Sunday, May 10, 2009

IPR, liberal economics and the LP

A German friend commented on my posting on "Drug price control and the LP". He said that some liberal economists believe that IPRs are used to suppress competition and hence, can discourage innovation.

He is right, there is indeed an on-going debate even among classical liberals (or libertarians) about whether IPR encourages or kills innovation and competition. I am among those believe that IPR protection promotes competition and innovation.

In my article below, "Swine flu and medicine innovation", I discussed a philosophical situation, company A developed drug A from mango extracts; company C developed drug C from chicken liver, etc. So there are many "patent monopoly" from many drugs by many innovative (not generic) pharmaceutical corporations to cure just a single disease.

This is a case of "monopolistic competition" industry structure, and not a classic "monopoly". Not a single pharma company has a "monopoly" to treat any disease. Thus, if there are 50 different medicines and vaccines -(and all are patented) from 50 pharma companies to keep AIDS at bay, then there are 50 monopoly patents from 50 companies trying or attempting to cure AIDS alone. And if IPR protection + prospect of huge profit -- by curing diseases and helping patients -- are the incentives for pharma companies, then it should be given to them. Isn't IPR therefore, a wonderful tool that must be encouraged and protected, not restricted and abrogated?

The parallel importation scheme is lousy and dangerous to patients. I explained why this is so in my recent papers below on BFAD.

If the real goal is to increase competition among manufacturers and distributors of effective and safe medicines, then there is one time-tested tool: free trade. Abolish all tariff and non-tariff barriers (import tax, import processing fee, import documentary stamp tax, VAT, etc.). Parallel importation retains all those taxes, importers need the blessing and accreditation (and political patronage?) by the state corporation PITC. That is why parallel importation as a tool to bring down drug prices is a hypocrisy, and a smoke screen to cover up trade protectionism.

If we are to summarize the "cheaper medicines law" (RA 9502) in terms of advancing liberal economics, then it is a big failure. That law advanced huge government intervention, wider State restrictions, while retaining s heavy government taxation, of medicines and the manufacturers of innovative medicines.

This is not to attack Sen. Mar Roxas per se. It is his inconsistency with liberal economics considering that he is the head of the Liberal Party (LP). If it is politicians from Lakas, Nacionalista, Bayan Muna, and other political parties for big and even bigger government, then they were simply being consistent in advocating for wider government intervention through the "cheaper medicines law".

About drug "maximum retail price" (MRP), maximum price = price control. The price of something cannot go beyond the maximum level set by the State.

I reviewed Senate Committee Report No. 6 (dated October 1, 2007), the substitute and final Senate bill on then "cheaper medicines bill". Its Section 10 was entitled "Drug or medicine price regulation by the President of the Philippines". So it is not true that the Senate version then was silent on price control, there was a price regulation provision there. The House version was indeed more populist and explicit about price control.

My earlier posting with a news report on it explicitly reported Sen. Mar lambasting the DOH for not implementing the drug price control provision. I mean, for a Liberal politician, I thought he need not insist on a price control provision, perhaps keep silent on it even if it's in the law already, since price control philosophy is clearly anti-Liberal because there is no existing national health emergency.

In my other posting a few months ago, I wrote that Sen. Mar and the LP should stick to the liberal, more free market-oriented, advocacies. Because this will make the LP more unique, have a clearly defined political and economic platform. Otherwise, it will just be like most or all other political parties -- mouthing populist, near-socialist, bigger government programs and advocacies. If the LP cannot lead the liberal, more free market, more individual liberty philosophy, who will do it? None.

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