Poison As Food, Poison As Antidote
(posted by Roderick T. Long)
Those who see government power and corporate power as being in conflict, and those who seem them as being in cahoots, each have a point. The alliance between government and the corporate elite is like the partnership between church and state in the Middle Ages: each one wants to be the dominant partner, so there’s naturally some pushing and shoving from time to time; but on the other hand the two parties have a common interest in holding down the rest of us, and so the conflict rarely goes too far. The main difference between “left-wing” and “right-wing” versions of statism, as I see it, is that the former generally seek to shift the balance a bit farther in favour of the state (i.e., toward state-socialism) while the latter generally seek to shift the balance a bit farther in favour of corporatism and plutocracy. (In the U.S., the reigning versions of liberalism and conservatism are arguably both more corporatist than state-socialist; but the liberals are still a few notches farther toward state-socialism than the conservatives are.)
But whether the special interests who are the primary beneficiaries of state power are mainly within the state apparatus or mainly outside it, the actual application of state power remains much the same. Hence it is a mistake to suppose that the corporatist-plutocratic version of statism is in any interesting sense less statist than the state-socialist version.
But it is an all-too-common mistake – and this tendency to underestimate the chasm between free markets and corporatism is enormously beneficial to the state, enabling a slick bait-and-switch. When free markets and government grants of privilege to business are conflated, those who are attracted to free markets are easily duped into supporting plutocracy, thus swelling the ranks of statism’s right wing – while those who are turned off by plutocracy are likewise easily duped into opposing free markets, thereby swelling the ranks of statism’s left wing. (These are the two tendencies that Kevin Carson calls “vulgar libertarianism” and “vulgar liberalism,” respectively.)
As one of the villains in The Fountainhead explains in a moment of frankness, talking about the choice Europe was then facing between communism and fascism:
If you’re sick of one version, we push you in the other. We’ve fixed the coin. Heads – collectivism. Tails – collectivism. Give up your soul to a council – or give it up to a leader. But give it up, give it up, give it up. Offer poison as food and poison as antidote. Go fancy on the trimmings, but hang on to the main objective.
The largely (though not completely) illusory conflict between state-oriented Palpatine and corporate-oriented Dooku in the Star Wars prequels is a nice dramatisation of the same principle.
This dynamic applies in particular to the debate over health care policy. The contrast between, say, the Canadian and American approaches is frequently described – by both sides – as a contrast between a “governmental” or “socialised” system on the one hand, and a “market-based” or “free enterprise” system on the other. But the American health care system bears little resemblance to a free market; instead it represents massive government intervention on behalf of private special interests, from insurance companies to the medical establishment. The choice between the American and Canadian models is simply a choice between different two different flavours of statism – each with somewhat different vices, it’s true (e.g., do you prefer higher prices or longer waits?), but ultimately coming down to a matter of the percentage to which control of your healthcare is exercised by people sitting in government offices as opposed to being exercised by people sitting in governmentally-privileged “private” offices – but in either case by ambitious, avaricious apparatchiks who aren’t you.
So what would a libertarian approach to health care policy look like? At a minimum it would have to include:
1. Repealing laws that have the effect of cartelising the medical industry (e.g., the licensure monopoly granted to the A.M.A.), thus
artificially boosting the cost of medical care.2. Repealing laws that have the effect of rendering the labour market oligopsonistic, thus artificially lowering people’s ability to pay for (and collectively negotiate for) medical care.
3. Repealing laws that shift healthcare funds from the 25%-devoured-by-overhead voluntary sector to the 75%-devoured-by-overhead coercive sector, thus decreasing the amount of healthcare that gets to needy recipients.
4. Repealing laws that transfer the power to make medical decisions for individuals from those individuals to centralised bodies, thus increasing the impact and scope of fatally bad decisions and suppressing the competitive signals that allow the identification of better and worse policies.
5. Repealing laws that wiped out the old mutual-insurance systems (basically HMOs run by the patients instead of by corporations) and empowered insurance companies at the expense of patients.
