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Monday, December 11, 2006

Drug Companies and Value

This morning Instapundit wrote:
"... drug companies have done a lot more to make my life better than their critics have. Maybe someone should point that out more often."
I find it interesting that a guy who wrote "An Army of Davids", a book that celebrates that ability of small entities to efficiently utilize and further technology and commerce, is so enamored with an intensely centralized Goliath like the drug industry.

Tiger Hawk then jumped on the bandwagon with:
The pharmaceutical companies deliver extraordinary value to their customers, yet there is apparently great political advantage in bashing them. It is not obvious why this is so.
One obvious answer comes from the "any profits are evil" crowd. Perhaps that even explains most of the big Pharma bashing. But let's ignore this explanation for now since I don't agree with them because I'm all for profits in open and competitive markets.

My perspective is different: I'm very suspicious of any industry whose profits are the result of monopoly rents. And I think that despising monopolies is very much part of the American psyche.

Firmly believing that "pharmaceutical companies deliver extraordinary value" requires an inability or refusal to think outside the box. The four sides of this "box" are the series of monopoly rents imposed by the Patent Office, the AMA, the FDA, and big Pharma. Within this box, I would agree that pharmaceutical companies deliver value. However, I think the box is extremely expensive, both in terms of money and health, and once that's taken into account, I'm not convinced that there's any positive value at all delivered outside the box. If there is value delivered outside the box, I doubt it's extraordinary - it's at best marginal.

There are, of course, gazillions of arguments about why each of those four sides of the box are necessary and I can't possibly begin to address them in a single blog post. Each one of those arguments, however, is only valid within the box. If the box didn't exist, if drugs were developed and deployed using another paradigm, the arguments wouldn't be valid. In fact, they'd be nonsensical.

With this instigation, I'm going to start an Intellectual Property thread of posts where I will propose alternate paradigms for drug development and pick apart the arguments that support the current paradigm. Stay tuned.


Susan's Husband said...

The box is there so that people don't have to take responsibility, and there are deep pockets to pick when accidents happen. If you are going to consider why the box persists, you have to take parasites in to account as well.

Bret said...

Good Point - I will take that into account.

Hey Skipper said...


Even without all the elements of the box, it still seems like innovations will continue to be expensive, with the ones that succeed covering their own costs, plus those of the failures.

Without some period of monopoly rent, how is it possible to avoid a system where all the participants are free-riders waiting for someone else to do something?

Bret said...

Hey Skipper,

It seems to me that your question answers itself. The idea that everybody is going to sit around and twiddle their thumbs living in poverty while waiting to use other people's ideas seems unlikely to me. Humans are naturally creative. They can't help themselves.

The 2nd part of the equation is capital. Certainly, monopoly rents attract capital. But if there were no monopoly rents, capital would simply be attracted to something else such as teams with proven records of getting product to market quickly. That wouldn't be a bad thing.

So, to summarize, people will innovate anyway (they can't help themselves) and capital has to go somewhere anyway. Thus, IP laws aren't necessarily beneficial.