Home > Uncategorized > Evil doers: the pharmaceutical industry and the pandemic

Evil doers: the pharmaceutical industry and the pandemic

from Dean Baker  

Now that George W. Bush is back in the news with his attacks on the Trumpist insurrectionists, it might be worth reviving one of the great lines of his presidency. After the September 11th attack, when Bush decided to go after not just the terrorists who planned the hijackings, but all sorts of people around the world he didn’t like, he lumped them together as “evil doers.” That may not be the most eloquent phrase, but it works well as a description of the modern pharmaceutical industry.

Some may find this description of the pharmaceutical industry abhorrent, after all they develop life-saving drugs and vaccines, most recently the vaccines against the coronavirus which have saved millions of lives. But the industry’s story line gives us a very incomplete picture of what it does and how.

Probably the best way to think about the pharmaceutical industry is to imagine an incredibly corrupt fire department. Most of the money that the fire department gets to buy new trucks and other equipment goes right into the pockets of the department’s commissioner and his closest friends. The department may still do its job in the sense that they rush to fires and rescue people trapped by flames, but it costs way more than it should.

The fire department may even occasionally start fires itself so that they can be heroes in putting them out and rescuing potential victims.

If that sounds like an over the top accusation against the pharmaceutical industry, then you didn’t pay attention to the opioid scandal. Several major drug companies have paid out billions of dollars in settlements over the accusation that they deliberately misled doctors about the addictiveness of the new generation of opioids.

Note that the accusation was not that the industry mistaken failed to recognize how addictive their drugs were. The accusation was that they knew they were highly addictive, but lied to doctors so that they could sell more prescriptions. This is not very different from deliberating starting fires to drum up business.

Now suppose that the there was growing political pressure to cut back the fire department’s budget and clean up its practices. Naturally it’s not going to just sit back and let someone take away the trough. Our corrupt fire department will do everything in its power to continue the practices that are allowing it top officials to get rich.

In the case of the corrupt fire department we can anticipate big public relations campaigns where they highlight the fires they have extinguished and the lives they have saved. We can expect to see pictures of adorable children who were saved from burning blazes by the fire department. This of course has nothing to do with the effort to eliminate corruption, but it makes great material for advertisements on the major news shows. And, who knows, maybe these expensive ads will even influence their reporting on the first department’s corruption.

This corresponds to the pharmaceutical industry’s campaign to beat back congressional efforts to lower prescription drug prices and weaken the protection the industry now enjoys with government-granted patent monopolies. Just as the corrupt fire department actually does save kids lives, the pharmaceutical industry does produce drugs and vaccines that are hugely important for people’s lives and health.

But that is not the issue, the question is whether there are better ways to get these drugs and vaccines. There is good reason for thinking there is.

Direct Public Funding, an Alternative to Government-Granted Patent Monopolies

The obvious alternative to having drug companies pay for their research costs is through direct public funding of research.  Direct funding can take different forms. We can have a prize system, where the government gives out prizes and then takes ownership of new drugs or vaccines. These are then placed in the public domain so that they can be sold as cheap generics.

My preferred route is a system of long-term contracts, similar to the way the Pentagon pays for the development of new planes, submarines, and weapons systems. This has the big advantage that it can require that all research be fully public all along the way. This means that research findings, as well as results from clinical trials, are posted on the web as soon as practical. This means that researchers all over the country, and in fact all over the world, can quickly benefit from each other’s successes and failures. (I outline this system in more detail in chapter 5 of Rigged [it’s free].)

To my view, this shift to direct public funding has the important result of changing the incentives of the pharmaceutical industry. Under the patent monopoly system, drug companies try to figure out how to maximize the profits they can get as a result of the monopolies the government has given them. This may mean developing drugs that offer little benefit over existing drugs, but which they think they can market effectively.

It can mean finding ways to extend their monopolies, which may be dubious from a legal perspective, but with high-priced lawyers, may buy them another year or two on their patents. And, it may mean lying about the safety and effectiveness of a drug in order to maximize the amount they can sell at the patent protected prices.

These are the incentives provided by the patent monopoly system of financing drug development. If we instead relied on direct public funding there would undoubtedly be underperforming companies and some money would end up being wasted on dead ends. But all drugs and vaccines that were developed would be cheap (they are almost always cheap to manufacture and distribute) and no one would have incentive to lie to us about their safety and effectiveness.

