The horizon is not so far as we can see, but as far as we can imagine

The Problem with Pharma Research

Capitalism is based on the premise that profits reflect work that people want done, which is also worth more than the costs of its inputs.

The problem with this theory is that it often just isn’t so; the work being done involves a misallocation of resources.

Take pharma, for example. It is more profitable to sell someone a pill a day than to cure them.

This is simply inescapably true in most cases.

A man who needs erection pills, a person who needs insulin, are much better customers than someone who needs a single round of the latest antibiotic.

If you do have an actual cure, since you can’t keep charging forever, you want to charge as much as possible for it. So you raise the price for a Hep C cure (the majority of the research actually having been done with public money) to six figures, when it costs about a $100 to produce.

And a lot of people die or suffer who don’t have to.

The profit motive is a very blunt instrument, and it’s unnecessary for a lot of work. To be sure, no one wants to pick up garbage, but plenty of people want to be medical researchers, because it’s interesting work which does good for humanity, and a lot of people want to do good. Give them a salary sufficient to support their family and a lab, and most of them will be fine with that.

The actual manufacturing is not so fun, but that could easily be done by a range of contracting companies or even by the government.

And in such a situation, suddenly the emphasis is on cures.

If you must have big payouts, make them bounties: “Cure X, and we give you a billion dollars.”

Pharma does do a lot of research, but it wants a pill a day, it wants extensions of already profitable drugs, or it wants hugely pricey cures. It wants to create new forms of addictive drugs, like opiates, rather than just using, oh, morphine and various other forms of painkiller which work perfectly well and already exist and which can’t be patented.

None of this is hard to figure out. There’s a place for private pharma, to be sure, mostly to act as a cost check on public pharma, but as it exists now, what it’s doing is massively misallocating resources.

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Week-end Wrap – Political Economy – October 6, 2019


America’s Betrayal of the Kurds


  1. Hugh

    Big Pharma is about profits, period. This should raise the issue of why we have corporations and why we confer on them personhood. Corporations should exist to fulfill some social good. If they do not or abuse their role they should cease to exist. Their assets should be confiscated/reconstituted and their owners and management fined and/or imprisoned. The reason that owners and directors act as they do is because there are currently no consequences for what they do. They act badly because they can. The choice that we the many should be giving them is that you act for the common good, or else. There should be consequences.

  2. Tim

    I have to agree with Hugh\’s points. The 2008 financial crash was the missed golden opportunity to rethink some of the principles (a huge pun- because there were none) of the economy to prevent the constant looting and hollowing out that rewards deplorable behaviour. Pharma is probably the most grotesque example when people go bankrupt or ration life saving drugs like insulin while the criminals in expensive suits line their pockets with cash. Stock buys backs on the heels of massive tax cuts, with massive job losses are second in line to pharma. Unfortunately there is zero world wide political will to stop this and the only thing in the economy that will grow are the number of billionaires and the numbers without life sustaining incomes.

  3. nihil obstet

    The corporate form exempts actual persons from liability for financial loss and for most crimes. Fraud, workplace injuries, bribery — courts have said that the people don’t do these things. The corporation does. So some fines out of the corporate money stream and the people who did the things can keep doing them. This wasn’t the original purpose of the corporate form, but its history is really one of the few examples of sliding down the slippery slope, thanks to judges raised in the households of people with stock.

  4. bruce wilder

    I despair of our current politics more than anything because of the failure of reason to persuade that is so evident on a great range of issues. And, this is a great example. That business must be constrained into practical and reasonably “safe” channels in order to make the economics of the economic system work for society as a whole is fundamental and ought to be obvious, so obvious that it becomes the common assumption shared thru all political controversy. This common assumption has been eroded away thru forty years of neoliberalism triumphant. And, we are left instead with an increasing resistance to reason (as well as deafness to the cries of simple humanity), reinforced and compounded by tribalist loyalism to self-flattering ideologies.

