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Global Health and the Gates Foundation

Author: Robert McMahon, Editor
June 28, 2006

Introduction

Warren Buffett's gift of more than $30 billion to the Gates Foundation roughly doubles the size of what was already the world's largest private philanthropic endowment. The foundation has been increasingly active—and effective—in immunization campaigns against diseases such as malaria and tuberculosis. With the new donation, the foundation will likely have an enormous impact on global health issues, handing out a projected $3 billion per year in grants targeting a longer list of diseases. It also may become further involved in microcredit and agriculture projects. Experts expect the foundation to expand its resources significantly in global development issues, which increasingly intersect with health concerns. But they caution it will be challenged to spend the larger sums wisely.

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How much money will go to the Gates Foundation?

Buffett's gift represents the current value of 10 million shares of Class B stock from his company, Berkshire Hathaway. It is to be doled out in shares currently worth about $1.5 billion per year starting in July. The overall amount places the size of the Gates Foundation endowment at roughly $60 billion. It is currently spending an average of $1.5 billion per year on global health promotion and the gift nearly doubles the amount the foundation will spend per year in this area. It is not yet clear how much the foundation's staff will expand from its current 241 members. Since 1999, the Gates Foundation has come to focus mainly on global health issues, where $6 billion of the $10 billion spent by the foundation has been directed.

How effective has the Gates Foundation been thus far?

Health experts credit the foundation with bringing new thinking and resources to the global health field, with an emphasis on scientific research. It is seen as especially promising in developing vaccines for diseases such as malaria and tuberculosis. The foundation has also spent hundreds of millions of dollars in grants to support the Global Fund for AIDS, Tuberculosis, and Malaria, an independent Swiss foundation. It has set aside nearly $500 million for the Grand Challenges in Global Health Initiative, which supports projects like research into blocking insects from spreading disease. The Wall Street Journal says the Gates Foundation usually seeks "strategic investments" with partners in areas like disease-treatment programs. John Sewell, a senior scholar at the Woodrow Wilson Center and former president of the Overseas Development Council, cites the foundation's approach to expanding vaccinations through partnerships with pharmaceutical companies. Such partnerships make vaccines available to thousands of poor people while at the same time assuring funding for pharmaceutical companies that rely on profits for ongoing research and development. Vaccine funds supported by the foundation, Sewell says, "guarantee a purchase but are not a free ride for the pharmaceutical companies so there's a lot of responsibility on both sides."

USA Today notes moves like designating $258 million last year for development of a malaria vaccine represent a shift in traditional philanthropy, which previously was involved mostly in distribution of drugs. Dr. Anders Nordstrom, acting director general of the World Health Organization, told the Los Angeles Times that Gates has stimulated "new knowledge, new products or just new thinking" on health promotion. "He's galvanized international attention, particularly on vaccine research and on health in general," says Princeton Lyman, CFR's Ralph Bunche Senior Fellow for Africa Policy Studies.

But for all its influence, the Gates Foundation is no replacement for—and is not as accountable as—the World Health Organization, says Laurie Garrett, CFR's Senior Fellow for Global Health. She writes in this op ed that foundation isn't going to "send scientists in spacesuits wading into Marburg outbreaks or lead a global response to pandemic flu. That's the WHO's job."

Is the Foundation likely to expand its areas of focus?

Experts expect the foundation to continue emphasizing global health promotion. Gates told a news conference after Buffett's gift was announced there was an opportunity for finding cures for the top twenty fatal diseases. His wife and cofounder of the foundation, Melinda Gates, said finding a cure for AIDS is one goal. She also indicated the foundation will do more in agricultural development, saying "It's hard to take [medication] if you don't have food."

Sewell says an expanded focus on agriculture makes sense in much of Africa, where there are dire health needs and most of the population consists of farmers. He says infrastructure should be a priority. "Part of that is simply more organization and extension service," Sewell says. "Part of it is rather large [aid] areas like having roads where rural people can be reached and can get their crops out. And part of it is agricultural technology, having crops to grow in tough environments." Lyman says Gates may expand some of the information technology projects he helped launch in India and South Africa. "With this money from Buffett they should be able to move into much deeper, broader development issues," Lyman says.

What challenges does the foundation face?

Experts say the new money brings enormous challenges. Under the terms of Buffett's gift, the foundation will be required by 2009 to annually spend the dollar amount of the donation, estimated at about $1.5 billion. Sewell says "speedy disbursement is not a good idea in the aid business" in part because some targeted countries don't have the administrative capacity to absorb new assistance money. "They're going to have to put money into building the capacity of [countries'] absorbing more money," says Sewell. Other experts say that with many of its health projects still in the development phase, the Gates Foundation still faces political and logistical obstacles to implementing its goals. The new challenges are seen as contributing to Gates' announcement earlier this month that he will relinquish the daily responsibilities of leading Microsoft to focus on the foundation.

Is there concern that the value of shares owned by Gates and Buffett will decline?

About two-thirds of the assets (PDF) of the Gates Foundation are in bonds, indicating conservative management. Gates has requested managers of the fund to target a 5 percent return each year, to be used for program grants. Buffett, one of the world's shrewdest investors, has kept his assets in Berkshire Hathaway stock. Buffett has stressed the stability and long-term growth aspect of Berkshire shares. Still, it is not unprecedented for a major philanthropist to see his stock plunge. Media mogul Ted Turner pledged $1 billion to UN causes in 1997 and then saw his personal wealth plummet when the value of his Time Warner shares declined precipitously. Turner paid out half his pledge within about five years, but following the slump in his fortunes in 2002, the board managing the gift decided the remainder should be disbursed over ten years rather than five as initially planned.

Have private foundations had an impact on global welfare?

In the 1960s and 1970s, the Rockefeller and Ford Foundations played important roles in spurring the Green Revolution, in which developed countries transferred agricultural technology to peasants and farmers in Asia, eliminating the threat of famine in many countries. Another prominent private group is the Soros Foundation, a major donor to human rights, civil society, health, and democratization causes. Funded by George Soros, the foundation has been accused by some authoritarian governments in the former Soviet Union of interference after revolutions in Ukraine and Georgia and Serbia, countries where his organization has been active.

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