We can condemn drug company executives as moral monsters for misleading the public about their drugs or for charging high prices that put them out of reach of much of the population, but they are responding to the incentive structure we created. The key issue here is changing the incentive structure so that drug companies don’t do awful things.

TRIPS and the Fugitive Slave Act

For those not familiar with U.S. history, the Fugitive Slave Act usually refers to the 1850 bill passed by Congress, which made it easier for bounty hunters to track people who had escaped from slavery in the South into Northern states that banned slavery. These bounty hunters could bring the people who had escaped slavery back to the South. The Act imposed serious penalties on anyone who tried to assist people in escaping slavery or blocked the efforts of bounty hunters. Its provisions were considerably stronger than an earlier Fugitive Slave Act passed in 1793, making it more difficult for people escaping slavery to live freely in the North. It was an important factor in the tensions that led to the Civil War a decade later.

I would not compare TRIPS to the barbarism of a system of slavery that imprisoned tens of millions of people for centuries, but the Fugitive Slave Act provides an example of a truly barbaric law that ostensibly decent people could consider reasonable. We should understand TRIPS also as a horrific provision of an international trade deal, the Uruguay Round of General Agreement on Tariffs and Trade, that was designed to bottle up technology to reduce access in the developing world, even when the issue is access to life-saving medicines or vaccines.

The issue of bottling up technology is central to the story of the massive and unnecessary loss of life in the pandemic. The official death toll worldwide is already over 4.7 million, but we know this is a gross understatement. To take one of the hardest hit countries, India now officially reports 445,000 deaths from the pandemic, but a study by the Center for Global Development put the number of excess deaths in India, as of July, at 3.4 million and possibly over 4 million. In Mexico, the number of excess deaths is more than 240,000 higher than official death toll from Covid, and in South Africa the gap is 150,000. Clearly the death toll is several million higher than the already horrific official number.

But the question here is how much did the drug industry’s bottling up of technology contribute to this disaster. The provisions of TRIPS require countries throughout the world to have U.S. type patent laws. This means that countries like South Africa, Brazil, and India (the world largest manufacturer of pharmaceuticals), that might have had the technical expertise to produce the Covid vaccines, as well as treatments and tests, could not simply start shifting production to pandemic related items. They needed to have the authorization of manufacturers who had patent rights.

This applied to manufacturers in wealthy countries as well. For example, Teva, a huge Israeli pharmaceutical company, wanted to produce the Pfizer vaccine by converting existing facilities, but was unable to come to an agreement.

The problems with increasing production of vaccines, treatments, and tests goes beyond just patents. A couple of months ago, I was on a panel with an industry representative who was anxious to boast that much of the technology needed to produce the mRNA vaccines does not depend on patent monopolies, but is instead held as industrial secrets. He said that he didn’t see how companies could be forced to disclose secret information.

Of course, no company has to disclose secret information, we can just have their top engineers share the expertise they have gained while at Pfizer, AstraZeneca, or Moderna. Surely, for paychecks of millions of dollars per month many of the most the most knowledgeable engineers at these companies could be persuaded to share their know-how with pharmaceutical manufacturers in the developing world. The fact that they could also be helping to save millions of lives might also make this work attractive.

The reason this technology transfer is not happening now is that all these companies have non-disclosure agreements with the employees who would have access to this knowledge. If any of them were to begin sharing information with another pharmaceutical company, they would certainly face a large lawsuit from their former employer, who may also be able to get an injunction prohibiting this engineer from providing further assistance. If an engineer were to act in violation of an injunction, they could face imprisonment. In short, the laws on non-disclosure agreements can be used by pharmaceutical companies to block the transfer of the technologies needed to effectively combat the pandemic.

Governments do not have to make non-disclosure agreements enforceable contracts, especially when so much of the underlying technology, as in the case of mRNA vaccines, was developed with public funds.  Non-disclosure agreements are quite explicitly designed to limit competition. Other contracts designed to restrict competition are not enforceable by the courts. For example, if Apple were to pay Samsung $1 billion in exchange for a commitment not to charge less than $800 for its newest smart phone, no court would sanction Samsung if it violated this agreement. Since the purpose is clearly to limit competition, in direct violation of anti-trust laws, this sort of contract would be unenforceable.

