One of the hallmarks of HK's free market economy is that its monetary authority (or central bank or federal reserve) does not print the national currency. The HK dollar is printed not by its monetary authority, but by private banks -- HSBC, Citibank i think, and one more bank. The monetary authority just function as it is -- to set monetary policy (levels of interest rate, money supply, exchange rate and international reserves, etc.).
But there's one economy that looks more free marketer than HK in monetary policy -- Panama. It has no central bank or monetary authority. No national currency, they're using the US$. And in some big infrastructure projects, like expanding the capacity of Panama Canal, the government will raise not a single tax rate, but rather use revenues from the canal to do the job.
To see more about this, see Andrew Work's article, "Panama -- the HK of Latin America?"
http://www.lionrockinstitute.org/
In earlier short articles, I have argued that central banks are shrinkable if not abolishable, if their main concern is "inflation targetting". High inflation rate, and high prices of commodities and services in an economy, is mainly a result of trade protectionism and less mobility of commodities around the world. When the price of some goods are high in country A when such goods are wide available elsewhere, that country's protectionism is the culprit. Conversely, when the price of other goods in that same country A are dirt cheap when these goods are expensive elsewhere, again that country's or other countries' protectionism is the culprit.
The level of money supply in the economy is not much a factor, though loose money supply can push prices up (ie, too much money chasing too few goods and services). But it's those central-planning thinking central bank bureaucrats that manipulate money supply and interest rate levels. And their manipulation can distort the price signal in an economy if market players are better left on their own to respond to changes in consumer demand and producer supply.
When central bank officials or bureaucrats say thay want to "cool off" an "over-heating" economy, they mean they want to control "over-spending" and high borrowings by the people because this can lead to high inflation. So what they usually do, is they raise interest rates -- to encourage savings and discourage high spending and borrowings. Then they say that they have controlled high inflation.
I am not in favor of this kind of intervention. When people have lots of money to spend, let them do so; someone's consumption is somebody else's production and services.
* See also: Inflation and CBs 1: Central Banks Can Be Anti-Globalists, June 29, 2006
Wednesday, February 20, 2008
Tuesday, February 12, 2008
CSOs and State 3: Poverty and Public Education
In the 70s to the 80s, there was a famous British rock band called “Supertramp” and one of their cool and hit songs was “The Logical Song”. A part of it goes like this:
Now watch what you say or they’ll be calling you a radical,
Liberal, fanatical, criminal.
Won’t you sign up your name, we’d like to feel you’re
Acceptable, respectable, presentable, a vegetable!
The Philippines is in a continuing grip of political instability as more cases of corruption charges are being investigated involving a number of top government officials who contracted big amount of taxpayers’ money for projects to “fight poverty” and “improve governance”. These are two seemingly “holy” goals that can justify high and multiple taxes and fees. After all, who doesn’t want to see an “end to poverty”?
But there are many shades of poverty and reasons for poverty. Among the quick ones that I can think of are:
1. Acts of nature – whole villages and farmlands wiped out by strong typhoon and landslides, or strong earthquakes and tsunami, or volcanic eruption and lava/lahar flows, etc. These are understandable causes of poverty and the victims really need some government support, assuming that they will seek it.
2. Acts of men – high and multiple taxation and corruption, thick bureaucracies that slow down if not kill entrepreneurship and job creation, robbery, killings, wars. These are often government-created inefficiencies that can lead to mass poverty..
3. Acts of personal irresponsibility – people who don't want to work; or work little and consume plenty or expensively; or work hard but also drink/gamble/spend hard; or those that get involved in frequent troubles; etc. Some of government’s welfare programs help encourage a culture of complacency and irresponsibility.
Any or all of these striking you will ensure that you will become a “logical poor” or you “logically become poor”. But if poverty is caused by personal irresponsibility, then we
should not “fight poverty” and instead, allow misery. Because it is not fair when governments, including foreign aid bureaucrats, will confiscate (or justify the confiscation of) a big portion of our income and savings to subsidize people who don't even bother look for a job or do not know how to save for the rainy days.
A friend once asked me why I could be so “cold and heartless” in saying these things. Well, it’s borne out of some personal observations. For instance, in a rice farming village that I frequently visit, I have heard and seen some farmers who died poor and miserable. These are industrious guys who work 6-7 days a week, but they also drink 6-7 nights a week. When their intestine or kidney or lung or other internal organ gave way, they have little or no savings to tide them over. If projected medical expenses are big, any support by relatives and friends will not be enough.
And I don’t know if the “poverty fighters” in governments and foreign aid institutions take into account poverty due to personal irresponsibility. If they cannot realize the tax burden of the bureaucracies that they work with and the economic distortions created by their intervention, then I doubt that said poverty fighters will really be successful in their avowed mission.
-------
A related note I wrote late last year,
Why Education Should be Parental Responsibility, Not Government Responsibility
November 19, 2007
Now watch what you say or they’ll be calling you a radical,
Liberal, fanatical, criminal.
