Alive Thanks to Pharmaceutical Profits

by Tom Palmer on September 19, 2005

Pharmaceutical Research.jpg
Made Possible by Profits

I had dinner this evening with a long-time close friend who’s alive because of pharmaceutical innovations, all made possible by the supranormal rate of return earned by pharmaceutical firms. I enthusiastically endorse what Andrew Sullivan had to say on the topic today. And my colleague Doug Bandow has weighed in on the issue with his usual mastery of both the big picture and the details with his Policy Analysis on “Demonizing Drugmakers: The Political Assault on the Pharmaceutical Industry.”

{ 18 comments }

Mark Brady September 20, 2005 at 11:08 am

Tom, what role, if any, do you see that patents play in providing “the supranormal rate of return earned by pharmaceutical companies” that you believe makes possible the pharmaceutical innovations you describe?

Anon1 September 20, 2005 at 5:55 pm

Real live ailing children ought not be sacrificed or ignored in pursuit of future medical breakthroughs. Here is a short piece about one of my personal heroes, Father Angelo D’Agostino. Andrew Sullivan has said rather inappropriate nasty things about him in the past. Enjoy.

Drug firms accused of genocide
Jesuit criticizes companies for high cost of AIDS drugs

By CAROL GLATZ
Catholic News Service
Vatican City
2/9/2004

A Jesuit priest has condemned pharmaceutical companies for “genocidal action” in their refusal to make anti-retroviral drugs more affordable in Africa.
Father Angelo D’Agostino, a psychiatrist with 24 years’ experience in Africa, said AIDS is killing 400 people a day in Kenya while in Europe and North America it is no longer considered a fatal disease.

He said the difference in mortality rates is due to “the genocidal action of the drug cartels who refuse to make the drugs affordable in Africa even after they reported a US$517 billion profit in 2002.”

“This is a moral issue that shows the lack of social conscience by these capitalistic enterprises,” he said.

“How will we Christians explain this silence on our part some 50 years from now?” D’Agostino asked.

He made his remarks Jan. 29 at a Vatican press conference that presented Pope John Paul’s Lenten message as well as launched a special Vatican fund-raiser in support of a new project to help AIDS orphans. D’Agostino leads the project, called Nyumbani Village.

The priest said one tragic result of the HIV/AIDS pandemic is the huge number of children orphaned when one or both parents die from the illness. At least 11 million AIDS orphans were living in sub-Saharan Africa in 2001.

“No sub-Saharan African country can cope with the current number of orphans who have become street children. It is predicted that by the end of this decade there will be 30 million such street children,” D’Agostino said.

D’Agostino helped establish the Children of God Relief Institute, a network of homes in Kenya that provide medical care and schooling for AIDS orphans.

He said that by the mid-1990s the homes averaged about three deaths a month, but fatalities have “dropped drastically” due to the use of anti-retroviral drugs “so that for all of 2003 we had not a single fatality.”

The priest said some of the drugs used in that program are donated free of charge by the Brazilian government, but the rest have to be purchased.

At another program for AIDS orphans in Nairobi, about eight children die each month “because we don’t have the funds to pay the unaffordable prices demanded by the big international drug companies,” he said.

D’Agostino told Catholic News Service that “despite all the publicity and media hype out there about drug companies reducing prices . . . they haven’t reduced prices enough so the people in Africa can afford (HIV/AIDS drugs).”

“It would cost just US$7 billion to save the lives of the 25 million sub-Saharan Africans who are HIV-positive and otherwise doomed,” he said.

“I have been very vocal about (the problem) . . . but still the drug companies, they’re just too powerful,” he said.

Charles N. Steele September 20, 2005 at 8:42 pm

Anon1 says: “Real live ailing children ought not be sacrificed or ignored in pursuit of future medical breakthroughs.”

So in other words, *future* ailing children (who would benefit from the breakthroughs we won’t have if we steal the current breakthroughs from their developers) are the ones who should be sacrificed — that is the tradeoff.

D’Agostino’s reference to respecting private property rights of pharmeceutical companies as “genocide” is simply a metaphor, and a poor one. But to strip pharmeceutical companies of their assets and rights is literally theft.

BTW — if free retroviral drugs are such a great idea, why doesn’t the D’Agostino’s Catholic Church simply buy the drugs, or the patents for that matter, and distribute them? Where’s the Church’s “social conscience?”

Anonymous September 21, 2005 at 1:36 am

“So in other words, *future* ailing children (who would benefit from the breakthroughs we won’t have if we steal the current breakthroughs from their developers) are the ones who should be sacrificed — that is the tradeoff.”

Yes, exactly. I’m afraid I’m a little rusty on the language of “rights” I gleaned a long time ago from Dr. Palmer, but it seems to me that potential children have no rights or standing in any dispute. They do not exist. It seems absurd to grant phantoms precedence over Kenyans, but, as I said, it’s been a while since I mulled over such matters in the context of natural rights.