In the same vein, we can think of the laws on non-disclosure agreements as efforts to limit competition, that have no place in a free market. Again, the case for this view is strongest when much of the funding for the development of technology comes from the government, as is the case with the Covid vaccines and most innovations in the biomedical sector.

The proponents of the WTO often talk about it as promoting free trade, but in fact, the TRIPS accord went 180 degrees in the opposite direction. TRIPS is about bottling up technology. A WTO that was actually designed to promote free trade and the transfer of technology would, instead of protecting patent monopolies, would be banning, or least severely restricting, non-disclosure agreements. Don’t look for that one any time soon.

“Free trade” has always been a flexible concept that the wealthy and powerful have interpreted in ways that advance their interests at the expense of everyone else. The Opium Wars fought between China and the United Kingdom were justified on the basis of free trade. The UK was insisting that people in China had the right to buy opium, which was the one product that it could sell to China in large quantities in order to pay for all the items it wanted to buy from China.

We should think about current rules on intellectual property in the same way. They have no moral or economic rationale. (Yeah, I know we can tell stories about how they are needed for innovation, but they aren’t true.) The laws on intellectual property are designed to make a relatively small number of people very rich. In doing so, they not only make everyone else poorer, they also cost millions or even tens of millions of lives.

  1. bruceolsen
    September 20, 2021 at 9:17 pm

    In the 16th century “freedom” was used to describe the exclusionary privileges given to the large trading companies and other state-granted monopolies. They were granted the “freedom” to operate unfettered in a specific geographic area or business area. This is the origin of the “free” in “free trade,” of course.

  2. bruceolsen
    September 20, 2021 at 9:59 pm

    This can be explained much more simply

    Pharma blames their high costs on the high risks they take. Fair enough: let’s remove 100% of their risk by authorizing government to take these 3 steps:

    1. We pay for all research–including research into unprofitable, orphaned diseases (there’s no telling what we may learn about health by curing even the most obscure disease, so we should fund research into everything). Each existing pharma divests an R&D company that is managed as it is now, but wholly paid for by the public. Something like a utility.

    2. We pay for manufacturing at actual cost. As above, pharma companies divest their manufacturing organizations and the public pays 100% for it .Naturally, we get all of the production. With no risk from development these costs will plummet. Personally, I’d like to donate them to the world; they should be cheap enough. Something like a utility.

    3. There is no step 3.

    Executives claim they’re paid to manage risk, so with risk gone there is no rationale for their grotesquely inflated salaries.

    Sales commissions (and salaries, I expect) go to zero and marketing can be eliminated. There will be some advertising revenue loss because there’s no need for drug commercials everywhere you look.

    Job losses will be counterbalanced (to some unknown extent) by jobs created in drug R&D, or in administering to patients at least some of the new-found cures, or even in managing logistics so we always have plenty of fresh drugs on hand where they’re likely to be needed (instead of this just-in-time philosophy, which is a recipe for disaster that was exposed by COVID). So perhaps step 3 would actually be a national/global drug logistics system that all healthcare organizations would use.

    Most scientists, knowing how hit-or-miss drug research is, would likely be happy with a bonus if they cure something–but they could work their entire lives doing what they enjoy–and something not a lot of people can do–and be perfectly happy not to hit a home run. Maybe more would attack more obscure problems knowing their chance for acclaim is greater where scientific interest is less.

    I wouldn’t do this for drugs/conditions not on the Medicare formulary–let them fight over Botox dollars–and I’d force the Medicare side to be fully independent of the cosmetic side–no interlocking boards, shared services, etc.

  3. Charlie Thomas
    September 22, 2021 at 2:57 am

    Didn’t universities do a great job researching medicines, until some people decided the for profit industry was being unfairly treated. So research moved to industry instead of on campus. … just guessing there was some political lobbying goin’ on back in the day.

  4. bruceolsen
    September 23, 2021 at 1:10 am

    Research still takes place on campus, but universities sell/license the patents (generally despite any public funding) This should stop.