Won’t you sign up your name, we’d like to feel you’re
Acceptable, respectable, presentable, a vegetable!
The Philippines is in a continuing grip of political instability as more cases of corruption charges are being investigated involving a number of top government officials who contracted big amount of taxpayers’ money for projects to “fight poverty” and “improve governance”. These are two seemingly “holy” goals that can justify high and multiple taxes and fees. After all, who doesn’t want to see an “end to poverty”?
But there are many shades of poverty and reasons for poverty. Among the quick ones that I can think of are:
1. Acts of nature – whole villages and farmlands wiped out by strong typhoon and landslides, or strong earthquakes and tsunami, or volcanic eruption and lava/lahar flows, etc. These are understandable causes of poverty and the victims really need some government support, assuming that they will seek it.
2. Acts of men – high and multiple taxation and corruption, thick bureaucracies that slow down if not kill entrepreneurship and job creation, robbery, killings, wars. These are often government-created inefficiencies that can lead to mass poverty..
3. Acts of personal irresponsibility – people who don't want to work; or work little and consume plenty or expensively; or work hard but also drink/gamble/spend hard; or those that get involved in frequent troubles; etc. Some of government’s welfare programs help encourage a culture of complacency and irresponsibility.
Any or all of these striking you will ensure that you will become a “logical poor” or you “logically become poor”. But if poverty is caused by personal irresponsibility, then we
should not “fight poverty” and instead, allow misery. Because it is not fair when governments, including foreign aid bureaucrats, will confiscate (or justify the confiscation of) a big portion of our income and savings to subsidize people who don't even bother look for a job or do not know how to save for the rainy days.
A friend once asked me why I could be so “cold and heartless” in saying these things. Well, it’s borne out of some personal observations. For instance, in a rice farming village that I frequently visit, I have heard and seen some farmers who died poor and miserable. These are industrious guys who work 6-7 days a week, but they also drink 6-7 nights a week. When their intestine or kidney or lung or other internal organ gave way, they have little or no savings to tide them over. If projected medical expenses are big, any support by relatives and friends will not be enough.
And I don’t know if the “poverty fighters” in governments and foreign aid institutions take into account poverty due to personal irresponsibility. If they cannot realize the tax burden of the bureaucracies that they work with and the economic distortions created by their intervention, then I doubt that said poverty fighters will really be successful in their avowed mission.
-------
A related note I wrote late last year,
Why Education Should be Parental Responsibility, Not Government Responsibility
November 19, 2007
When my wife was still pregnant, she and her 2 friends who were also pregnant (they all gave birth on different days of October 2006) were already discussing the kind of early training or schooling they will give their kids when their child is 2 years old, 3 years old, and so on. And in these 3 mothers’ minds, they sometimes have different preferences or plans for their respective children at a young age, much more when the kids reach college level.
Privatization of education (ie, abolition of public education system at all levels) is a long-term vision. And this “devolution” of responsibility from the state to the parents, the individuals, should be complemented with the abolition of certain taxes and government fees, those forced confiscation of income and savings of parents, so that the latter will have more disposable income to spend for their children’s education and other household needs.
(This article was also posted in http://www.thelobbyist.biz/column_detail.php?id_article=528&id_category=26)
Which brings us to the fact that when given the choice and resources, parents will have varying plans for their children. For instance, aside from the basic skills of reading-writing-math, some parents would want their elementary-level kids focus more on arts, music and dancing; others would want their kids to be good in European or Asian (Mandarin or Japanese or Korean) language; others would want their kids to be good in science and math; others would want their kids to be good in Catholic (or born-again, or Islamic or Protestant or Buddhist) virtues and religion; others would want their kids to be good in household care like cooking and home care; others would want their kids to be good in soccer or basketball, ballet or swimming, and so on.
Can government-sponsored public education respond to dozen-plus different needs by parents, say on a single municipality alone? I really doubt it.Government only gives uniform and general education. And when things are made uniform, what usually follows is mediocrity. Because uniformity discourages excellence, explicitly or implicitly; it just make things and people go "uniform, equalized and generalized".
Privatization of education (ie, abolition of public education system at all levels) is a long-term vision. And this “devolution” of responsibility from the state to the parents, the individuals, should be complemented with the abolition of certain taxes and government fees, those forced confiscation of income and savings of parents, so that the latter will have more disposable income to spend for their children’s education and other household needs.
What about the poor? Parents who are responsible will never run out of opportunities to improve their lives and the future of their children. Parents who are irresponsible and would rather spend their time drinking and gambling, and discussing how much subsidies they expect from government, will go poor, even starve. They deserve this because they chose this. But what about their children?
Humanity is filled with endless examples of charity. Pure, voluntary charity that requires zero taxation and zero political grandstanding. Their support to fellowmen, especially poor children and the aged, the physically and mentally handicapped, the victims of natural disasters, is endless. There are hundreds of civic and service organizations, church organizations, private enterprises and foundations, even sports associations, who are more than willing to provide charitable work to their fellowmen who have the dignity of showing ambition and aspiration to improve their lives in the future.
