By Doug Bandow on 1.8.07 @ 12:08AM
Politicians always talk about promoting the public interest, but in practice that usually means helping your friends and hurting your enemies. The Democrats taking over Capitol Hill will be choosing new targets for political potshots. Unfortunately, pharmaceutical manufacturers are likely to be high on the list.
Even some Republicans have joined the mob chasing the drugmakers. The litany of complaints is long, but dominated by the claim that medicine costs too much. So it is the job of Congress to make drugs cheaper.
One strategy, part of the Dems’ 100 hour plan, is to have Uncle Sam “negotiate” for lower prices through the new Medicare pharmaceutical benefit. The second, more longer term, is to allow Americans to import drugs from other nations — Canada, certainly, and perhaps many others.
Alas, the pharmaceutical debate has generated far more heat than light. Forget the specifics about whether these are good ideas or not. The very terms of the drug debate is debased.
FIRST, THERE’S A STRANGE TENDENCY to treat pharmaceutical manufacturers as somehow different from everyone else. Industry critics complain about supposedly excess profits, excessive executive salaries, outrageous advertising spending, monopolistic prices, expensive lobbying, and more. Yet what industry could not be accused of the same offenses?
Last year the energy industry was cited for its profit levels. Observers have complained about huge pay packages for CEOs and even lesser corporate executives throughout American business.
What major manufacturer does not advertise? From automobiles to cornflakes to toilet paper to soft drinks, images of products constantly flash before us, at high cost to their makers.
Writers, singers, movie studios, and software firms all rake in money through monopoly-creating copyrights. Washington is filled with special pleaders, including individual companies, industry associations, and the very “public interest” groups that constantly attack the pharmaceutical industry. Companies that once attempted to ignore the political world, such as Microsoft, learned the danger of leaving the field empty for their adversaries.
SECOND, MANY CRITICS TALK as if the drugmakers are actively promoting ill health. Politicians routinely single out drugmakers — in contrast to doctors, clinics, or hospitals — for special abuse. In 2000 presidential candidate Al Gore even lumped companies that produce medicines with corporate polluters and cigarette makers. Yet industry critics go on to bemoan the high prices of and lack of access to pharmaceuticals. The problem is not that the industry is bad, but that the good for which it is responsible isn’t shared as widely as many people wish.
Indeed, the strongest critics of the drugmakers, especially elderly Americans, are the biggest consumers of its products. They don’t doubt the value of the pills they take. They just wish they could have the same pills for less.
It’s not an unreasonable desire, but why should it be limited to drugs? We all like nice cars; shouldn’t we be able to purchase luxury models for less? Most people like good food — if only steak and lobster were available at lower prices. Surely we all deserve bigger, nicer houses for lower mortgage payments. Moreover, virtually everyone seems to believe that they are entitled to virtually unlimited health care at the hands of the finest specialists and facilities, but at virtually no personal cost.
THIRD, THE DEBATE OVER DRUG COSTS usually ignores benefits. There’s a reason people want to use pharmaceuticals, despite their sometimes high prices: the positive results are perceived to be greater than the costs. After all, it is hard to understate the value of a more effective cancer cure, a new treatment for Alzheimer’s, a vaccine against cervical cancer, or even a better remedy for more common ailments — inconvenient, not life-threatening.
For many people the prospect of medical advance is intensely personal: my running partner got hit with MS, a friend died of kidney cancer, another friend survived a bout with breast cancer, my mother died after suffering a recurrence of cancer and blood clots, my father survived prostate cancer, and one of my best friends has diabetes. I would like to see many, many new pharmaceutical products on the market.
Obviously, not all drugs are effective and not all are worth their cost. Nor is there a “right” price for even the best medicine. But it is foolish to treat drugs as if they were an expense, not a benefit.
FINALLY, INDUSTRY CRITICS ACT as if miracle medicines arise ex nihilo, rather like manna from heaven for the ancient Israelites. If only that were true. The federal government helps underwrite basic research; private philanthropists and foundations promote the development of new medicines. Nevertheless, the bulk of R&D spending — more than $50 billion annually, including biotech outlays — comes from private industry.
Companies raise cash to spend on R&D by selling their products. That’s why they advertise. That’s why they hire salesmen and saleswomen. That’s why they provide samples to doctors. The industry’s goal is not to create fabulous products that sit in warehouses unknown and unused. The objective is to get people to buy drugs.
Of course, since pills are cheap to make, pharmaceutical prices seem excessive. Why pay a few bucks for something that costs a few cents to manufacture?
But the price of a drug is not just for the physical end product. It’s for the research. And it’s for the research on all of the compounds that didn’t make it to market.
There are far more misses than hits. Even most successful medicines lose money. The few blockbusters are necessary to underwrite the entire R&D program.
THAT DOESN’T MEAN GOVERNMENT should prop up pharmaceutical prices. However, by the same token, politicians shouldn’t try to artificially force prices down. The particular mechanism doesn’t much matter. Whether explicit government price-setting, Medicare “negotiation,” aka federal price controls, or “reimportation,” really the importation of price controls rather than pharmaceuticals, the ultimate effect will be the same: less money for R&D.
There ain’t no such thing as a free lunch, goes the saying. Forcibly lowering prices means there will be less product. Unfortunately, the perceived benefit, cheaper medicine, is obvious today. The downside, fewer beneficial pharmaceuticals, won’t be felt until years from now, and even then it won’t be obvious. A person will see any fall in the price of a drug that he takes. It is much harder for him to imagine the drugs that would have existed had pharmaceutical companies spent a little more money to develop new products.
Drugmakers are not beyond criticism, of course. But they should not be demonized. By any measure of social good, the pharmaceutical makers constitute one of America’s most important industries. Their products save lives, heal diseases, and improve lives. Instead of targeting drug manufacturers, legislators should applaud them. Indeed, a political party that really cares for the sick, the disadvantaged, and the poor should appreciate the work of the pharmaceutical industry.
Doug Bandow is a senior fellow at the Cato Institute. A former Special Assistant to President Ronald Reagan, he is the author and editor of several books, including The Politics of Plunder: Misgovernment in Washington (Transaction).
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