[November 19, 2002]

Capitalism is the Best Medicine

by Wayne Dunn

This past campaign season, Democrats such as Missouri's Jean Carnahan ran spots bashing pharmaceutical companies for advertising prescription drugs and "passing the cost on to seniors."

While this argument wasn't the shot in the arm Democrats hoped– Carnahan lost–Republicans should have given them a taste of their own medicine. Imagine a commercial to this effect: "Senator Carnahan says she wants to help seniors pay for prescription drugs. Yet she continues pouring million of dollars into slick TV ads just to get elected. Instead of wasting all that money on advertising, shouldn't the 'caring' senator be buying medicine for needy seniors?"

If pharmaceutical companies are wrong for promoting their interests through advertising, well, so then are political candidates– or anyone else. The deeper point, of course, is that businessmen have as much right to free speech as politicians do. And that's what advertising is– speech.

But despite the favorable moral and practical arguments– despite the arsenal of intellectual ammo provided by pro-capitalists like Ayn Rand and Ludwig von Mises– the GOP are DOA when it comes to promoting free market solutions to health care problems, and in fact are actively nudging us toward socialized medicine. Indeed, one of their campaign issues was that Democrats stymied the Republican-sponsored Medicare prescription drug plan. Get that? Republicans criticized Democrats for not backing a welfare proposal.

The facts however remain on the side of capitalism, whether Republicans do or not.

Here are answers to common fallacies regarding prescription drug advertising in particular and government involvement in health care in general:

"Advertising raises a product's cost." To the contrary, advertising helps lower costs, over time. The purpose of running ads is to reaching a wider audience to increase sales. More profit can then be made through volume selling and lower prices.

"Companies advertise drugs solely to increase their bottom line, not because they want to help people." Drug companies want to make money. All businesses do. But it's not true that ads solely benefit the advertisers, even if that's the advertisers' sole purpose. If a drug works, doctors and hospitals benefit by curing more patients, pharmacies benefit by filling more prescriptions, patients benefit from improved health, patients' employers and family benefit by having healthier employees and loved-ones.

"Even some doctors believe the government should ban prescription drug advertisements." So what? No one, regardless of how many degrees he has, has a right to restrict someone else's freedom of speech. A doctor who concludes that a drug is unsuitable for his patient is perfectly free (under capitalism) not to prescribe it. And if it's false advertising doctors fear– well, the market punishes dishonesty and incompetence, and in cases of material damage and fraud, so does the law.

"New medicine is so expensive because drug companies are greedy." A new drug is expensive for the same reason any new complex creation is: because the creator needs to recoup the initial investment, i.e., the sunk cost of research and testing which likely spanned a decade or more (thanks in part to the FDA).

Government intervention makes new drugs and privately funded medical research of all natures more expensive by making them riskier ventures. What "greedy" capitalist wants to sink millions of dollars into such a long-term undertaking as inventing a new drug or medical procedure when at any moment the government could put the entire field off-limits or impose a regulation that throws a monkey-wrench into the whole works?

Once a drug finally gets approved, corporations have learned from experience to snatch profits as fast as they can– before some pressure group manages to yank it off the shelves. Thus, the threat or actuality of government intrusion, not "corporate greed," works to keep costs higher.

"Drug companies are more concerned with making a quick buck than they are curing diseases." Huh? Talk about a false dichotomy. The surest way for a company to shower itself with "quick bucks" (and enduring bucks, too) is to cure a disease! But the idea that some businesses tend to be short-ranged does contain a modicum of validity only because the government's interloping into every aspect of medicine has made long-range planning next to impossible. Why try to project ten years out when the government could sink your plans next quarter?

"More government programs are needed to help people pay for prescription drugs." The government already undermines market forces and thereby raises health care costs with Medicare and Medicaid. New or expanded programs would only make things worse.

Understand that a pharmaceutical company is a seller out to make as much money as possible with the drugs it creates. While a patient is a buyer out to pay as little as possible for the drugs he needs. Enter the government as a "disinterested" third party. It pays for all (or most), let's says, of the drugs participants in a government handout program need; moreover, bureaucrats may dictate providers, regardless of whether a more cost-efficient choice exists. Now, in this kind of set up, the seller knows the buyer isn't as price-conscious as he would be if he, not the government, were picking up all or most of the tab. Well, if the buyer isn't worried about getting a good value for his money, you can bet the seller isn't worried about giving him one.

In a free market, the seller simply cannot price his goods higher than a profitable number of buyers can afford, and is constantly pressured to lower prices. But when the government guarantees payment, the seller can raise prices without the consumer caring.

"Because a drug company has a monopoly on any new drug it creates, it can charge exorbitant prices." This is a half-truth conjoined with a false premise. The false premise is that such a "monopoly" is somehow improper. But without patent protection, a company would never spend time and money developing a drug only to be "rewarded" by competitors cashing in on the formula. Undermining patents undermines incentive to invent.

But the accusation that drug companies are able to charge "exorbitant" prices contains perhaps a smattering of truth only because of the welfare state's usurpation of market forces. With the government ever-poised to goose-step into the health care industry at the whim of the latest squealing pressure group or rhetoric-spouting politician, pharmaceutical corporations have good reason to grab profits as quickly as possible.

"The government should cap prices." Cap prices and you cap profits. Cap profits and you cap growth and innovation. If a company can't profit from newly developed drugs, then it will redirect dollars from research into less risky, established areas where it can profit. Say hello to designer aspirin and goodbye to the next generation of cancer medicine.

In conclusion, advertising, of prescription drugs or anything else, is a form of free speech that should never be restricted, unless it's fraudulent. And advertising costs getting "passed on to seniors," which miffs so many, is a pittance compared to the costs stemming from the government's short-circuiting of the free market by injecting itself into the health care system in a thousand ways, both great and small. Thus, the answer is not to ban advertising or cap prices or violate patents or anything of the sort. The answer is to recognize that every individual has a right to set whatever terms he desires upon the creations of his own mind and the products of his own efforts. In other words, the answer is laissez-faire capitalism.

 

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© COPYRIGHT 2002 by Wayne Dunn