Humanity is filled with endless examples of charity. Pure, voluntary charity that requires zero taxation and zero political grandstanding. Their support to fellowmen, especially poor children and the aged, the physically and mentally handicapped, the victims of natural disasters, is endless. There are hundreds of civic and service organizations, church organizations, private enterprises and foundations, even sports associations, who are more than willing to provide charitable work to their fellowmen who have the dignity of showing ambition and aspiration to improve their lives in the future.
See also:
CSOs and State 1: AIDS and Perversion of Welfare, June 16, 2006
CSOs and State 2: NGOs and Government Clubs, November 09, 2006
Thursday, February 07, 2008
Taxes and Hypertension: How to reduce medicine prices
Sir Isaac Newton’s 3rd law of motion states that for every action, there is an equal and opposite reaction. When government intervenes to reduce the price of something, it imposes taxes or fees/ charges to finance whatever price subsidy and the salaries and perks of personnel who will do the price and income redistribution. Those taxes and fees raise the price of those things and services that government says it wants the price to go down. Sort of unintended consequence. And this affirms Newston’s 3rd law of motion.
In the on-going discussions and debates about “quality affordable medicines” or “cheaper medicines” bill, to the point of developing or aiding hypertension to some actors or players or would-be interventionists, various factors suspected of contributing to the high price of medicines have been identified and diagnosed with more government intervention: amendment of the law on patent system, price regulation and control, parallel importation and disrespect patent rights, “generics only” prescription by doctors. It is notable that government intervention itself – those high and multiple taxes and fees on medicines and medical products, bureaucratic regulations, attempts at price control – has never been identified as among the suspects. Why?
Blaming the multinational corporations, especially those in the petroleum, pharmaceutical and transportation sectors is always a convenient excuse for policy makers and implementers and their allied pressure groups. Thus, legislators and politicians can always impose various taxes (import tax, value added tax, documentary stamp tax, patent tax, other regulatory steps and fees) on those commodities and services, then blame the producers themselves, especially if they are multinationals.
People aspiring cheaper price of anything – cellphones, house, car, medicine, hospital stay, shoes, and so on – is a perfectly rational behavior. The assumption is that people should get good quality and safe products. After all, all fake, imitation and dangerous products are sold cheap compared to their original counterparts so that they can easily be sold. Producers and sellers are happy, buyers are happy, except when some of them will develop adverse effects if not die later, in the case of those taking counterfeit medicines.
One time-proven mechanism to reduce the price of something is to have as many producers and innovators of good quality products and let them compete with each other. And don’t impose high and too many taxes on the players so that they can compete more fairly. Some players will expand while others will fail. That’s the sad but necessary result when informed consumers make their decisions whom to patronize and whom to evade. Unfortunately, what the two versions of “affordable/cheaper medicines” bills, is to discourage entry of innovator companies and have more generics companies that do not engage in very expensive and time-consuming R&D and clinical trials. In addition, importers and distributors of locally-patented drugs other than the patentees are encouraged, under the “parallel importation” scheme.
One question that can be asked under this scheme is this: Supposing a patient develops bad allergies, if not died, after taking the imported medicines (maybe it’s a fake or mislabeled or mis-stored or mishandled that reduced or negated their effectiveness) from abroad by non-patentees, who will be accountable? (a) The physician who gave the prescription, or (b) the importer who brought the medicines, or (c) the drug manufacturer abroad, or (d) the local patentee who sells the same drugs domestically, or (e) the local drug store that stored and sold the medicine, or (f) the government which allowed and encouraged the entire scheme?
Unfortunately, the answer of who could be accountable could not be determined from both the Senate and House versions. What the two bills intend to achieve is to have cheap/affordable medicines at all cost. And at no cost to the government – ie, government tax collections should never be reduced because there are billions of pesos of pork barrel projects to finance every year.
So why can’t we start with drastically reducing if not abolishing the taxes and other regulatory fees imposed on medicines? Then encourage the entry of more innovator companies into the country, or the importation of those medicines at zero import tax and zero trade barriers by their local patentees who should be the sole accountable entity to the patients should they experience any adverse reactions later.
In the on-going discussions and debates about “quality affordable medicines” or “cheaper medicines” bill, to the point of developing or aiding hypertension to some actors or players or would-be interventionists, various factors suspected of contributing to the high price of medicines have been identified and diagnosed with more government intervention: amendment of the law on patent system, price regulation and control, parallel importation and disrespect patent rights, “generics only” prescription by doctors. It is notable that government intervention itself – those high and multiple taxes and fees on medicines and medical products, bureaucratic regulations, attempts at price control – has never been identified as among the suspects. Why?
Blaming the multinational corporations, especially those in the petroleum, pharmaceutical and transportation sectors is always a convenient excuse for policy makers and implementers and their allied pressure groups. Thus, legislators and politicians can always impose various taxes (import tax, value added tax, documentary stamp tax, patent tax, other regulatory steps and fees) on those commodities and services, then blame the producers themselves, especially if they are multinationals.
