“Old Politics” in a New Economy
August 1 2000 by Sally C. Pipes
It’s a standard election formula: Republicans run against Washington; Democrats run against Wall Street. Al Gore is right on script, attacking “big oil companies, the insurance companies, and HMOs.” He serves up special ire for “big drug companies,” which he accuses of “price-gouging.”
There’s more than one problem with Gore’s anti-business crusade. Like so much of the man, it’s not genuine. “Throughout most of my life I’ve raised tobacco,” the man who now attacks tobacco told North Carolina farmers in his 1988 presidential campaign. “I’ve hoed it. I’ve chopped it. I’ve shredded it, spiked it, put it in the barn, and stripped and sold it.” The man who decries “big oil,” owes his very residence to Occidental Petroleum, whose chairman and CEO Armand Hammer was tight with Gore’s father and sold him the estate. Hammer and other Occidental executives backed young Al financially in his first run for the House in 1976.
And there’s another problem. It may be a loser for him politically. “George W. Bush represents the old guard corporate special interests,” Gore told Meet the Press’ Tim Russert in July. But this script was written and tested back when there was a huge split between Corporate America and Main Street, the residents of which placed their financial security in passbook saving accounts not brokerage accounts. Today, one in two Americans has an ownership stake in Corporate America. Seven in 10 likely voters own equities. Americans may look at Corporate America and see themselves. If Gore prompts people to ask, “Who’s representing the special interests?” he might not like the answer.
The industry with the biggest bull’s-eye on it this election season is pharmaceutical manufacturers. Politicians and activists are hammering them domestically for charging too much. Internationally, they are under attack for charging at all in African countries, where the annual price of an AIDs treatment is many times the per-capita income. The industry’s biggest sin is making a profit. In the new economy, burning through millions in investor cash is a virtue. Pharmaceuticals still do business the old-economy way: companies risk billions on the front end in hopes of making billions more on the back end should their research pan out. There are no guarantees. According to Pfizer, three in 10 drugs that make it into the market are duds.
In this, they aren’t that different from many other businesses. Property rights are the cornerstones of the market economy, which is the only social arrangement that has proven able to move masses from poverty to prosperity. The international charge against pharmaceuticals is a simple one: need equals right. Since people in poor countries need drugs just like people in rich countries, they have a right to them, even if they can’t pay.
But people need housing too, so should we to force pre-manufactured home companies to send their products abroad free of charge? The physical nature of the product prevents that. And how about other recipe products like software?
In the U.S., seniors, far from being shortchanged by drug companies, are actually the industry’s biggest beneficiaries. They’re the best insured demographic in America-Medicare covers drugs used in hospitals-and two out of three have some insurance for drugs. Since seniors are more likely to use health care services, they benefit disproportionately from the industry’s innovations. It’s important to note that cost increases for drugs aren’t coming from price inflation for existing drugs, but the price of new drugs, some of which replace costly and painful medical procedures. Also, recent studies show that patients now consume more drugs than they did in the past. Complaining about price inflation in the drug industry is like complaining about price inflation in the car industry since more people are buying fully loaded SUVs, which cost more than base model sedans.
And finally, pharmaceutical companies don’t ignore international need. They give away millions of doses per year, but they rightfully insist on protecting their property. This, of course, is a complex message and it’s much easier to blame “big drug companies” for price gouging and hope seniors and others take the message to the ballot box. Whether they do will depend on how they see themselves: as potential owners of a profitable and productive industry or as vulnerable subjects in need of a protective and powerful government.
Sally Pipes (email@example.com) is president of the Pacific Research Institute for Public Policy, a San Francisco-based think tank that analyzes national economic and social problems.