Thursday, December 16, 2010

Effectual Charity

I was thinking the other day about how I would structure a charity if I were to build one.

I've long believed that charities, just like companies, work best when they have a coherent vision of one thing they wish to accomplish. By trying to accomplish many different things piecemeal, you end up inefficient, weak and non-impactful. (This is not to say that flexibility is not important - if you come across another concept that is a better way for your organization to proceed than you initially thought, that's great... but even if you alter the vision, you should still have one vision that everyone is working towards).

This is an opinion, of course, but I base the rest of this post on it.

I was thinking about what a really effective way to promote medical research would be. I have always preferred charities involved in medical research because the impact-per-dollar if you do it right can stretch far beyond just the direct recipient of each dollar you spend. In other words, you're investing in goods that otherwise receive too little investment because of positive externalities. Safety net charities are certainly admirable, but the opportunity cost of my dollars is such that I prefer scientific research.

This got me to thinking: What would happen if you created a pharmaceutical or medical devices company, structured entirely for profit, with the only stipulation being that 75% of all profit must be spent on R&D, and some percentage of R&D spending (20%? 50%?) must be basic research? You'd probably want to ban M&A in most cases, as well, because then you're buying something that others have already discovered - you want the spending to go to NEW treatments.

In all other respects, the company would operate as a for-profit - advertising, market development, salaries, pricing, etc. If your goal was to make an impact on medical progress, wouldn't this be the best way to divert as much money as possible to furthering medicine?

You don't want all profit going into R&D because then nobody has an incentive to grow the business. You need the basic research stipulation because basic research is the most underfunded area and also the most economically unprofitable.

Wouldn't this structure direct the most possible money to further medical research? Your initial dollars largely go to research (to have a pharma or medtech company, you need a product), and followup dollars go to research, too. That's a way to really further medical technology.

Anyone interested?

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