” BTW — if free retroviral drugs are such a great idea, why doesn’t the D’Agostino’s Catholic Church simply buy the drugs, or the patents for that matter, and distribute them? Where’s the Church’s “social conscience?””

You’ll get no argument from me. I’m no Catholic and I doubt Fr. D’Agostino is either.

anon1 September 21, 2005 at 1:37 am

I wrote the last post.

Vic September 21, 2005 at 1:53 am

Anon1′s comment ignores how overwhelmingly preventable AIDS is.

In addition, Anon1′s use of the word, “genocide” is equivocal at best. If the big pharmaceuticals had created the virus and spread it amongst humanity, whether intentionally or unintentionally, and subsequently refused to alleviate the suffering and dying of a people (such as Africans, if all the people on that continent can be called “a people”) by withholding drugs that they already had on hand, maybe then the charge of genocide would be justified. Because evidence of such conspiracy or stupefying negligence is totally lacking, the charge of genocide remains an unjustified hyperbole.

Let us assume for a moment that while AIDS is still a problem in Africa, there is no medical treatment for it yet. Would the big pharmaceuticals have a moral obligation to find a cure or treatment for it? If so, would reluctance to develop it also constitute genocide? Does someone’s reluctance to be a sponsor for a child in some run-down, third-world slum mean he or she is guilty of murder if that sponsor-less child dies? Based on D’Agostino’s claims, logic would suggest it a “yes” to all of those questions. Does someone else’s misfortune that I did not cause obligate me to alleviate it?

Vic September 21, 2005 at 1:57 am

Sorry, I just recognized that it was not Anon1, but rather D’Agostino whom Anon1 quotes who used the word, “genocide”.

Charles N. Steele September 21, 2005 at 12:06 pm

Anon1 replies to me “Yes, exactly. I’m afraid I’m a little rusty on the language of “rights” I gleaned a long time ago from Dr. Palmer, but it seems to me that potential children have no rights or standing in any dispute. They do not exist. It seems absurd to grant phantoms precedence over Kenyans, but, as I said, it’s been a while since I mulled over such matters in the context of natural rights.”

I agree that potential children don’t have rights that give them standing here, but that wasn’t my point.

Anon1 argues that “real live ailing children ought not be sacrificed or ignored in pursuit of future medical breakthroughs.” Do you literally believe that? I doubt it. You are stating that regardless of the cost in terms of future events, we should save current children.

Then shall we forgo *all* R&D, investment, etc. whenever doing so will save at least one current life? To try to do so would make civilization impossible, and generate more chaos and premature death in the longer run.

But the alternative is recognizing that indeed sometimes we ought to ignore some problems — including ailing children — because any “solution” will generate even worse results overall. I hate this tradeoff intensely, BTW, but that’s beside the point.

The parties that do have rights here are the pharmeceutical companies (or, more precisely, the people who own them). It might be tempting to do a quick fix of the immediate problem by abrogating their rights, but this will create far more harm for far more people in the longer run.

Aaron G. September 21, 2005 at 12:16 pm

I’m curious about whether Tom considers patents to be property rights or not. I assume Mark Brady is also still curious as well.

Henri Hein September 21, 2005 at 2:37 pm

Anon wrote:
“It seems absurd to grant phantoms precedence over Kenyans, but, as I said, it’s been a while since I mulled over such matters in the context of natural rights.”

I would encourage you to mull it some more, then. Natural rights, as normally understood, do not include a positive right to items that others have developed or produced at their own expense.

Richard Relph September 21, 2005 at 4:29 pm

The patent question is a bit “off”, I believe. The question is wheter ‘intellectual property’ is property at all. While most IP today is protected with patents, patents are not the only way to protect IP. If I invent something, I have no obligation to disclose it to anyone. Of course, it’s tough to make a buck that way. I could sell products based on the invention only under private contract with non-disclosure and other clauses designed to protect my invention. In this scenario, I could have “intellectual property rights” forever. Or someone else might independently invent the same thing tomorrow.

Patent laws are designed to advance society as a whole by encouraging the public disclosure of inventions, allowing others to build on them. In exchange for disclosure, inventors are granted a certain, but limited, period of “rights” in lieu of the uncertain, but unlimited “rights” retained without patents.

Patents make economic sense in that without them a lot of money would be spent on ‘protecting’ ideas through contract law and technical means. More money would be spent trying to defeat those protection mechanisms. And still more economic loss would result from the absence of knowledge preventing advancement.

Tom G. Palmer September 21, 2005 at 9:48 pm

I’ll address the patents question, as it was addressed to me and I think that the conversation on the other topics is interesting without my two cents.

