The surprising strategy behind the Gates Foundation’s success

Over the first 20 years of its existence, the Bill and Melinda Gates Foundation spent $53.8 billion on its various programs, the Gateses announced in their annual letter for 2020. The large majority of that spending, about $39.8 billion, went to global development and global health programs.

This is an impressive sum, one that solidifies the foundation as by far the most prolific giver in all of American philanthropy. In 2015, for instance, it distributed $3.8 billion when no other foundation even crossed the $1 billion threshold. It is truly without peers in the scale of its giving.

But the 2020 annual letter doesn’t just rattle off statistics. It delves into the strategy behind their giving, which is important for understanding everything the Gateses have done to this point. “When [Warren Buffett] donated the bulk of his fortune to our foundation and joined us as a partner in its work, he urged us to ‘swing for the fences,’” the Gateses write, with Bill adding in the margins, “You know Warren was onto something when he’s got me using a sports metaphor.”

What the Gateses took that to mean was that they should look for opportunities of high leverage, where a smaller investment can lead to a much bigger payoff. “The goal isn’t just incremental progress,” they write. “It’s to put the full force of our efforts and resources behind the big bets that, if successful, will save and improve lives.”

It’s an approach that has had a consequential impact — and that should serve as a model for other foundations and donors who want to give effectively.

Leveraging government spending in global health

The Gates Foundation’s giving is enormous — but it still pales in comparison to what governments spend on similar programming. For instance, the United States funds about $11 billion a year in global health programs, whereas the Gateses have, by their own numbers, averaged $780 million a year on global health.

But there’s more to dig into here. The Gateses’ 20th anniversary letter is unusually clear in making the point that the couples’ and their foundation’s success is not built on direct provision of services, or using their money to directly fund, say, vaccine distribution.

Their success is, instead, built on leverage: specifically, the ability of the Gateses with their smaller but more flexibly deployable pot of money to forge coalitions with large international organizations and governments that can in turn mobilize many more billions of dollars than the Gates Foundation can alone.

The letter begins with the Gates Foundation’s role in creating Gavi in 2000, a nonprofit that specializes in providing vaccines in poor countries. They provided $750 million in seed funding, and about $4 billion in funds overall. A World Health Organization report estimated that between 2000 and 2013, Gavi provided 440 million immunizations and averted 6 million deaths.

That’s more immunizations than $4 billion on its own could buy — indeed Gavi’s total budget to date is more like $18 billion. The group only got off the ground because the Gateses used their money to help loop in the World Bank, UNICEF, the World Health Organization, and others as allies, and to raise money directly from governments. The US government, for instance, threw in another $2.2 billion on top of the Gateses’ $4 billion:

GAVI

The formation of the Global Fund to Fight AIDS, Tuberculosis, and Malaria is a similar story: the Gateses played a convening and angel-funding role in putting together an organization that would eventually subsist on funding from governments. Here the total spending is even greater: the Global Fund had approved $49 billion in total funding for on-the-ground projects by summer 2019, of which $18 billion came from the US government and less than $3 billion from the Gateses directly.

The Gateses recount a series of disappointing investments on HIV/AIDS that, tellingly, broke from this strategy of convening governments and leveraging their funds. “In the beginning, we put a lot of resources into HIV preventatives that needed to be taken every day. For a lot of reasons, those didn’t turn out as we hoped,” they write. “Today we’re focused on longer-lasting preventatives. Imagine if, instead of having to take a pill every day, a person could get one injection every other month, an implant in his or her arm, or even a vaccine to entirely remove the risk of getting the virus.”

They don’t appear to be reassessing their approach of supplementing GAVI/Global Fund style collaborations with governments with direct scientific funding. But the latter half of their strategy appears to have yielded fewer concrete wins.

The Gateses’ US programming

“If you’d asked us 20 years ago, we would have guessed that global health would be our foundation’s riskiest work, and our U.S. education work would be our surest bet,” the Gateses write. “In fact, it has turned out just the opposite.”

This is true in terms of actual humanitarian outcomes, but I think it undersells how extraordinary the policy changes on education secured by the foundation have been. It’s just that those changes haven’t had much of an on-the-ground impact.

The US spends about $700 billion every year on K-12 education. The Gateses’ entire US program agenda, including education and everything else they invested in, cost $8.6 billion over the last 20 years. But they had a profound impact all the same.

“We bet big on a set of standards called the Common Core,” Bill Gates writes in the new letter. “Nearly every state adopted them within two years of their release.”

Now, I don’t think the evidence supports the view that the Gateses’ educational investments have done much good — and they themselves concede that the Common Core rollout was somewhat bungled. But it is nonetheless an example where a dollar went so much further than what that dollar could directly buy.

”We thought that if states raised the standards the market would respond and develop new instructional materials that aligned with those standards. That didn’t happen, so we looked for ways to encourage the market,” Bill continues. He suggests that by backing “a nonprofit organization called EdReports, which acts like a Consumer Reports for instructional materials,” they can get around this concern. That hardly seems adequate, but at least it’s something.

The Gateses do show some humility about their track record. “We certainly understand why many people are skeptical about the idea of billionaire philanthropists designing classroom innovations or setting education policy,” they write. “Frankly, we are, too.” But that hesitancy doesn’t stop them from laying out an ambitious agenda for the next few years or decades.

That agenda includes some unleveraged direct provision programs, like the Gates Millennium Scholars Program, which offers full rides to college for minority students. But they also highlight Networks for School Improvement: “Each network includes eight to 20 schools and is focused on a goal of its choosing—for example, helping freshmen who aren’t ‘on track’ to graduate get themselves on the right path.”

This, again, finds the foundation using a relatively modest investment ($240 million so far, a small fraction of K-12 spending) to change approaches in a large number of schools, so that the foundation’s investment has an outsized impact by leveraging the power of government.

Two big new priority areas

The letter notes that the Gateses want to expand their focus from global health/development and education and take on two big new categories: climate change and gender equality.

Here too they take a leveraged approach. The most specific climate program they name is the Global Commission on Adaptation, a panel that Bill Gates co-chaired that aims to influence government climate adaptation policy. They also highlight their Gavi and Global Fund investments again here, arguing, “We need to be thinking about the indirect effects, too, like how a warmer planet will affect global health.”

On gender, Melinda Gates emphasizes expanding access to family planning: “There are over 200 million women in developing countries who do not want to get pregnant but are not using modern contraceptives.” (The Gates Foundation has been vocal about wanting to support family planning, while acknowledging the brutal history of population control efforts by US foundations.)

Though she does not make this link explicitly, this is again building on a core competency of the Gates Foundation: its ability to put together consortiums of foundations and governments to buy necessary medications in bulk and distribute them to poor countries.

If there’s one big meta lesson to learn from this track record, it’s that effective foundations — that is, foundations that achieve what they set out to achieve, whether or not you think that’s good for the world — work by leveraging more powerful actors with more resources than themselves. Those actors will usually but not always be governments; they might be corporations too.

Bill and Melinda Gates didn’t become the most important philanthropists of their generation simply because they have a ton of money. They became important philanthropists by being clever about turning their money into even more money.

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