Government Granted Patent Monopolies Are Not the Free Market

Published: 21 July 2015
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Those folks at the Wall Street Journal are really turning reality on its head. Today it ran a column by Robert Ingram, a former CEO of Glaxo Wellcome, complaining about efforts to pass "transparency" legislation in Massachusetts, New York, and a number of other states. This legislation would require drug companies to report their profits on certain expensive drugs as well as government funding that contributed to their development.
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Ingram sees such laws as a prelude to price controls. He then warns readers:
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"There is no surer way to bring pharmaceutical innovation to a halt in the U.S. than letting governments decide how much companies can charge for their products or harassing them into lower prices. It also represents a fundamental misunderstanding of how pharmaceutical research works. Scientific discoveries involve trying and failing, learning from those failures and trying again and again, often for years."
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Ingram bizarrely touts the "flowing pipeline of new wonder drugs spurred by a free market," which he warns will be stopped by "government price controls." This juxtaposition is bizarre, because patent monopolies are 180 degrees at odds with the free market. These monopolies are a government policy to provide incentives for innovation. Mr. Ingram obviously likes this policy, but that doesn't make it the free market.
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Of course there are other ways that the government can finance research and development, such as paying for it directly. It already does this to a large extent. At the encouragement of the pharmaceutical industry it spends more than $30 billion a year on mostly basic research conducted through the National Institutes of Health. It could double or triple the amount of direct funding (which could be contracted with private firms like Glaxo Wellcome) with the condition that all findings are placed in the public domain.
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This would eliminate all the distortions associated with patent monopolies, such as patent-protected prices that are can be more than one hundred times as much as the free market price. This would eliminate all the ethical dilemmas about whether the government or private insurers should pay for expensive drugs like Sovaldi, since the drugs would be cheap. It would also eliminate the incentive to mislead doctors and the public about the safety and effectiveness of drugs in order to benefit from monopoly profits.
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