[Ip-health] NYT: Bottom-Line Philanthropy

[Matt Price]

<snip>
Furst and some other Tiltboys began donating a portion of their poker
earnings to the Prevent Cancer Foundation, and in 2004 he was invited
to join its board. He viewed the Grand Rapids conference as a way to
learn more about cancer and how it was being fought. Instead, he says:
"I fell down a rabbit hole. I saw that there were some messed-up
things going on here. The system is just not designed to solve this
problem." The cancer-research community, he felt, was made up of
countless well-meaning individuals who, collectively, turned into a
hive of competing interests and misaligned incentives, where financing
dollars and even information were hoarded.

So Furst, too, conceived a new charitable business model. His idea is
little more than a commingling of two long-proven incentives: prizes
and profits. Inspired by the X Prize Foundation's sponsorship of
innovations in space travel and other realms, Furst wants to establish
a giant prize, as much as $10 billion, that would go to the party or
parties that achieve a "cure" for cancer, as defined by the prize
committee.
</snip>

http://www.nytimes.com/2008/03/09/magazine/09WWLN-freakonomics-t.html

Freakonomics
Bottom-Line Philanthropy

By STEPHEN J. DUBNER and STEVEN D. LEVITT
Published: March 9, 2008

The 'Soccer Boy' Effect
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Paul Sahre


Brian Mullaney's epiphany occurred back in 1994 in Vietnam. He was
traveling as a board member with Operation Smile, a charity that
performed cleft-repair surgery on poor children around the world.
Because the organization flew in doctors and surgical equipment from
the United States, its time and capacity in a given locale were
limited. "On every mission, 500 or 600 children would show up begging
for treatment," Mullaney recalls, "but we could only help 150." In a
small Vietnamese village near the Chinese border, there was one kid
who played soccer every day with the volunteers; they took to calling
him Soccer Boy. When the mission was over and Mullaney and the others
drove away, he saw Soccer Boy chasing after the group's bus, his cleft
lip still unrepaired. "We were in shock =97 how could he not have been
helped?" That's when Mullaney realized that charities like Operation
Smile were badly in need of a new business model =97 or any business
model at all, really =97 and he set out to invent one.

Rafe Furst's epiphany came just last year while attending a
closed-door conference in Grand Rapids, Mich., that featured some of
the most prominent cancer researchers in the United States. Furst
might not seem the likeliest person to be in such a room. He is best
known as a professional gambler, a proud member of a high-profile,
high-I.Q. poker gang known as the Tiltboys. He has an undergraduate
degree in symbolic systems and a graduate degree in computer science,
both from Stanford, and in 1999 he banked a small fortune by selling
an online promotions company he helped found. (Disclosure: Furst is a
friend of ours, and we are both investors in a more recent start-up of
his, its mission unrelated to this article.)

Furst and some other Tiltboys began donating a portion of their poker
earnings to the Prevent Cancer Foundation, and in 2004 he was invited
to join its board. He viewed the Grand Rapids conference as a way to
learn more about cancer and how it was being fought. Instead, he says:
"I fell down a rabbit hole. I saw that there were some messed-up
things going on here. The system is just not designed to solve this
problem." The cancer-research community, he felt, was made up of
countless well-meaning individuals who, collectively, turned into a
hive of competing interests and misaligned incentives, where financing
dollars and even information were hoarded.

So Furst, too, conceived a new charitable business model. His idea is
little more than a commingling of two long-proven incentives: prizes
and profits. Inspired by the X Prize Foundation's sponsorship of
innovations in space travel and other realms, Furst wants to establish
a giant prize, as much as $10 billion, that would go to the party or
parties that achieve a "cure" for cancer, as defined by the prize
committee.

And where will that $10 billion come from? "I don't want Bill Gates,"
Furst says. "I want your average millionaire down the block who wants
to make a difference." Furst says he believes the landscape is thick
with would-be philanthropists, especially younger people, who would
like nonprofits to operate a bit more like the for-profit worlds they
inhabit. This means establishing realistic and powerful incentives.

Cancer researchers would certainly be incentivized by the $10 billion
prize. But how to incentivize the donors? Furst would offer an
annuity, similar to the annuities paid out by charitable-remainder
trusts. A donor to such a trust gives money or property to a charity
and receives an annuity based on its value until his or her death.
"That's a cool idea," Furst says. "But I thought, How can we make it
so you don't have to die?"

An early contributor to what might be called the Cure Cancer Annuity
Fund would receive as much as a 15 percent return on her money until
the $10 billion was fully funded; after that, she would receive a 5
percent return. (This would be dependent, of course, on the fund's
ability to generate such returns; Furst is confident that some
hedge-fund friends of his could make that happen.) The annuity would
stop only when the goal =97 a cure for cancer =97 was reached and the
principal was paid out to the winners. Furst's greatest insight may be
the recognition that, for many people, the act of altruism is not as
pure as it might seem. In this case, whatever pain a donor may feel
from giving is countered by the pleasure of also getting something
back.

For now, Furst's idea is still in the planning stage. Brian Mullaney's
idea, meanwhile, has already borne much fruit. The incident in Vietnam
with Soccer Boy made him realize, he says, that cleft deformities "are
not a medical problem; they're an economic problem." As a
philanthropist, offering surgery to only a fraction of the children
who needed it made him heartsick. As a businessman =97 at the time, he
ran an advertising agency =97 it made him cringe. "What store turns away
80 percent of its customers?"

Mullaney helped conceive a plan. Instead of using Operation Smile's
hard-raised millions to fly doctors and equipment around the world for
limited engagements, what if the money were used instead to train and
equip local doctors to perform cleft surgery year-round? Mullaney
figured that the cost per surgery would drop by at least 75 percent,
and he saw no reason not to try it. Operation Smile's leadership saw
things differently, so Mullaney and a few others left the organization
and started a rival group, Smile Train. Along the way, Mullaney got
out of the advertising business and became the new organization's
president.

Smile Train works as a charity because it is run like a business.
Fixing a child's cleft lip or palate is a relatively cheap procedure
with outsize payoffs: cleft children in many countries are ostracized
and have a hard time going to school, getting jobs and marrying, and
the surgery reverses those disadvantages. Indeed, when pitching a
reluctant government, Mullaney refers to cleft children as
"nonperforming assets" who can soon be returned to the economic
mainstream. He fights bad incentives with better ones: when Smile
Train learned that midwives in Chennai, India, were being paid off to
smother baby girls born with cleft deformities, Mullaney started
offering midwives as much as $10 for each girl they instead took to a
hospital for surgery.

Smile Train has also harnessed technology to create efficiencies in
every aspect of its business, from fund-raising to charting patients'
outcomes. It developed surgery-training software that helps educate
doctors around the world. There are high-tech quality-control
measures: using digital imaging, a Texas cleft expert grades a random
sample of operations performed by Smile Train doctors around the
world, in order to know which surgeons in, say, Uganda or China need
more training. These are the sort of innovations that likely make
Smile Train one of most productive charities, dollar for deed, in the
world. Over the last eight years, Smile Train has performed more than
280,000 cleft surgeries in 74 of the world's poorest countries,
raising some $84 million last year while employing a worldwide staff
of just 30 people.

Mullaney estimates that Smile Train is close to reaching a historic
break-even point: it will perform more operations each year than the
number of children born each year in developing countries with cleft
deformities. This means Smile Train may be well on its way to putting
itself out of business. "That," Mullaney says, "would be a dream."

Stephen J. Dubner and Steven D. Levitt are the authors of the book
"Freakonomics." More information on the research behind this column is
online at www.freakonomics.com.