Free-market economists believe the profit motive is the most reliable and efficient force in economic decision-making. In theory, the selfish, profit-driven actions of private businesses are supposed to benefit everyone. But in the real world, the pursuit of private profit often promotes inefficiency and the misallocation of resources. One glaring (and costly) example is the private drug industry.
It costs hundreds of millions of dollars to develop a new drug (including expensive trials). This alone is a big barrier to private research. But once the drug is ready, companies are anxious to recoup costs, so they charge very high prices (backed by strict patent laws). This perversely limits the drug's human usefulness. The most deadly infectious diseases (like malaria, dysentery, and measles) primarily affect poor people who cannot afford private medicines, so the global industry does not invest much in those plagues. Instead, it concentrates on more profitable opportunities -- especially drugs that require long-term use (like those for heart disease, cholesterol, and arthritis), which constitute an ongoing, lucrative market. Most wasteful of all is the allocation of billions to develop copycat drugs aimed at sidestepping patents; these drugs are privately profitable, but socially useless (since we already had drugs offering the same benefits).
A frightening example of research mismanagement is the case of drug-resistant bacteria. Mutated bacteria pose an enormous public health threat; if unchecked, they could recreate the misery and early death of pre-penicillin times. Yet private drug companies invest little in the search for new antibiotics, partly because antibiotic prescriptions (typically lasting just a few days) are not especially profitable. So new antibiotic development has slowed dramatically, even as the threat of antibiotic resistance grows. England's chief medical officer, Sally Davies, summed up the problem bluntly in a recent Canadian speech (reported by the Globe and Mail's André Picard): "The market system is broken."
Many public health experts now believe drug research should be funded through public grants. This allows health planners to consciously allocate top-priority attention to the most dangerous diseases. Then, since new formulae are public property, they can be commercialized at the cost of production (or less). Salaried scientists working in universities, hospitals and public institutions are just as productive as those working in private labs. But a more rational focus for their research, and wider accessibility to the treatments they develop, would save millions of lives.
Canada's outstanding work to invent the world's most promising vaccine against Ebola perfectly epitomizes both the promise of public research, and the perverse incentives of the for-profit industry. Early this century Health Canada recognized the need for an Ebola vaccine, and assigned scientists with the Public Health Agency of Canada to find one. Almost a decade ago they patented a vaccine that prevents Ebola in monkeys. Canadian researchers should have been hailed as heroes.
Unfortunately, the government snatched defeat from the jaws of victory by handing over this important invention to the private sector -- for a pittance. In 2010 Ottawa licensed the Ebola vaccine to a small U.S. firm called NewLink Genetics. I've been asking Health Canada to explain how the licensing was negotiated, and how much Canada was paid; I have yet to receive an answer. NewLink's financial filings report it paid Canada an initial patent and signing fee, and a "milestone" payment of up to $205,000; "low single-digit" royalty fees will be payable on future commercial sales.
Most distressingly, guided by the profit-maximizing calculations of NewLink's executives, the promising vaccine languished for years with no human testing -- until this year's outbreak. NewLink has suddenly rediscovered a sense of urgency, and is now accelerating human tests: but too late for thousands whose lives could have been saved if a vaccine was ready now. Even with the license, Ottawa could have forced NewLink to move more quickly (or else revoke the license altogether), but chose not to interfere. In the words of the University of Ottawa's Amir Attaran, an expert on drug policy and public health, "This could have been a heroic Banting and Best moment for Canadian science, but instead it is a black comedy."
Motivated by their government salaries and a desire to do good, smart Canadians can develop incredible medicines that significantly enhance human life. It's only when the whole business becomes guided by profit, instead of human need, that this noble mission is lost.
Jim Stanford is an economist with Unifor. A version of this commentary was originally published in the Globe and Mail.
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