People aspiring cheaper price of anything – cellphones, house, car, medicine, hospital stay, shoes, and so on – is a perfectly rational behavior. The assumption is that people should get good quality and safe products. After all, all fake, imitation and dangerous products are sold cheap compared to their original counterparts so that they can easily be sold. Producers and sellers are happy, buyers are happy, except when some of them will develop adverse effects if not die later, in the case of those taking counterfeit medicines.
One time-proven mechanism to reduce the price of something is to have as many producers and innovators of good quality products and let them compete with each other. And don’t impose high and too many taxes on the players so that they can compete more fairly. Some players will expand while others will fail. That’s the sad but necessary result when informed consumers make their decisions whom to patronize and whom to evade. Unfortunately, what the two versions of “affordable/cheaper medicines” bills, is to discourage entry of innovator companies and have more generics companies that do not engage in very expensive and time-consuming R&D and clinical trials. In addition, importers and distributors of locally-patented drugs other than the patentees are encouraged, under the “parallel importation” scheme.
One question that can be asked under this scheme is this: Supposing a patient develops bad allergies, if not died, after taking the imported medicines (maybe it’s a fake or mislabeled or mis-stored or mishandled that reduced or negated their effectiveness) from abroad by non-patentees, who will be accountable? (a) The physician who gave the prescription, or (b) the importer who brought the medicines, or (c) the drug manufacturer abroad, or (d) the local patentee who sells the same drugs domestically, or (e) the local drug store that stored and sold the medicine, or (f) the government which allowed and encouraged the entire scheme?
Unfortunately, the answer of who could be accountable could not be determined from both the Senate and House versions. What the two bills intend to achieve is to have cheap/affordable medicines at all cost. And at no cost to the government – ie, government tax collections should never be reduced because there are billions of pesos of pork barrel projects to finance every year.
So why can’t we start with drastically reducing if not abolishing the taxes and other regulatory fees imposed on medicines? Then encourage the entry of more innovator companies into the country, or the importation of those medicines at zero import tax and zero trade barriers by their local patentees who should be the sole accountable entity to the patients should they experience any adverse reactions later.
Thursday, January 31, 2008
Stairway to heaven: prices and price control
One of the classic songs of the rock n roll genre was Led Zeppelin’s “Stairway to Heaven”. In that song, they wrote:
“And if you listen very hard
The tune will come to you at last
When all are one and one is all
To be a rock and not to roll.”
Some people think that different products or brands for one category should be priced as one, or at least the top or highest price among varying prices should be capped to a level that is deemed “affordable” to many people, so that those people can have their “stairway” to good health, fame, greatness, or whatever. The premise for this thinking is that some producers or manufacturers are evil and driven only by greed, and not the health and welfare of many people.
But people are diverse, and so are the various products and services that they produce. Diversity is the rule, not the exception. Producers and manufacturers face diverse production and marketing costs, like different taxes by different governments; different wages by different workers with different skills, and so on. And consumers have different aesthetic or health reactions to similar goods and services.
Thus, price segmentation – different prices for different products or services for different people – is a perfectly rationale and healthy mechanism. This way, people from different economic status can be served. Think of ticket prices in a single championship boxing fight: ringside seats are the most expensive; prices descend as one is seated farther away; for those who cannot afford even the cheapest ticket, they can watch through pay-tv which are cheaper and still watch the fight live. And for those who cannot even afford the pay-tv, or have no access to pay-tv, they can watch the game free via delayed broadcast by tv stations which paid their way inside the boxing stadium. At the end of the day, everyone who wanted to watch the fight was able to see it, live or delayed. Such is the beauty of price segmentation, or “tiered pricing”. But some people think this is ugly if not evil. Because only the rich are served well while the poor are served late or delayed, and they are pestered by too many tv commercials and ads.
Extend this thinking to the prices of food and medicines, and this group of people will push for price regulation or price control. That is, some bright men and women, often those in government bureaucracies, can determine and dictate which products are useful to people and which prices of these products should be allowed and which ones should be controlled. But can price control lead to good health?
The authors of the House version of “cheaper medicines bill” think it can, that is why they want to create a Drug Price Regulation Board. They think that high profits and high advertising costs by pharmaceutical companies – not high and multiple taxes, high cost of R&D in medicine innovation, related costs – are the main roadblocks why many people cannot have their “stairway to good health”. Hence, prices of certain medicines should be regulated, and people from the Health Department, Congress and other government bureaucracies, some civil society groups, have enough wisdom and heart for the sick that they can determine which prices are tolerable and which ones are not.
When prices are controlled, then producers who can possibly make some “miracle” products and medicines at sky-high costs will be discouraged from innovating and producing those products. Government puts up uncontrolled taxes, fees and regulations, then control the price of commodities later. This is unfair. And this will not lead to “stairway to heaven of good health”; rather, lead to a “stairway to bureaucracies and product
“And if you listen very hard
The tune will come to you at last
When all are one and one is all
To be a rock and not to roll.”
