Friday, September 25, 2015

Rational Drug Pricing Is Desirable For Society But Not For Drug Firms

Jeff Sachs argues that the pricing of drugs by pharmaceutical firms has little to do with free market forces.  The industry depends upon government sponsored basic research by the NIH.  It turns that research into useful products for which it receives patent protections which limits competition.  It then hides the profits in tax havens so that it does not have to pay taxes to fund the NIH or the patent protection services by government.

This description of the drug industry is not atypical of modern industry.  Firms are dependent upon government services to help them create and defend their intellectual property rights.  Government services become even more important in our global economy.  Governments protect their access to markets and they negotiate trade agreements which protect patents and copyrights.  Much of the competition in the market is between industry groups which care primarily about the goods and services they provide.  They fund the lobby's which shape government policies in their interest. 

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