In their March 9, 2008, column in the Times Magazine, Dubner and Levitt ask: why can’t a charity be run more like a business? They look at two philanthropies that have adopted unorthodox business models. Smile Train, which performs free cleft-repair surgery for poor children around the world, started training local doctors rather than flying in U.S. surgeons; this has helped make Smile Train one of the most productive charities, dollar-for-deed, in the world. The second philanthropy, proposed by a world-class poker player, wants to create a $10 billion “cure cancer” prize with a hitch: a cash dividend paid to the people who donate the $10 billion. Below is some of additional information about the column.
1. Smile Train has performed more than 280,000 cleft surgeries around the world in the past eight years. Here is a country-by-country breakdown. Below is a photo of Smile Train president Brian Mullaney and “Soccer Boy,” who was the catalyst for Mullaney and others deciding to change the way a cleft-surgery philanthropy is run.
2. This paper by the economist Robin Hanson (“Patterns of Patronage: Why Grants Won Over Prizes in Science”) and this masters thesis by Jüri Saar (“Prizes: The Neglected Innovation Incentive”) chronicle some famous prize incentives, from the Longitude Act of 1714 to the X-Prize. This interesting article by the Times‘s David Leonhardt discusses Netflix’s effort to improve its “Cinematch” rating system by offering a $1 million prize to whoever beats the existing system by at least 10 percent.
3. Rafe Furst, a World Series of Poker champion and proud member of “the Tiltboys,” explains his vision for a new kind of philanthropy on his blog. Dubner wrote previously about Furst’s new prediction market “Truth Markets.” Furst has also contributed to this blog on the subject of why there are so few Indian-American poker players.
and 
. You can also watch it on 
There’s an interesting article over at Wired about the Netflix Cinematch competition and how a psychologist might beat the various teams of math whiz kids to the prize.
http://www.wired.com/techbiz/media/magazine/16-03/mf_netflix
Read the article. Really good.
Keep up the good work.
This is wonderful, your pointing out how charities are able to fulfill their purpose. I get really annoyed when I see fundraisers in swanky venues for the very, very rich. And The Tiltboys!!! I love, love this! I’m trying to run one myself, trying to raise awareness about public libraries (not everyone can afford a 30.00 hardcover book or even a paperback) and reading and connecting that with helping to rebuild the public libraries of New Orleans, really, the city of New Orleans. So, mine is a combined charity. Thank you for the information about how other people succeed.
Lyn LeJeune-The Beatitudes Network-Rebuilding the Public Libraries of New Orleans at http://www.beatitudesinneworleans.blogspot.com
Hopefully other non-profit organizations will catch on to capitalistic principles, and begin to make the difference they desire.
I was a little skeptical about the piece – oh, great, more folks asking why charities don’t act like “businesses”. Because they’re not, thats why! But then, the closing line of the article put just the right spin on it – charities and nonprofits should be seeking to be so successful at their mission that they put themselves out of business. All charities and nonprofits should adopt that philosphy.
Ok, it’s time for me to vomit again.
Yes, all we need … is more business/and more “philantrophy”.
The country has 50 million uninsured, wage slavery, illiterate population with barbaric mentality “the rich are rich because they are rich,” invasion of foreign countries, and yet another barbaric Chicagoan tells that we need more of it.
No shame, no decency, just pure greed.
I am a big fan of Stephen Dubner and Steven Levitt’s Freakonomics column but I have to take issue with the content and conclusions they drew in this one. The title of “Why can’t a charity be more like a business?” promotes the discredited notion that if we would just trust the magic and wisdom of the private sector and run everything like a business we would all be better off. They then go on to present two examples that show how badly these fuzzy headed do gooders have botched things and how the magic of the private sector will deliver real solutions.
But let’s look at the facts of these articles. First, they conclude that Operation Smile did not have a business model. They clearly did have a business model, it just had limited supply chain capacity, perhaps one that best fit the talents of most of the people in the organization (not unlike many businesses). Mr. Mullaney is to applauded for his innovative thinking but the process he followed is pretty similar to the situation where someone comes up with a winning formula for, say, a restaurant and is looking for a way to radically expand the business through a franchise operation. To quote from the article, “Smile Train has also harnessed technology to create efficiencies in every aspect of its business”. Hmmm, sounds a good bit like McDonalds (which I acknowledge is a perfectly fine business model and seems to have been used with good results in Smile Train). But my real point is that there are lots of examples of franchise operations where someone bought the winning formula but the actual creator chose to stay with their original, small time operation because that is what they did best. The fact that they wanted to focus on what they did best was not evidence that they need to be “more like a business”.
As to “what store turns away 80% of its customers?” I’d invite Mr. Mullaney to check out the numerous examples of shortages of the latest computer game consoles that seem to occur every Christmas (how could this happen in an actual business?). He also might take a look at the US health care system if he wants to see a business model that is really dedicated to turning away customers.
But I think this is just a warm up to where the wheels really come off. Again, I applaud Rafe Furst’s commitment to using his fortune to seek a cure for cancer but I was a bit stunned by his observations and conclusions. First, the article states that “the cancer-research community, he felt [Furst], was made up of competing interests and misaligned incentives, where financing dollars and even information where hoarded”. Has Mr. Furst ever worked in a large a business (or any business)? I spent the last 25 years or so working in large, successful business organizations and I’m sorry to break the news that competing interest, misaligned incentives, hoarding of financing dollars and even (!) hoarding of information is pretty much business as usual in the typical corporate environment. That being said, I’m left wondering what actual behavior Mr. Furst expects to change in incenting the cancer research establishment to “be more like a business”.
But now Mr. Furst provides us with a brilliant solution. First, he is going to establish a $10 Billion prize. I’m not sure I got this right but it seems like he is proposing that the $10 Billion won’t go towards actually supporting cancer research but will incent cancer research and be awarded after the “cure” is discovered. I think the idea of a prize is interesting but one of this size seems truly wacky. How about a $1 Million prize and spending $9,999,000,000 to support MORE research or better yet, to provide care for the millions in this country that have serious illnesses and cannot afford treatment. But there is even more to the “more like a business” approach in this solution. Mr. Furst is going to fund this by getting investments from his rich friends and guaranteeing 15% returns by getting some of his other, presumably rich, friends in the hedge fund industry to help out with the returns. Great idea, let’s bring in the guys from Long Term Capital Management or the even smarter guys from Enron (ok, I acknowledge that Ernon was not a hedge fund but they were sure thinking like a business, especially when they were incenting power plant operators in California to take their facilities off line).
Ok, to bring this rant to a close, let me just say that I’m just completely fed up with the American mantra, apparently introduced through something in the water supply during the Regan administration, that the natural forces of the private sector are the cure for every issue, large or small, facing our society. And, that charities and other nonprofits are managed by well meaning dimwits (or worse) that are simply incapable of success since they are incapable of adopting a “more like a business” approach to the problems they are trying to solve. For some outstanding recent examples of what the private sector and the “more like a business” approach has delivered in terms of solutions, consider our health care system (America’s 40 million uninsured applaud our apparent addiction to private insurance programs) , student loan program (loans from private lenders are way better than government programs), and the subprime mortgage melt down (why regulate mortgage brokers?). It is sad to see that Stephen Dubner and Steven Levitt have chosen to promote this outdated and discredited notion.
Nothing is more repulsive than money-laundering scheme – you squeeze Bangladeshi children, you squeeze American workers, then drop your dirty underwear to your victims for taxes, self promotion and self gratification.