Some people think that different products or brands for one category should be priced as one, or at least the top or highest price among varying prices should be capped to a level that is deemed “affordable” to many people, so that those people can have their “stairway” to good health, fame, greatness, or whatever. The premise for this thinking is that some producers or manufacturers are evil and driven only by greed, and not the health and welfare of many people.
But people are diverse, and so are the various products and services that they produce. Diversity is the rule, not the exception. Producers and manufacturers face diverse production and marketing costs, like different taxes by different governments; different wages by different workers with different skills, and so on. And consumers have different aesthetic or health reactions to similar goods and services.
Thus, price segmentation – different prices for different products or services for different people – is a perfectly rationale and healthy mechanism. This way, people from different economic status can be served. Think of ticket prices in a single championship boxing fight: ringside seats are the most expensive; prices descend as one is seated farther away; for those who cannot afford even the cheapest ticket, they can watch through pay-tv which are cheaper and still watch the fight live. And for those who cannot even afford the pay-tv, or have no access to pay-tv, they can watch the game free via delayed broadcast by tv stations which paid their way inside the boxing stadium. At the end of the day, everyone who wanted to watch the fight was able to see it, live or delayed. Such is the beauty of price segmentation, or “tiered pricing”. But some people think this is ugly if not evil. Because only the rich are served well while the poor are served late or delayed, and they are pestered by too many tv commercials and ads.
Extend this thinking to the prices of food and medicines, and this group of people will push for price regulation or price control. That is, some bright men and women, often those in government bureaucracies, can determine and dictate which products are useful to people and which prices of these products should be allowed and which ones should be controlled. But can price control lead to good health?
The authors of the House version of “cheaper medicines bill” think it can, that is why they want to create a Drug Price Regulation Board. They think that high profits and high advertising costs by pharmaceutical companies – not high and multiple taxes, high cost of R&D in medicine innovation, related costs – are the main roadblocks why many people cannot have their “stairway to good health”. Hence, prices of certain medicines should be regulated, and people from the Health Department, Congress and other government bureaucracies, some civil society groups, have enough wisdom and heart for the sick that they can determine which prices are tolerable and which ones are not.
When prices are controlled, then producers who can possibly make some “miracle” products and medicines at sky-high costs will be discouraged from innovating and producing those products. Government puts up uncontrolled taxes, fees and regulations, then control the price of commodities later. This is unfair. And this will not lead to “stairway to heaven of good health”; rather, lead to a “stairway to bureaucracies and product
Globalization and market turbulence
With the continuing volatility of global warkets that started with the substantial US housing loan defaults, some people are asking if globalization is to blame. Yes, we can blame globalization for the current market volatility in major markets around the world. The same way that globalization should be credited for to the expansion of the same markets around the world.
Are the markets entering a new era? No. The era of market interconnection on a global level will remain because that’s what people around the world need and they work for it. Otherwise there will be no international trade, no international mobility of people and their talent and services.
Will fluctuations continue to snowball from market to market, or is this just a tempest in a teapot? Snowball into something bigger turbulence, possibly not. The turbulence has been around for the last 4 or 5 months, and major market players have already instituted some mechanisms to curtail any major damage to their companies and their markets.
We need market turbulence. Those who are complacent need to be jolted with the entry of new players who are very adventurous and innovative. And those who are irresponsible in managing their corporate or personal finance should be jolted too. Market turbulence then will adjust markets to a higher and more responsible level. Until another round of turbulence as new breed of innovators come up and new breed of irresponsible guys fall down.
Are the markets entering a new era? No. The era of market interconnection on a global level will remain because that’s what people around the world need and they work for it. Otherwise there will be no international trade, no international mobility of people and their talent and services.
Will fluctuations continue to snowball from market to market, or is this just a tempest in a teapot? Snowball into something bigger turbulence, possibly not. The turbulence has been around for the last 4 or 5 months, and major market players have already instituted some mechanisms to curtail any major damage to their companies and their markets.
We need market turbulence. Those who are complacent need to be jolted with the entry of new players who are very adventurous and innovative. And those who are irresponsible in managing their corporate or personal finance should be jolted too. Market turbulence then will adjust markets to a higher and more responsible level. Until another round of turbulence as new breed of innovators come up and new breed of irresponsible guys fall down.
Thursday, January 24, 2008
Regulating patient-physician trust
When a person is sick, he sees a physician, not a mechanic or lawyer or congressman. The patient puts his trust on the physician, otherwise he would not see the latter. The physician listens to the patient’s feelings, the symptoms, his other sickness if any (is he asthmatic, diabetic, with hypertension, has allergies, etc.). From a list of several dozen potential medicines on that particular disease, plus consideration of the patient’s condition, the physician chooses one and gives a prescription to the patient, including dosage and frequency of taking the medicine.
