Does the Gates’ Letter 2017 answer Warren Buffett’s questions?

Melinda and Bill Gates have made an annual tradition of publishing their thoughts on their work in global development, the challenges they face, and their goals for the future. These letters are a manifesto for their philanthropic work, most of which is channelled through the Bill and Melinda Gates Foundation.

The Gates structured their 2017 Annual Letter as a response to Warren Buffet’s (CEO of Berkshire Hathaway Inc.) letter to Melinda and Bill Gates, where he asked them to reflect on their work so far – on what had gone well, and what hadn’t; and to describe their goals for the future. He further said:

There are many who want to know where you’ve come from, where you’re heading and why. I also believe it’s important that people better understand why success in philanthropy is measured differently from success in business or government. Your letter might explain how the two of you measure yourselves and how you would like the final scorecard to read.

Buffet’s questions assume great significance given that in 2006, he pledged to donate 85% of his wealth to charity, and allotted a sum of about $31 billion to the Gates Foundation. These questions, from one of the most successful investor of our times, are essentially about how well his philanthropic investment in the Gates Foundation was doing. What had he helped them achieve?

In this column, I analyse Gates’ response, and examine whether they really answer Buffet’s questions. I came away with two main impressions: one, their answer as to what success looks like for the Gates Foundation (bulked up by Buffet’s sizeable contribution) is not convincing enough; and two, their response reveals a continuing faith in the role of technology, at the expense of behaviour, institutions, and politics.

The Gates letter focuses on global health, and they lay out a set of impressive numbers: globally, a consistent reduction in mortality rates amongst children under-five have led to 122 million children’s lives being saved since 1990. They talk about the vital role of vaccines, safe deliveries and better nutrition in making that number possible. A consistent theme here is the emphasis on cutting-edge research to develop technical fixes (vaccines, contraceptives, etc.), and helping poor people around the world improve access to these inputs (commodities).

In the 2016 letter, Melinda Gates wrote about women and unpaid domestic work – a complex socio-political issue that has no obvious technical fixes. She reflected on how women spend more time on unpaid domestic work than men do; and partly as a result, they make up a less than half of the organised labour force. That theme carries to this year’s letter as they write about the importance of empowering women by expanding economic opportunities, and their ability to make decisions, especially exercising their reproductive rights.

The 2017 letter also has plenty of the Gates’ trademark optimism that progress is inevitable, and they conclude with promises to continue working towards tackling the most pressing challenges in global health.

As I read the letter, I was conscious of the mega-complex of aid that the Gates have built, with powerful partnerships all around the world. And then, I wondered: with the global scale and scope of investments that the Gates Foundation makes, how would they really measure impact that is attributable to them? When asked to measure themselves, as Buffett did, the Gates talk pick issues closest to their heart, and report all progress made globally.

‘Attribution’ in this case is not quite how we understand it for discrete projects, or multi-input programmes, where a rigorous impact evaluation would suffice. But in order to properly answer Warren Buffet’s question, the Gates would have to demonstrate an improvement over the counterfactual: that they used the wealth bequeathed to their Foundation in ways that enabled a greater number of people to emerge from poverty than would have been in the normal course of events. This could be achieved by their role influencing global development policy, leveraging their resources to raise even greater funds dedicated to finding solutions to pressing development challenges, and their role in strengthening country governments to deliver essential services. On each of these three topics, the Gates fail to mention what their incremental contribution might be.

In answering Buffet’s questions as they did, the Gates may have been trying to answer another of Buffet’s questions, by explaining how success in philanthropy is measured differently from other sectors, where collaboration between different organisations (as opposed to competition) and contribution (as opposed to attribution) towards the achievement of a common goal, are valued. However, in the absence of a more critical reflection of their incremental contribution, they open themselves up to the familiar critique of aid that there is a tendency to overstate successes and not enough admission of failure.

Finally, there are three words that do not appear at all in this letter – ‘behaviour’, ‘politics’ and ‘institutions’ – that may impact the ‘final scorecard’ that Buffett refers to. The global health issues that the Gates talk about focus on the production and delivery of inputs to poor people. For instance, helping increase ‘usage’ is mentioned often in the discussion on contraceptives, but the need to study, and influence behaviour to expand adoption of these products is never mentioned. It is notable, for instance, that sanitation (a pressing public health problem that kills infants and causes stunting) that can only be fixed by a long-drawn process of behavioural change wasn’t mentioned in this letter.

