No. 239


Stone the crows! Free trade treaties are always bitter pills for critics of capitalism.

Maybe they hate the idea of business not needing state sanction to trade across borders but enemies of enterprise always warn of dire fates from free trade. In 2004, populist protectionists fought the US-Australia FTA close to a halt. Three academics even wrote a book decrying it called How to kill a country. [i]

One of the key issues Opposition Leader Mark Latham used back then to nearly turn public opinion against the deal was the terrible things it would allow US drug companies to do to the cost of medicines. [ii]

More calibrated critics also saw the FTA’s focus on free-enterprise innovation as a threat to the command and control distribution system that is the Pharmaceutical Benefits Scheme:

It is far from obvious that policy can successfully achieve the public health objective of equitable access to safe and proven medicine if it gives greater importance to supporting drug innovation, private sector profitability and expansion.[iii]

To date the PBS seems to have survived the evil Americans and their free trade pill pushing, if only because the cost of the political sacred scheme dictates that government will buy as many medicines as possible for as little as possible.[iv]

But critics are at it again over the new super-regional deal now being negotiated, the Trans-Pacific Partnership Agreement, warning it “could force the Australian government to spend hundreds of millions of dollars to subsidise medicines.” [v]

The argument, then and now is that the evil Americans use trade treaties to extend drug patents, thus exploiting people’s need for medicine. As Michelle Chen puts it:

The purported idea behind intellectual property protections is to create market incentives for innovation-in the case of the pharmaceuticals industry, guaranteeing a return on sales for drugs. The value proposition gets muddy when humanitarian needs and market dynamics diverge-when malaria treatments for a rural village, for example, turn vastly less profit than the hot new anti-depressant. Or when a drug’s price is derived almost entirely from the label on the box.[vi]

Less emotively, critics of patents as licences to print money, albeit to recoup research and development costs, suggest that human rights trump property rights and that drug companies benefit from publicly funded research, (although they do not acknowledge academics and their institutions will patent/sell/licence findings that can be commercialised.) But the strongest case against powerful patent protection extending over decades is that it is a limited right, which exists only to be built upon:

Intellectual property is a form of community-developed property with naming opportunities and limited rights for the final discoverer/creator but not absolute rights to further development and use.[vii]

This is an eminently sensible moral position but it ignores the obvious – if drug companies do not make a return on investment commensurate with the risk they take in researching and marketing drugs they will give the game away. With 95 per cent of experimental drugs failing, this is a high-risk business.[viii]

As for the idea of capping profits at a “reasonable rate of return”, who gets to decide what is reasonable? In Australia, the government already does – by setting prices through the PBS and even in the US patents did not prescribe transfusions of wealth forever. Patents run for 20 years.[ix]

As Ian Maitland puts it, “We rely on the profit motive to mobilise vast resources to fight disease but we are shocked when new drugs earn ‘excessive’ or ‘obscene’ or ‘windfall’ profits. We enjoy the fruits of capitalism, but we expect firms to behave a little less capitalistically.” [x]

“The choice is simple,” David Badham suggests. “Allow Big Pharma to continue undertaking competitive high quality research or call a halt with the inevitable result of stagnation in medicinal research.”[xi]

Indeed, the problem is often less with drug developers than enemies of the market who want to socialise the benefits of drug development while privatising the risks.

Of course, none of this will wash with opponents of the market who argue that capitalism is axiomatically the enemy of healthcare. Perhaps somebody should invent a vaccine against the profit motive – but they would have to give it away.

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[i] Linda Weiss, Elizabeth Thurbon and John Mathews, How to kill a country: Australia’s devastating trade deal with the United States (Allen and Unwin, 2004)

[ii] ABC News, “Free trade decision hinges on PBS assurance, Latham says” July 25 2004 @ recovered on March 22

[iii] Evan Doran and David Alexander Henry, “Australian pharmaceutical policy: price control, equity and drug innovation in Australia,” Journal of Public Health Policy, 29 1 (April 2008) 106-120

[iv] David G Legge et al, “Australia’s position on medicines in international forums: intellectual property protection and public health,” Journal of Australian Political Economy, 73 (Winter 2014) 103-131

[v] Michael Vincent, “Trans-Pacific Partnership: Trade deal could force Australian Government to spend millions to subsidise medicines, expert warns,” ABC News, March 18 @ recovered on March 22

[vi] Michelle Chen, “Patents against people: how drug companies price patients out of survival,” Dissent 60 (4) (Fall, 2013) 71-77

[vii] Patricia H Werhane and Michael Gorman, “Intellectual property rights, moral imagination and access to life-enhancing drugs,” Business Ethics Quarterly, 15, 4 (October 2005) 595-613

[viii] Matthew Herper, “The cost of creating a new drug now $5bn, pushing big pharma to change,” Forbes, November 11 2013

[ix] US Food and Drug Administration, “FAQs on patents and exclusivity,” July 18 2014 @ recovered on March 22

[x] Ian Maitland, “Priceless goods: how should life-saving drugs be priced,” Business Ethics Quarterly, 12, 4 (October 2002) 451-480

[xi] David Badcott, “Big pharma: a former insider’s view, Medical Healthcare and Philosophy (2013) 16, 249-264