Re-Importing Cheap Pharmaceuticals

by | Oct 1, 2007 | POLITICS

The Ayn Rand Institute recently issued a very good press release attacking a bill passed by the House of Representatives that seeks to give Americans the “right” to re-import prescription drugs from countries, such as Canada, where they are sold more cheaply due to government price- controls in those countries. The release makes the points […]

The Ayn Rand Institute recently issued a very good press release attacking a bill passed by the House of Representatives that seeks to give Americans the “right” to re-import prescription drugs from countries, such as Canada, where they are sold more cheaply due to government price- controls in those countries.

The release makes the points that this law would violate the rights of American drug companies, create shortages, and stifle innovation.

I’d like to add an additional point. If this bill becomes law, the price of (noncontrolled) domestic drugs will go up (assuming the companies can even continue to make such drugs). I conclude this based on what happens with rent controls: in a market, like New York City, where some apartments are controlled and some are not, the uncontrolled apartments can be rented at higher prices than would be the case if the entire market were decontrolled. In NYC, newly constructed apartment buildings are not subject to rent control (the idea being that the government didn’t want to discourage new construction of housing).

The reason that the rent of uncontrolled apartments is higher than it would be if other apartments weren’t controlled is that the controlled apartments are in a permanent condition of shortage. You can’t find one; they never appear on the market. Thus there is less total supply of rental apartments. People who want apartments here have to bid against each other only on the uncontrolled apartments.

So the forced lowering of apartment space for some is achieved by making others pay more for the uncontrolled apartments (while simultaneously encouraging the lucky holders of rent-controlled apartments to occupy more space than they could afford on the free market).

If the House bill becomes law, a similar effect will result in the prescription drug market. As the drug companies receive less revenue from Americans buying artificially cheap re-imported Canadian drugs, the drug companies will try to make up the loss by raising the price of the uncontrolled, non-re-imported drugs. This will have one of two results. Either they can make up for the revenue loss this way or they can’t. At least temporarily, they probably can make up for it (at the expense of the higher prices people have to pay for non-re-imported drugs), because the expense of drugs is so heavily subsidized by tax money, as by the Republicans’ new prescription drug law.

On the other hand, to the extent that more and more people, including the government, switch to buying re-imported drugs at artificially cheap prices, the drug companies will no longer have the revenue to support the incredible expense of developing new drugs and getting them past that killer-agency the FDA.

That would mean nothing less than the end of progress in the pharmaceutical industry. And that means an earlier death for me and for you.

We desperately need the pharmaceutical business to be hugely profitable. That way, resources are drawn to the task of extending our lives.

There are no conflicts of interest among rational men.

Dr. Binswanger, a longtime associate of Ayn Rand, is an professor of philosophy at the Objectivist Academic Center of the Ayn Rand Institute. He is the author of How We Know: Epistemology on an Objectivist Foundation and is the creator of The Ayn Rand Lexicon: Objectivism from A to Z. Dr. Binswanger blogs at HBLetter.com (HBL)--an email list for Objectivists for discussing philosophic and cultural issues. A free trial is available at: HBLetter.com.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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