On the other hand, the absence of ‘politics’ and ‘institutions’, despite of Bill Gates’ references to the ‘role of governments’ in last year’s letter, is quite unsurprising. A passing reference is made to the recent change of government in the US and the UK and the threat to foreign aid, but there is no mention of the fact that their wider politics (and resultant policies) potentially have far-reaching consequences, especially where radical politics has been systematically weakening institutions, both in rich and poor countries. Be it women’s reproductive rights, protection of refugees, migration laws, extractive industries, tax havens, or conflict zones around the world, they have the power to destabilise the current course of global development. These happen to be two stark examples, but they amply demonstrate the importance of geo-politics in determining progress in the developing world.

The 2017 Gates Letter leaves one with mixed feelings. It is fair to say that Warren Buffet’s questions go unanswered, as it remains unclear what the incremental benefits have yielded from his massive donation to the Gates Foundation. At the same time, not focusing harder on ‘behaviour’ indicates a puzzling neglect of the long hard slog certain social and development problems demand. Finally, ignoring ‘politics’ and the performance of ‘institutions’ could be a blind-spot that could undo a lot of the gradual progress made by low-income countries around the globe. That is a scary thought.

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Where is the promised windfall from demonetisation?

The Economic Survey 2016/17 was striking not only for its literary references, but also for its circumspect nature. One of major the drivers of this circumspection (which is not a trait one associates with the Narendra Modi government) was the yet-to-be-ascertained impact of demonetisation. The Economic Survey was cautious in saying that it would take long for us to accurately calculate the gains and losses from demonetisation, but ventured to claim that it would result in at most, a 0.5 percentage point fall in the GDP growth rate.

Of all the benefits of demonetisation that the government has been at great pains to sell, the simplest one is a spike in direct tax collections in the form of both taxes and penalties (on black money declared). The second, is an assurance that banks that are now flush with deposits will significantly lower lending rates to spur consumption. Both these do find mention in the Finance Minister’s budget speech, along with a host of benefits that have repeatedly been promised to us — a war on black money, corruption, counterfeit currency and terror funding.

But the government failed to make good these promises in its own budget, and at the moment, we are forced to conclude that the promised gains from demonetisation have just not materialised. Total Tax Revenue of the government in 2016–17 increased by 17% over the previous year. Next year, the government anticipates a 12% increase. Similarly, income tax receipts in 2016–17 went up by 23% over the previous year, and is budgeted to increase by a further 25% next year.

Chief Economic Advisor the Government of India, Arvind Subramanian in an interview yesterday named service tax receipts as one of the four measures of the impact of demonetisation. He did also admit that because of the impending Goods and Services Tax regime, it would be hard to isolate the impact of demonetisation. Here too, the numbers suggest that the Finance Minister is not expecting a great deal of change. Service tax receipts, after having increased by 17% this year, are expected to go up by only 11% next year.

In none of these collections, or projections, can one see a tangible increase in tax receipts as a result of demonetisation. An important caveat is that for the current year, the figures are based on the government’s Revised Estimates, which may well change by the time the Actual figures are recorded once data from the last two months are accounted for. But the surge that one expected from demonetisation is missing — especially when you consider that the difference in Total Tax Revenue between the Revised Estimates and the Budget Estimates for 2016–17 is only 4%. It does appear that on the revenue side, the government was lucky to receive an unexpected additional Rs. 23,167 crores of non-tax revenue in the form of dividends public sector enterprises.

It is not surprising then, that the Finance Minister has little to no room to give away post-demonetisation bonanzas. Neither are there any significant increase in allocations to welfare schemes, nor are there any big bang announcements that would help the government actually implement some of its high-decibel rhetoric. For instance, the allocation for Smart Cities of Rs. 9,000 crore is actually lower than the Revised Estimates of this year at Rs. 9,559 crore. The record allocation of Rs. 48,000 crores for MGNREGS is impressive only until you realise that the estimated expenditure this year is Rs. 47,499 crore. To take another example, the Start-up India Aspiration Fund, after having used Rs. 100 crore out of its allocation of Rs. 600 crore this year has disappeared from next year’s budget.

In many ways, today’s union budget was Finance Minister Arun Jaitley’s moment of truth. With a budget speech that had to shun rhetoric, Jaitley was forced to admit — in deeds, if not just through words — that several glamorous schemes announced by the government have struggled to match up to their rhetoric. In a way, Finance Minister Arun Jaitley may have presented his most honest budget so far. As they say, numbers don’t lie.

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This column first appeared on Catch News