By Indri Schaelicke | United States
A common talking point in many political debates is the extreme prices of many medical drugs. Left wingers like to blame “greedy capitalism” for the high prices, and advocate for some sort of government program that will increase the size of government in an attempt to cap drug prices. In reality, capitalism is the tool that must be used to bring medical drug prices back down to affordable levels.
The truth is, the US is not a true capitalist free market. Rather, it operates under a system of crony capitalism. Crony capitalism is a system in which representatives agree to give benefits to certain corporations in exchange for campaign contributions. These benefits may take the form of purchases by the government, limiting the corporation’s competition in the market through regulation, and creating loopholes in regulation or taxation. These benefits are paid for using taxpayer money, while the representatives receive financial backing for their campaigns or votes in their next election. Bureaucratic agencies like the FDA create regulations and policies which further cronyism.
A major source of cronyism exists in the FDA’s requirements of extensive research and testing to be done on products it approves to be sold. These studies cost thousands of dollars to companies, which must be covered by increasing the prices of the drugs sold. However, Congress has created “Priority Review Vouchers”, which reviews certain drugs at an expedited pace. These vouchers are incredibly valuable, because the development process for drugs takes many years.
The vouchers can be sold to corporations at a high prices due to their scarcity and the incredible benefit of having the review process sped up. If a company had their new drug approved before any others, they will have no competition in the marketplace for several years and are free to raise their price as high as they like. The FDA has the power to create monopolies, a power that no agency or branch of government should have.
So what’s the solution? Open up the markets. Competition is what drives prices down to affordable levels, and there is no competition in a crony capitalist system. Before the Airline Deregulation Act of 1978, the U.S. federal government had control over airline fares, routes and market entry of new airlines. This severely limited the competition in the marketplace to just a few airlines, but soon after the Act was signed, several new ones entered the market. Without the Civil Aeronautics Board to protect them from competition, airlines were forced to set their prices through supply and demand, with competition lowering the equilibrium price of airfare. By deregulating the airfare markets and preventing special interests from lobbying an airline regulatory agency, airfare has become cheaper for consumers.
The same must happen with the way that the market for medical drugs is regulated. The FDA must be abolished, and competition in the market will flourish. Prices will drop due to the influx of competition and life saving drugs will become more affordable to consumers.
A concern of supporters of the FDA is that without it, unsafe and potentially dangerous drugs could slip into the market. However, this can be refuted on the basis that no business has an incentive to create a harmful drug. If harm is done to a consumer, they can sue the business and claim compensation for the damages.
The abolition of the FDA would unleash the power of markets to create and develop new, revolutionary drugs at affordable prices. An effect similar to those seen after the Airline Deregulation Act of 1978 would be seen, and bring an end to the crony capitalism enabled by the FDA.