One factor that the physician considers in recommending a particular medicine, say brand C, is its proven effectiveness to other patients who have similar disease. Or he used to prescribe medicine brands A and B before, but they proved ineffective to his other patients; then he suspects the quality of brands D, E and F. So this time, he is prescribing brand C.
Can the state regulate this trust by the patient to his physician? Obviously it can, because the state has already regulated many other aspects of our lives. But should the state do it again in this case? And should the state regulate the physician’s trust on particular medicines made by particular medicine innovators?
Patient-physician trust is a matter of personal relationship. It can even be a matter of life and death for some cases. The same way, the physician-pharmaceutical manufacturer trust is a matter of personal relationship too. When the state will try to intervene and dictate the physician that he can only prescribe a generic formulation, and that he should not prescribe to his patients brand C or F or Y or AB, especially those manufactured by multinational pharmaceutical companies, that is going overboard and breaking the patient-physician trust.
In the House version of “cheaper medicines bill”, the Congressmen are proposing to criminalize the physicians who will prescribe certain brands to their patients. Physicians should only prescribe generics formulation, then patients will ask the non-physicians, could even be non-pharmacists, in the drug stores, or super-markets or convenience stores or variety (“sari-sari”) stores that sell medicines, which of several drugs in the same generic category is the cheapest, so that the patient can buy “cheaper/cheapest medicine”.
It looks cute, except that it could be risky for the patients. Physicians and pharmacists observe that different brands under one generic category are capable of causing different effects, delayed effects, or allergic reactions to different patients. That is why doctors always ask the symptoms and feelings of the patients, previous history of contracting that disease, any allergies or related diseases, before prescribing a particular brand.
One reason given by the Congressmen why they resort to such “brands disallowed, generics only” intervention, is because they suspect that physicians are under the influence of big multinational pharmaceutical companies. This wholesale suspicion and distrust of physicians is unfair if not dangerous, and the danger will be transmitted to the patients.
Medicine innovation is a must that should be undertaken by pharmaceutical companies if they want to remain relevant to the public, the physicians and patients in particular. Diseases evolve, so must be the medicines to eliminate or neutralize those diseases. Even pests and insects in rice and other crops evolve, that is why pesticide companies or organic farming practitioners also innovate on new formulations or practices to neutralize those pests that can possibly wipe out a farmers’ potential harvest. Even cellphone manufacturers never cease to innovate new models, discovering new uses to previously underutilized features of other cellphone models.
Physicians understand and appreciate the efforts made by medicine innovators, aka pharmaceutical companies. That is why physicians who truly care for their patients tend to choose those brands that they think truly innovate and innovate continuously, unceasingly.
Unfortunately, there is a big cost to innovation. In addition, government taxes and fees, plus other government health regulations and inspections, add to the already high cost of innovation, clinical trials and product development. This aspect of high and multiple government taxation of medicines and medicine innovators, unfortunately, has escaped the minds of legislators.
One factor that the physician considers in recommending a particular medicine, say brand C, is its proven effectiveness to other patients who have similar disease. Or he used to prescribe medicine brands A and B before, but they proved ineffective to his other patients; then he suspects the quality of brands D, E and F. So this time, he is prescribing brand C.
Can the state regulate this trust by the patient to his physician? Obviously it can, because the state has already regulated many other aspects of our lives. But should the state do it again in this case? And should the state regulate the physician’s trust on particular medicines made by particular medicine innovators?
Patient-physician trust is a matter of personal relationship. It can even be a matter of life and death for some cases. The same way, the physician-pharmaceutical manufacturer trust is a matter of personal relationship too. When the state will try to intervene and dictate the physician that he can only prescribe a generic formulation, and that he should not prescribe to his patients brand C or F or Y or AB, especially those manufactured by multinational pharmaceutical companies, that is going overboard and breaking the patient-physician trust.
In the House version of “cheaper medicines bill”, the Congressmen are proposing to criminalize the physicians who will prescribe certain brands to their patients. Physicians should only prescribe generics formulation, then patients will ask the non-physicians, could even be non-pharmacists, in the drug stores, or super-markets or convenience stores or variety (“sari-sari”) stores that sell medicines, which of several drugs in the same generic category is the cheapest, so that the patient can buy “cheaper/cheapest medicine”.
It looks cute, except that it could be risky for the patients. Physicians and pharmacists observe that different brands under one generic category are capable of causing different effects, delayed effects, or allergic reactions to different patients. That is why doctors always ask the symptoms and feelings of the patients, previous history of contracting that disease, any allergies or related diseases, before prescribing a particular brand.
One reason given by the Congressmen why they resort to such “brands disallowed, generics only” intervention, is because they suspect that physicians are under the influence of big multinational pharmaceutical companies. This wholesale suspicion and distrust of physicians is unfair if not dangerous, and the danger will be transmitted to the patients.