6. Repealing laws that suppress innovation and distribution in the pharmaceutical industry in the name of “intellectual property.”
Until the unlikely day when the Republican Party embraces this program, let’s hear no more of their favouring a free-market approach to health care.
August 29th, 2008 at 12:15 am
Roderick! Welcome aboard. And a big “Hell, yeah!” to your analysis.
August 29th, 2008 at 6:42 am
Great post, Roderick - looking forward to your insights here!
August 29th, 2008 at 7:01 am
[...] Libby’s first post) and Roderck T. Long of Austro-Athenian Empire. (Roderick has also put up his first post.) I love all three of these folks, and the visits from Cernig and Libby help put some liberalism [...]
August 29th, 2008 at 7:57 am
Fabulous post Roderick. Love the analysis.
August 29th, 2008 at 8:34 am
[...] Roderick Long makes a point here that I cannot emphasize enough: But whether the special interests who are the primary beneficiaries of state power are mainly within the state apparatus or mainly outside it, the actual application of state power remains much the same. Hence it is a mistake to suppose that the corporatist-plutocratic version of statism is in any interesting sense less statist than the state-socialist version. [...]
August 29th, 2008 at 10:38 am
[...] timing: Roderick Long, on Art of the Possible, describes what’s REALLY wrong with US healthcare policy, and [...]
August 29th, 2008 at 1:12 pm
A welcome addition to the lineup! Go, Roderick!
August 29th, 2008 at 4:46 pm
[...] often happens, it’s written by Roderick Long: Those who see government power and corporate power as being in conflict, and those who seem them [...]
August 29th, 2008 at 8:11 pm
Welcome Dr. Long, from a former student … who shall remain nameless, lest you remember the quality of his studies.
August 29th, 2008 at 9:13 pm
Dr. Long: I read your post with great interest, and agree with much of it. But on this point (and yes, I read your link for many pages):
What would incentivize, say, Parke-Davis to spends tons on R&D for a cancer cure, if they did not know they’d exclusively reap the rewards for some years if successful? My inquiry is not rhetorical.
August 29th, 2008 at 10:52 pm
Mona,
There’s a pretty constant poster that has provided a lot of detail on the medical industry and the IP laws. I can’t remember the name, but Kevin has quoted him before, he’ll remember probably.
August 29th, 2008 at 11:29 pm
Mona raises an important question. Kevin Carson has some info about this:
“And patents are not necessary as an incentive to innovate. According to Rothbard, invention is rewarded by the competitive advantage accruing to the first developer of an idea. This is borne out by F. M. Scherer’s testimony before the FTC in 1995 [Hearings on Global and Innovation-Based Compe- tition]. Scherer spoke of a survey of 91 companies in which only seven “accorded high significance to patent protection as a factor in their R & D investments.” Most of them described patents as “the least important of considerations.” Most companies considered their chief motivation in R & D decisions to be “the necessity of remaining competitive, the desire for efficient production, and the desire to expand and diversify their sales.” In another study, Scherer found no negative effect on R & D spending as a result of compulsory licensing of patents. A survey of U.S. firms found that 86% of inventions would have been developed without patents. In the case of automobiles, office equipment, rubber products, and textiles, the figure was 100%.
The one exception was drugs, in which 60% supposedly would not have been invented. I suspect disingenuousness on the part of the respondants, however. For one thing, drug companies get an unusually high portion of their R & D funding from the government, and many of their most lucrative products were developed entirely at government expense. And Scherer himself cited evidence to the contrary. The reputation advantage for being the first into a market is considerable. For example in the late 1970s, the structure of the industry and pricing behavior was found to be very similar between drugs with and those without patents. Being the first mover with a non-patented drug allowed a company to maintain a 30% market share and to charge premium prices.”
http://mutualist.org/id4.html
I’d like to know more about real world studies on economic growth and IP law too.
