolute authority to dispose of assets and resources any way they choose, regardless of the consequences for others.

This is true about the capitalist system generally. The power of the minority at the top rests on its ownership and control of what Karl Marx called the "means of production." Because they own, the capitalists make the most important decisions about how the resources of society are used--and they put the priority on guaranteeing and expanding their own wealth and power.

That wealth is dependent most of all on hiring much larger numbers of people to do the actual work of making or providing different goods and services.

The wealth of the few wouldn't exist without the labor of the many. The profits that come from auto or computer sales, for example, wouldn't exist without a workforce making these products.

For their labor, workers get paid a wage, but even the best-paid worker doesn't receive as much as they produce. The capitalists keep the profit after covering wages and other costs of production, such as raw materials and machinery.

This is supposed to be a fair exchange--workers get "a fair day's pay for a fair day's work," and capitalists get a return on their investment. But there's nothing fair about it. The employers have all kinds of ways to keep wages down, but there's no limit on their profits.

The Marxist case is that capitalism is based on organized theft--the theft of the value of what workers produce by the small class of people who employ them.

The term for this process is exploitation. Normally, this word is associated with especially low wages and brutal conditions. In reality, exploitation takes place every minute of every day--carried out by a small minority of people that does nothing useful or productive, but gets richer because it owns and controls the wealth created by the people who do work.

For all the seeming importance of shrewd stock deals and corporate alliances, Gates' and Buffett's billions rest more fundamentally on the labor of workers.

For them to polish their p.r. images now with promises of charity to help the poor reeks of hypocrisy. At best, they are giving back what they plundered from society.

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