Medicine innovation is a must that should be undertaken by pharmaceutical companies if they want to remain relevant to the public, the physicians and patients in particular. Diseases evolve, so must be the medicines to eliminate or neutralize those diseases. Even pests and insects in rice and other crops evolve, that is why pesticide companies or organic farming practitioners also innovate on new formulations or practices to neutralize those pests that can possibly wipe out a farmers’ potential harvest. Even cellphone manufacturers never cease to innovate new models, discovering new uses to previously underutilized features of other cellphone models.
Physicians understand and appreciate the efforts made by medicine innovators, aka pharmaceutical companies. That is why physicians who truly care for their patients tend to choose those brands that they think truly innovate and innovate continuously, unceasingly.
Unfortunately, there is a big cost to innovation. In addition, government taxes and fees, plus other government health regulations and inspections, add to the already high cost of innovation, clinical trials and product development. This aspect of high and multiple government taxation of medicines and medicine innovators, unfortunately, has escaped the minds of legislators.
Tuesday, January 15, 2008
Intellectual property and innovation vs. envy
January 8, 2008
Some groups have convinced the public that intellectual property (IP) through patents can be skipped and overruled when we're talking about public welfare, public health in particular. The catchword, "patients over patents" summarizes it. Intellectual property rights (IPR) is an important matter that should be respected and strengthened, not weakened, if we want to encourage continuing innovation to battle ever-changing and evolving diseases.
One analogy can be presented this way. Consider you are an agri-biotech company. You have developed a rice variety that can help its consumers boost their immunity against malaria, tuberculosis, and diarrhoeal diseases. It took you two to three decades of painstaking research and development, employing the brightest scientists and most dedicated researchers in the world. Naturally the price of your rice is high, maybe five to 10 times the price of ordinary rice. Then government comes in to compel you to shorten your patent on such rice variety, if not outright skip your IPR to such invention, because many poor people cannot afford to buy that rice, because public health is at stake. How would you feel?
Property rights is the cornerstone of a free society. Remove or weaken property rights and some bully can expropriate your property anytime, from your cellphone to TV, to your song composition and biotechnology invention, and society will border into mediocrity, if not chaos. It will be a society where hard work and innovation will be discouraged, and robbery and envy is encouraged.
The “Cheaper Medicines Bill” currently in Congress is an example of weakening IPR, demonizing the medicine innovators as evil while retaining the multiple taxes on medicines and keeping silent on the limited competition among pharmaceutical companies. If our Congressional leaders really want medicines to become more affordable to the people, they should have crafted a bill that will drastically cut or abolish import tax, VAT, and other taxes on medicines, the way they are debating whether to abolish the import tax and reduce/abolish the VAT on petroleum products as world oil prices have touched the 3-digit level of $100 a barrel. This way, the price of medicines will not only go down, but the number of competing pharmaceutical companies, even drug traders and drug stores will also increase, which will further add more pressure for prices to go down and quality to improve. Let the currently demonized pharmaceutical companies expand to several dozens, if not hundreds, and let them slash each other’s throats in fierce competition.
Theoretically, IPR on an innovation should be forever, not limited to some arbitrary number of years of patent life. Why 20 years? Why not 15, or 23, or any other number of years? When Toyota invented the Corolla, it has forever IPR or patent on that car model, and it prevents Nissan, Ford, Honda, GM, Fiat, Hyundai, or any other car manufacturers from creating another Corolla, but they can create their own car model that has more or less similar features and power as the Corolla, at a different price. So the charge that a patent or IPR is equivalent to a “monopoly” is wrong because competing firms can always produce a similar product or model with a different name.
Thus, the Senate version is wrong in weakening IPR for medicine innovations. Instead of encouraging the entry of more competing medicine innovators from around the world to come into the country through IPR laws that will give them longer term, if not forever protection of their innovation, the Senate version has chosen to discourage their entry.
But the House version is worse because it intends to create another bureaucracy, a drug price control body. Price control attempt by governments of any commodity or service almost always results in even higher prices. This is because price control discourages sufficient supply of good-quality commodities or services, and low supply relative to demand results in higher prices.
"Parallel importation", or the importation of patented or licensed product or service without the permission of the IP owner, is another track in weakening IPR and innovation. Better to have free trade, with no government bureaucracy giving accreditation or authorization of who can do the importation. And free trade necessitates the abolition of import tax as this tax immediately raise the price of the imported good or service.
People, firms, and institutions that are not innovative enough are often driven by envy. They envy those who risked high and later earned high. But risk-takers do not always earn all the time, they also lose since innovation is always a risky undertaking. You do not know whether your invention will be useful or not, and if proven to be useful, you are not sure if the consumers will patronize it or not. And if the consumers will patronize it, you are not sure if government regulations and bureaucracies will allow it to prosper or not.
Friday, December 21, 2007
Counterfeit Drugs 1: On the Growing Fake Drugs Worldwide
In my free time, I join a few on-line discussions, and one of the blogs I like participating is that of the International Herald Tribune's. In "managing globalization" blog, one discussion is about free trade zones and counterfeit drugs. Below are the original post by the blog writer, then my comment, plus a counter-comment from another reader, then my rejoinder.
