Rethinking drug research and patents
Evil drug companies are a cliche of modern life. Like all the negative economic cliches (bankers, employers, etc.), people tend to attach moral judgements (greed, inneficiency, calousness, etc.) but rarely propose systematic change. Maybe this is a lack of imaginiation, maybe the institutions that dictate public debate have no interest in changing anything. None the less, normal people can and should take another look at the systems that produce negative outcomes for them because its bad systems, not bad people, that really hurt when it comes to macroeconomics.
So in this thread I want to talk about pharmaceuticals. I want to start right of by saying that about half the research done in the US is publically funded, about 30 out of 60 billion dollars. So straight away you've got half the drug research essentially constituting a subsidy to drug companies. The real number is bigger, because alot of the research done by drug companies is not substansive -it involves creating copycat drugs- or is done on things with far less social utility, like diet pills or hair loss treatments. Further public subsidy to drug companies comes from the fact that the government that paid for half or more of the research then goes on to buy the drugs back at the vastly inflated price created by the patent that that government guarantees. What's more, in the US, the government is not allowed, by law, to bargain down the costs of the drugs it buys from these companies: it has to pay 'market prices' (except in a market hugely scewed by its own action).
Now obviously the outcomes for normal people of this subsidee to the tiny proportion of the population that have a stake in the profits of drug companies are negative, not just in terms of taxes paid, but in terms of the cost and quality of health care. So what can be done? For me there are two viable routes to go down, one which has been tried, and one which is an adaptation of the current system, so neither are out of the blue. Here they are:
Changing the nature of patents:
Thailand pioneered a system that has caught on in other develloping countries whereby the nature of patents gets changed. Essentially a patent works like a franchise rather than a monopoly. Essentially the law dicates that all information is private domain, and that any company can produce any drug they like. However, the holder of the patent gets a share of every sale they make. This has cut the price of drugs in these countries dramatically. Its a nice solution for some countries in a world like the one we live in today, and I applaude it. It makes drugs avaiable to markets where they essentially would have been out of the picture previously. But maybe it is only appropriate for such markets. It can't really hurt drug companies to have their profits shifted around a little in a country like Thailand where instead of getting a lot from a few they get a little from a lot. But in rich countries, this strategy would really cut into their profits. Would this damage the quality of research? I don't know, its never been tested.
Changing the nature of research funding:
Half research in the US (where, let's face it, most research goes on) is funded by tax payers. Now the average US taxpayer would stand to make a lot of money if they chose to fund all of it. Why do I say that? Well, the money you lose on research you more than make up for on the reduction in drug prices. This could be done in number of ways. Stiglitz proposed a simple system of awards to succesfull research companies every time they came up with something worth while. Dean Baker proposed a system of private contracts to research companies which were periodically reviewed in order to ensure substansive research was progressing. But both agree that public funding of research and public availability of the results of research would save almost everybody a lot of money. Instead of buying your brand drugs for $400 you'd get them from Wall-Mart for $4.
Another benefit of this type of research is that it could be done internationally. Obviously drug breakthroughs are of benefit to people all over the globe. Whilst public drug research at present largely constitutes a subsidee to national industries (or at least their owners) if you took out that factor then international cooperation on drug research would make a lot of sense. So the US could pay a more reasonable percentage of the world's bedget for drug research meaning further savings for US taxpayers.
The big objection raised to this sort of initiative is typically that governments shouldn't interfere in the economy and that publically funded research is inneficient. In response to that I'd point out that patents constitute a massive interferance in the economy in the first place and that public funding of research and spending on brand name drugs is also a massive interferance, but no drug company wants to get rid of that. In fact they are constantly advocating increases in those things for obvious reasons. As for the inefficiency of publically funded research there are two salient points. First, research could be done on the market, but payed for centrally. Second, efficiency is a judgement about expenditure of valued resouces vs. production of valued outcomes. I regard outcomes that benefit a tiny minority at the expense of the large majority as horrifically inefficient because I don't value that outcome. If only researching things that can make billions of dollars in sales and taking no risks is what you value, then drug companies are doing a great job being efficient in their research programs. But I doubt that is what you value.
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Originally Posted by Simon Cashmere