  5. Ken Zimmerman
    September 23, 2021 at 7:52 am

    Humans invented sociality (living together in communities) 30,000 years ago or so. To make sociality function humans also invented human cooperation, creativity, devotion, love, and trust. Historically impersonal and commercial markets on the other originate in theft, banditry, and violence. More than anything else, the endless recitation of the myth of barter, employed much like an incantation, is the economists’ way of exorcising this uncomfortable truth. But even a moment’s reflection makes it obvious. Who was the first man to look at a house full of objects and immediately assess them only in terms of what he could get for them in the market? Surely, he can only have been a thief. Burglars, marauding soldiers, then perhaps debt collectors, were the first to see the world this way. It was only in the hands of soldiers, fresh from looting towns and cities, that chunks of gold or silver—melted down, in most cases, from some heirloom treasure, that like the Hindu gods, or Aztec breastplates, or Akkadian  women’s ankle bracelets, was both a work of art and a little compendium of history—could become simple, uniform bits of currency, with no history, valuable precisely for their lack of history, because they could be accepted anywhere, no questions asked. And it continues to be true. Any system that reduces the world to numbers can only be held in place by weapons, whether these are swords and clubs, or, nowadays, “smart bombs” from unmanned drones.

    These markets can also only operate and survive by continually converting community (love), trust, cooperation, devotion, etc. into debt. This is an importantly point. Just as markets, when allowed to drift entirely free from their violent origins, invariably begin to grow into something different, into networks of honor, trust, and mutual connectedness, so does the maintenance of systems of coercion constantly do the opposite: turn the products of human cooperation, creativity, devotion, love, and trust back into numbers once again. In doing so, they make it possible to imagine a world that is nothing more than a series of pitiless and callous calculations. Even more, by turning human sociality itself into debts, they transform the very foundations of our being—since what else are we, ultimately, except the sum of the relations we have with others—into matters of fault, sin, and crime, and make the world into a place of wickedness that can only be overcome by completing some great cosmic transaction that will annihilate everything.

    Trying to flip things around by asking, “What do we owe society?” or even trying to talk about our “debt to nature” or some other manifestation of the cosmos is a false solution—really just a desperate scramble to salvage something from the very moral logic that has severed us from the cosmos in the first place. In fact, if anything, it is the culmination of the process, the process brought to a point of veritable madness, since it’s premised on the assumption that we’re so absolutely, thoroughly disentangled from the world that we can just toss all other human beings—or all other living creatures, even, or the cosmos in full—in a sack, and then start negotiating with them. It’s hardly surprising that the end result, historically, is to see our life itself as something we hold on false premises, a loan long since overdue, and therefore, to see existence itself as criminal. Insofar as there’s a real crime here, though, it’s fraud. The very premise is fraudulent. What could possibly be more presumptuous, or more ridiculous, than to think it would be possible to negotiate with the grounds of one’s existence? Of course it isn’t. Insofar as it is indeed possible to come into any sort of relation with the Absolute (see: medieval philosophy and theology), we are confronting a principle that exists outside of time, or human-scale time, entirely; therefore, as medieval theologians correctly recognized, when dealing with the Absolute, there can be no such thing as debt.

    And this brings us directly to our troubles today. The moment one asks the question “Who really owes what to whom?,” one has begun to adopt the creditor’s language. If we don’t pay our debts, the universe, the Absolute itself will punish us. Often in some painful and horrendous way.  To be fair, this logic also sometimes leads to the belief that unfair or unreasonable creditors will be similarly punished.  Even karmic justice can thus be reduced to the language of a business deal.

    Thus, we arrive at central questions facing humans: What, precisely, does it mean to say that our sense of morality and justice is reduced to the language of a business deal? What does it mean when we reduce moral obligations to debts? What changes when the one turns into the other? And how do we speak about them when our culture and language has been so shaped by the market? On one level the difference between an obligation and a debt is simple and obvious. Money is money, and a deal’s a deal. From this perspective, the crucial factor is money’s capacity to turn morality into a matter of impersonal arithmetic—and by doing so, to justify things that would otherwise seem outrageous or obscene. Like, not to be too obvious: a mobster swindler US President, unimaginable inequality of wealth and income, the death of public goods, dying democracy.

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