WSJ: The Capitalist as the Ultimate Philanthropist

http://www.wsj.com/articles/SB10587845965603524902004581051710812887634

The Ford Foundation vows to fight inequality but will have a hard time beating Henry’s example.

On June 11, the $11 billion Ford Foundation announced that it will pour its resources—about $500 million in giving a year—into fighting inequality. “We are talking about inequality in all its forms—in influence, access, agency, resources, and respect,” Darren Walker,the charity’s president, wrote in a letter.

Oh, the irony. I won’t join the public intellectuals having hissy fits over how people choose to give away their money, beyond being annoyed that since the Ford Foundation is tax-exempt, we’re all subsidizing it. Here’s the real problem: The foundation is getting exactly backward what its namesake, Henry Ford, understood. Society benefits from making, not giving.

The bulk of the Ford Foundation’s assets came when it received 88% of the nonvoting shares in the Ford Motor Company, most after Henry Ford died in 1947. Ford hated inheritance taxes, then a punitive 70%. In 1956 Ford Motor went public at $3.2 billion. Most of the shares sold were from the Ford Foundation, about a quarter of its holdings. The foundation’s charter stated the money should go “for scientific, educational and charitable purposes, all for the public welfare.” How times have changed.

This story matters because people have lost sight of where foundations got the money they’re donating. Ford Motor was worth $3 billion 60 years ago because it was profitable and investors had high expectations, not because the company raised wages to $5 a day, a popular myth. Ford Motor was profitable because Henry Ford created scalable assembly lines, reduced the cost of the Model T to under $300, and sold 15 million of them.

Model Ts made millions of businesses and workers more productive and created that “public welfare” that the Ford Foundation struggles to achieve. Ford Motor created wealth for society, as well as for Henry Ford, and you can’t do the latter without the former.

Think about it: No one would invest $300 in a Ford unless he thought that he could make at least that much using it—to deliver milk, to get to work, whatever. At least 15 million drivers made that choice, and the rest of Americans benefited from cheaper milk and Corn Flakes. In other words, the Ford Motor company increased living standards, and as a result its owner became fabulously wealthy. This may have increased the perception of inequality, yet everyone was better off.

A company’s profits are the minimum value of the work it does for you and for society.