-----------------
A side effect of free trade zones
Posted by Daniel Altman in General, Rough trade
17 December 2007 7:38 am
How much regulation of trade is too much? It's a tough balance to strike. On the one hand, if you're too finicky about the provenance of the goods you import, then you risk being accused of protectionism. On the other hand, if you regulate too loosely, you may leave the door open for scams and fraudsters. The latter case, as Walt Bogdanich writes, is apparently what's happening with some counterfeit drugs.
Bogdanich reports that drug counterfeiters have found safe havens in free trade zones ranging from Hong Kong to Dubai. With regulations designed to restrict trade as little as possible, the zones offer the makers of fake drugs a chance to conceal their products' origins and move them around with little fuss. Even when the local regulators suspect what's going on, they aren't even sure if they have jurisdiction.
It seems like it should be possible to stop fake drugs without significantly impeding trade. But governments may worry that by rooting out fake drugs, they will also find numerous other violations of rules of origin, e.g. goods produced outside the free trade zone that are masquerading as local output. The solution may be for for importers like the United States to relax their rules-of-origin requirements in exchange for better monitoring of fake and dangerous products in free trade zones. Given the difficulty of moving global trade talks along, though, my expectations for any sort of quick, clean resolution are extremely low.
Comments:
Anything can possibly enter in free trade zones — useful/original drugs and counterfeit drugs. Food and drinks, medicines and poisons, fertilizers and bombs, and so on.
The presence of counterfeit drugs can never be an excuse to relax international trade, or in the case of Hong Kong and Dubai, to undertake unilateral trade liberalization.
Brand or original manufacturers of medicines can check the origin of drugs that were purportedly "manufactured" by them from some countries. After all, when counterfeit drugs purportedly from GSK or Pfizer or other big pharma companies will be detected, it will be those pharma companies' image (and their sales and profits) that will be adversely affected. Corporate screening mechanisms will help minimize if not stop trading of counterfeit drugs around the world. But free trade must continue to march forward. Protectionists simply do not appreciate the "net gains" in trade - winners are plentier than losers. Otherwise, people will not trade voluntarily with each other.
Posted by: Nonoy Oplas — 18 December 2007
Nonoy - There was a lengthy article just a day or two ago in IHT about a very widespread problem within and between free trade zones, in which counterfeit drug makers seem to easily evade detection amid massive confusion over jurisdiction and regulation of international commerce. Please clarify how the big pharmaceuticals could succeed in catching the counterfeiters or in screening the illicit drugs when governments have so far been unable or unwilling to do so. You're probably right that much tighter inventory control measures would help, but such measures would be expensive and probably would defeat the purpose of importing cheaper drugs.
I generally support the concept of free trade, but Mr. Brinkman is right that the American government has negotiated very poorly for American businesses in its so-called "free trade" deals. As far as I know, America's trade deficits have widened with every country involved in such agreements, although I haven't checked statistics since the dollar's sharpest and most recent declines. Even with the falling dollar, I don't believe these agreements will be in America's interests for a long, long time. Perhaps someday when developing nations have narrowed the gaps between their own living standards and America's, the economic benefits might be more reciprocal. I'm not holding my breath, and until that day comes, the principal beneficiaries of these agreements will be people at the top of corporate America, and of course, their trading partners.
(From Japan)
Posted by: Gary Henscheid — 19 December 2007 7:32 am
Hi Gary, the issue of counterfeit medicines is also a problem here in the Philippines, partly because of the government's "parallel importation" policy I think. Cheaper medicines from India and China, same brand from same manufacturers, are imported into the country. Turns out that a number of those "same drugs" were counterfeit, very cheap, yes, but ineffective if not dangerous to the patients. A friend I talked to who works for Pfizer says some of those drugs purportedly manufactured by Pfizer India, imported into the Philippines by the government's international trading corporation or some of its accredited importers, turn out not to come from Pfizer India, but by some of those pharma companies in India that produce fake drugs. And the government has no capacity to detect such fake products, or perhaps the government does not care, all it wants is to sell cheaper medicines perhaps at all cost.
That is why I suggested that the pharma companies based in the importing countries be involved just to check if indeed those cheap but counterfeit medicines indeed came from their own manufacturing plants abroad.
But what escapes from many debates on counterfeit and expensive drugs, are taxation. Medicines are not taxed in India and Pakistan, for instance, one reason why they can produce cheaper drugs. Here in the Philippines, there are at least 2 taxes slapped on medicines — import tax and value added tax (12%). Plus income and other taxes on companies selling drugs, wholesalers and retailers. So when the Philippine (or other) government complains that local drugs are expensive compared to those available abroad, it blames somebody else, not itself.
Abolition of import tax, and free trade, as in free — zero tariffs and non-tariff barriers –and have a full range of competition among pharma companies and retailers, should help reduce drug prices. Then no need for "parallel importation" that risks entry of counterfeit drugs.
Posted by: Nonoy Oplas, Philippines — 21 December 2007
Subscribe to:
Posts (Atom)