June 1, 2002
With Responses From
Jun 1, 2002
5 Min read time
Bollier's argument, while accurate, does not go far enough.
In his thoughtful and persuasive essay, David Bollier makes the case that not everything in American life should be subject to private markets, if only because the raw materials are owned by the public. As examples, he cites prescription drugs, which depend on taxpayer-funded research; broadcasting, which uses public airwaves; the Internet, which depends on freely distributed information; and primary education, which is both publicly funded and generally accepted as a community responsibility. I believe he is right on all counts, but I will focus primarily on the example with which I am most familiar: prescription drugs.
Bollier rests his argument on the fact that most innovative prescription drugs result from NIH-funded basic research, usually carried out by faculty researchers at nonprofit academic medical centers. The fruits of this research are often patented by the academic institutions and licensed either to small biotechnology companies for further development or directly to the giant drug companies. As Bollier points out, the drug companies then sell the drug for many times the cost of producing it, despite the fact that they may have had little to do with its discovery or even its development. To justify themselves to an increasingly restive public, they put out highly inflated figures on their research and development costs, implying that any attempts to regulate them will interfere with the output of life-saving new drugs. In fact, the profits of the largest drug companies are nearly twice their research and development costs, and their principal activity is not innovation, but marketing. Most of their drugs are virtually identical to drugs already on the market (called "me-too" drugs). It takes intensive marketing to convince doctors and patients that one is different from another, which accounts for marketing expenditures two-and-a-half times that of research and development costs.
But Bollier's argument, while accurate, does not go far enough. Although the drug companies portray themselves as exemplars of free enterprise, they operate in nothing like a private market. They depend on taxpayer-funded research and are given twenty-year monopolies on their products in the form of patent protection. A reliably friendly Congress has also provided them with a number of methods to extend their monopolies beyond even this period. Finally, the big drug companies pay very little in taxes compared with other major industries, mainly because they can deduct not only their research and development costs, but also their gigantic marketing expenditures. What we have, then, is not free enterprise, but the peculiarly American institution of government welfare for big business, cloaked in market rhetoric.
It is in the area of remedies that I believe Bollier falters—in the abstract and in all four of his examples. His analysis of the problem is far stronger than his quickly proposed solutions. If I understand him correctly, he seems to be saying that an important remedy is for the public to receive some return on the use of its resources. In other words, he advocates a kind of profit-sharing. He speaks approvingly of the Alaska Permanent Fund, a state-run investment savings account that pays dividends to every Alaskan citizen on investments from oil revenues from private drilling on the state's North Slope. He also apparently approves of the concept of a "Sky Trust," in which the public would receive dividends from a trust set up from the proceeds of auctions of emission permits to allow manufacturers to spew more than a standard level of carbon waste into the atmosphere.
But the problem with those kinds of remedies is that the public becomes a party to an agenda that is entirely commercially determined. Yes, every Alaskan benefits from oil drilling, but how much to drill is still a private determination. Yes, the Sky Trust would provide dividends from pollution, but the question of how much to pollute would still be in the hands of industry. Furthermore, the natural opposition of citizens to the long-term harms of certain commercial activities may even be neutralized by their short-term financial gains as "stake-holding" beneficiaries. As an example, a few years ago, at a public meeting in Alaska about the predatory practices of a for-profit hospital chain, its supporters pointed out that the Alaska Permanent Fund had investments in the chain, so the public should not try to regulate it. The real question for the commons is not how to get some return on the private use of public resources, but how such resources ought to be used in the first place. Do citizens of Alaska really want drilling on the North Slope? What should carbon emission standards be, and should there be any exemptions? The public cannot make these decisions wisely if it does so with a financial conflict of interest.
In general, the crucial issue is not so much how to balance public and private interests, but how to decide which areas of life should be left to the market and which should not. As Robert Kuttner showed in his important book Everything for Sale, some things just don't belong in the private sphere. Those things are usually characterized by their vital importance, their expense, and often by their technical complexity, as well as by the use of public resources. And indeed, we have decided that certain goods should remain largely public. Despite recent encroachments, they include education, clean water and air, equal justice, and protection from crime.
Health care, including prescription drugs, ought to be on that list. Alone among advanced nations, the United States regards health care as a commodity to be distributed according to the ability to pay, rather than as a social good, to be distributed according to medical need. But there can be no better example of something that does not belong in the market. It is vital, expensive, and technically complex, and in addition, there is a glaring mismatch between need and ability to pay. The market simply does not work in health care, nor can it. Bollier could as easily have made his case for the entire health care system, particularly since the training of doctors is heavily subsidized by the public and over half of the costs of health care are paid for by the federal or state governments. Prescription drugs are simply a part of the larger problem. Clearly, health care is a matter for the commons, and until we recognize that, the system will continue to deteriorate.
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June 01, 2002
5 Min read time