Thursday, December 01, 2005

Too important to succeed

On this Global AIDS Day, let's perform a thought experiment. Imagine erectile dysfunction was considered a global humanitarian emergency: an epidemic so terrible that the World Health Organization considered it a top priority. And say it was considered a paramount obstacle to alleviating global poverty. Naturally, any treatment developed couldn't be offered at market value, right? Sure there are thousands and thousands of citizens of industrialized nations who would be willing to pay a premium for such a blockbuster drug. But that wouldn't be fair to limp lovers in sub-Saharan Africa! Any pharmaceutical company considering an investment of hundreds of millions of dollars in research would be faced with the reality that as soon as a cure was developed, national governments and international bodies would insist on the moral imperative that, for the greater good, the enterprising company must distribute the drug at cut-rate prices. Even if they were allowed to charge full market prices to rich-world patients, the cheaper pills would inevitably find their way out of Africa. So faced with this reality along with the tremendous financial risk inherent in drug-development, no pharmaceutical company would invest in such a venture. Oh sure, there would be some research done on a humanitarian or governmental basis, but the results would pale in comparison with what competing Fortune 500 pharmaceutical companies could have produced.

Well it's a good thing, that erectile dysfunction is not considered a global humanitarian emergency, otherwise Viagra would have never been developed.

How back-asswards is that! The fight against epidemics is destined to fail, because it's "too important to leave to the market", and thereby TOO IMPORTANT TO SUCCEED. It's the same reason we don't have a universal flu vaccine, a solution to global starvation, or sufficient education systems. Things like toenail fungus, mobile phones, seasonal allergies, and 3D animation aren't that big of a deal; so we can let the market work absolute wonders in those realms. But as for the really critical problems in the world, we feel the need to hobble all efforts to solve them with regulations, subsidies, price controls, and ham-fisted government ventures.

Let's call the following situation Plan B. What if a pharmaceutical company knew it would be able to charge $20,000 for a cure for AIDS without any governmental interference? There are PLENTY of wealthy and middle class AIDS sufferers who would pay such a sum, even if they had scrimp, save, and work weekends to do it. The prospect of that kind of revenue would be a tremendously strong incentive to invest heavily in a cure.

"But wait!" says the moderate liberal would-be-do-gooder, "That's unjust! Sub-Saharan Africa is where a cure is most-needed, and people there can't afford $20,000! Are you going to let them die, just because they're poor? You have to lower the price!"

Just hold on, and put down the "Patients, Not Profits" placard for a second. What you're talking about is what we're doing now: Plan A. Let Plan B play itself out. For once, resist your impulse to solve a problem with a new rule.

Now eventually everyone who has AIDS and can afford $20,000 will buy the "egregiously priced" cure for AIDS. But there would still be lots of AIDS patients who could afford to pay $10,000 a pop. So now it's in the company's own interest to lower the price (smaller profit margins are better than no profits at all). After that market dries up, the company would lower its price perhaps to $5,000, then $2,000, then $1,000. How low would they be willing to go? As low as they can afford to and still make a profit, the level of which would steadily decline as with practice, they became more efficient at making the drug. And since the lowest economic level of AIDS patients is also the most populous level, the company (and its competitors, once its patent expires) would have extra incentive to become cost-efficient enough to offer the drug at ever-lower prices.

So let's review. Plan A (the current plan) has no cure: plenty of good intentions, but no cure. Well at least it's egalitarian. Everybody has an equal amount of AIDS cures: zero.

Plan B has those miserable fat cats in the pharmaceutical industry getting even more filthy rich then they already are. And what's more Magic Johnson gets in the front of the line for the cure, just because he's rich! Tons of impoverished AIDS victims will die before the cure becomes affordable enough for them.

But multiples more would die (which they do) if there were no cure at all (which there isn't) and Plan A were in effect (which it is).

Self-styled progressives wonder why society's priorities are so screwed up: why lawyers and Viagra get more money than teachers and AIDS treatments. Little do they realize that it's their very attempts at improving society's priorities that are distorting the market, thereby preventing it from reflecting our true priorities.


Post a Comment

<< Home

Site Meter