I’ve been critical of the patent system in the past. Mr. Brady has given me a quiz about whether I conform to his vision of right-thought or have drifted further into thought crime. as he defines it. I am not a fan of the patent system and think we could generally live well without it. (I’ve posted a few articles on my web site indicating why.) The one exception to that general hostility to patents, as I have suggested elsewhere, is the system of patents for chemicals, notably pharmaceuticals. Because chemical compounds are relatively easy to reverse-engineer and can be successfully marketed independently of their role in a larger product (unlike, say, innovations in jet engine design, which often are only valuable as part of a kind of engine), patents may indeed generate incentives for innovation that greatly improve human welfare. That’s an argument for them. Since the innovation has the characterstics of public goods (costly to exclude and non-rivalrous in consumption, the latter being the relevant feature here), a good profit maximization strategy ought to be price discrimination, by which those who can pay more do so and others pay less. The best strategy forward for sick people in low-income countries is not abolition of patents, but introduction of an effective system of price discrimination that would price the product at marginal cost there and at a high enough price to recoup R&D costs in high income countries.

As to what accounts for the supra-normal rates of return in pharmaceutical countries, I think that a more significant explanatory factor is the response of the demand for life extension and pain and suffering reduction to rising incomes. Supranormal rates of return may be the result of barriers to entry, but patents do not (generally) represent barriers to entry for new firms. So I think we’re seeing an incentive to allocate more resources to the production of more goods and services of which people desire more as their incomes are rising. I am confident, however, that there are people who are far more knowledgeable about such matters who have devoted considerable attention to just those questions.

Anonymous September 21, 2005 at 10:12 pm

“I would encourage you to mull it some more, then. Natural rights, as normally understood, do not include a positive right to items that others have developed or produced at their own expense.”

I hadn’t realized I’d encounter such a retrograde argument. Do you really embrace a theory that allows a private citizen to deny stores of life-saving medication to his neighbors because his profit target is not met? A more radically antisocial philosophy is hard to conceive.

anon1 September 21, 2005 at 10:13 pm

my apolgies once again, I wrote the last post.

Mark Brady September 22, 2005 at 12:44 am

Tom, thank you for your thoughtful answer.

Vic September 23, 2005 at 8:11 pm

“‘I would encourage you to mull it some more, then. Natural rights, as normally understood, do not include a positive right to items that others have developed or produced at their own expense.’”

“I hadn’t realized I’d encounter such a retrograde argument. Do you really embrace a theory that allows a private citizen to deny stores of life-saving medication to his neighbors because his profit target is not met? A more radically antisocial philosophy is hard to conceive.”

Anon1, your use of language is both unclear (“retrograde”) and problematic (“deny”).

The word, “deny”, implies that his neighbors are refused something to which they are entitled; that they have a positive right to something that is not theirs or that they did not develop or produce. More accurately, I would posit the word “stripped”, “confiscated”, or “stolen” to what it seems you would suggest should happen to the “antisocial” neighbor’s stores of medication.

The word, “antisocial”, implies a dysfunction that needs fixing. However, the Constitution recognizes our freedom to associate with whomever we choose. If one chooses to antisocially associate with few or no people at all, whether for business or pleasure, such is his/her right. A private citizen has every right to refuse to associate economically with his neighbors, even if it means withholding his stores of life-saving medication from them. Maybe he seeks to limit liability in this litigious nation of ours if something should go wrong. Maybe he saved those stores for his family and close friends while his neighbors chose not to. Maybe he’s just mean. The point is, there are many possible reasons for such a hypothetical withholding, and the government is not authorized (nor should it ever be) to determine which reasons are acceptable and which are not.

The price system emergent from a system of freely transacting individuals, however, is the very mechanism that makes such an “antisocial” choice regarding medication very unlikely. Incentives abound for the antisocial neighbor to sell his medications. But again, the choice to sell is his, regardless of the reasons, and those reasons need to be justified to no one, especially any government or agency seeking to “socialize” the “antisocial”.

Henri Hein September 27, 2005 at 5:13 pm

I’m curious how my argument could be construed as ‘retrograde.’ Does Anon1 suggest that the whole concept of Natural Rights is retrograde? In that case, notice that I wasn’t the one to bring it up. Alternatively, perhaps Anon1 is referring to some new theories of Natural Rights that does include positive rights, in which case a pointer would be helpful.

Where are the ‘stores of life-saving medication?’ The Glatz article mentions no such stores. D’Agostino thinks drug companies should “make the drugs more affordable,” ie, provide them at below-cost prices.

(As Vic pointed out, even if such stores did exist, property rights dictate that the owners should retain control. The interesting part is Anon1′s over-dramatization.)

The root problem is one of poverty and trade restrictions, and D’Agostino and Anon1 would do far better to advocate reforms to address these problems. See for instance this Shikwati article:
http://www.worldpress.org/Africa/692.cfm

Roderick T. Long January 24, 2006 at 5:51 pm

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