    I guess what I am saying that it all blends together — the inability or unwillingness to think thru the basics of practical issues like how to organize and finance health care somehow becomes of a piece with the insanity of U.S. foreign policy debate (I was listening to MSNBC “Morning Joe” this morning where they were running with “the second whistleblower” (sic) and Trump’s move to withdraw from Syria in favor of Turkey. My mind was cocked toward listening for reason, and I realized that there was so little genuine reason suffusing the discussion that it became a bit like watching teevee with the sound turned off; in this case, the talking heads had turned off all reason.)

    This example of how laissez faire capitalism can be expected to organize pharma is reminder that reason can come to a conclusion. If our politics respects reason not at all, no one acts as if it matters. So, for-profit medical research, advertising prescription drugs on television, the Sacklers make hundreds of millions from addictive drugs that exacerbate the misery of whole communities, and la de da. Ditto, for a foreign policy of perpetual war driven by the profits of armament makers.

  5. Willy

    As a kid I did a report about cancer, predicting it’d be cured by now. But I did have a thought that a cure for cancer would put a lot of people out of work, and the guy with the cure would be silenced somehow by the cancer business owners. But yeah, I knew that targeting rogue cells is tough, but I never imagined that targeting rogue capitalists would be just as tough.

    My physician in-law and his buddies joined a well-functioning spartan looking clinic 30 years ago, and turned it into a company so bookworked that most staff and patients were stressed and bitching. I quit when everything turned “take two of these and don’t call me”. In the online reviews phrases like “fradulent billing” and “unacceptable wait times” became common. But the offices got 5-star remodeled. They then sold the company with partners getting 6 figures in the buyout. A once honest hippocratic business is now so much more institutionalized corporate bullshit. How this place continued to grow and not be outcompeted by ethical clinics is beyond me. Dental clinics seem to operate under a completely different system.

    Government intervention seems the only way to restore a capitalistic balance in the entire pharma/medical/insurance complex. But would that require a few courageous martyrs? I may have to go to the reviews (avg 2.4 stars) and politicize them.

  6. Stirling S Newberry

    This is again the case where socialism needs to be paid for, I will write on the later. But the bottom line in that taxes pay for it, so it is a common good. That means cures need to be researched because taxes pay for it.

  7. Herman

    @bruce wilder,

    I have also become increasingly pessimistic about our politics. People are much less rational than I thought and there is some strong evidence to back up the argument that people vote based on things like partisan loyalty, identity, tribalism and other factors that have little to do with policy.

    Christopher Achen and Larry Bartels have some good talks on some of the problems with standard democratic theory.

    I am not sure how to fix this problem but I suspect that we will need to rethink how our political institutions work. One possible solution is bringing back earmarks to encourage politicians to actually try to get things done. I have posted this article before but I think Jonathan Rauch is right on the money when he describes how well-intentioned reforms meant to make American politics more democratic have actually made it less effective at even the most basic elements of governing.

    The pharma issue that Ian wrote about is just one example of a glaring problem that is obvious to so many people in this country that it should be one of the biggest issues on the political agenda but instead we have endless scandals and dysfunction. Politics has become like watching an episode of Jerry Springer.

  8. Keith in Modesto

    Hugh’s comment at the top, that corporations should (only) exist to fulfill some public good, and that when they do not (or worse, harm the public good) there should be severe consequences for the owners and board members, that whole comment needs to be on a t-shirt and worn by millions for everyone to see. Or placards. Maybe a really long bumper sticker.

  9. scruff

    corporations should (only) exist to fulfill some public good, and that when they do not (or worse, harm the public good) there should be severe consequences

    I think the world needs something even more basic – an explicit conversation and understanding of why we even have a contiguous society in the first place. Are we a tribe, or are we rival tribes? Are we going to treat each other with the kind of emotional relationship that humans need to engage in and support each other, or are we going to compete towards each others’ extinction within the bounds of some BS “civil” ruleset called capitalism?

  10. sbt42

    What if there was an X Prize for cancer cures?

    How would that play out?

  11. Peder Pedersen

    Totally agree.
    Another way is to differentiate IP protection periods. Cures are protected for 30 Years and treatments for only 2 years, or some other combination, until the incentives encourages development of cures.

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