August 30th, 2008 at 7:20 am
Great post. I’d add:
(7) Repealing state insurance “mandates” that violate the entire point of insurance as a protection against catastrophe and prevent the development of streamlined and less expensive insurance policies that cover only the risks the person wants to insure (in some states, policies must cover alcohol treatment, in vitro fertilization, and obesity programs, increasing the costs for coverage the insured may not even want). These laws have been particularly harsh in preventing those with charitable inclinations from creating non-profit organizations offering basic catastrophic protection to the poor.
(8) Repealing laws prohibiting people from buying insurance policies available in other states, making them hostage to the insurance commissioner of their state and those who have power and influence over the commissioner.
(9) Repealing laws that forbid people from taking medications that haven’t been approved by the FDA, even if they are willing to accept the risks (this was estimated by Mary Ruwart’s study to have killed 4.7 million people prematurely between 1962 and 1999: see http://www.lewrockwell.com/orig3/ruwart2.html).
(10) Repealing the individual income tax, which has caused cash compensation to be less valuable than tax-favored employer-provided health insurance benefits, expanding the latter, and resulting in employees losing job mobility as a result of dependence on their employer for health care coverage.
The more we think about it, the more laughable is the suggestion that the United States has a free market in health care (and we’re not even discussing the purely socialist side, with the government directly paying more than half of all medical costs through Medicare, Medicaid, and coverage for current and retired government employees).
August 30th, 2008 at 11:18 am
What would incentivize, say, Parke-Davis to spends tons on R&D for a cancer cure, if they did not know they’d exclusively reap the rewards for some years if successful?
The Boldrin/Levine piece I linked to offers some empirical evidence that the level of R&D is not much affected by the presence or absence of patent protection. The interesting question (about which they say less) is why that should be so. A few suggestions: 1. decreased incentive caused by loss of patent protection is offset by removal of patent-based barriers to innovation; 2. given its high degree of insulation from market feedback, the high costs of pharmaceutical research are unlikely to reflect the actual costs — since costs tend to soar under such insulation; 3. the incentive to have a monopoly in what you’re producing depends for much of its strength on the fact that your rivals have similar monopolies (this is the point Spencer missed in his hospital-bed example); 4. as Kevin points out above, reputation effects of being first to market are considerable.
August 31st, 2008 at 6:29 pm
[...] Poison As Food, Poison As Antidote by Roderick T. Long [...]
September 1st, 2008 at 2:08 am
Thanks for the quote, Nick.
Black Bloke, the commenter you’re thinking of is quasibill, and he does indeed have a lot of fascinating information about the pharma industry.
For one thing, patents distort the drug market by skewing research toward the tweaking of existing formulas just enough to qualify for repatenting drugs about to expire. That’s why most R&D goes toward “me, too” drugs, and there are fewer and fewer fundamentally new blockbuster drugs.
Even more interesting, quasibill argues, is that most of the heavy R&D spending on drugs goes toward gaming the patent system (specifically securing patent lockdown on every possible variant of a drug, to prevent a competitor from marketing a similar drug), rather than testing the version actually marketed.
Another fun fact is that the FDA testing regime (especially since it was expanded in the ’60s to require proof of efficacy as well as safety) serves as a massive entry barrier on behalf of the big companies. Most of the actual basic research that develops new drugs is done by small startups. In a likely free market testing regime aimed at meeting insurance company requirements for insuring against product liability, a small firm would probably have sufficient capital to develop new drugs independently and compete with the big boys. But not with the FDA testing regime. And golly gosh, guess what happens? Along comes helpful Merck or Phiser, and offers to take that new drug off the little guy’s hands, and fund the FDA testing regime.
September 16th, 2008 at 6:57 pm
[...] with Obama on this issue, and I don’t support any form of socialized health care. I support Roderick Long’s proposed reforms. But people aren’t vastly less healthy in other major industrialized nations, all of whom [...]
November 10th, 2008 at 5:51 pm
[...] keep people in Appalachia from getting new teeth. More on medical cartels here, and also here and here (that last link is to a post of Prof. Long’s). No Comments so far Leave a comment RSS [...]