As Election Day draws nearer, one of those hot button issues
we keep hearing about are the evils or drug companies: they
"gouge" prices, step on the backs of the poor and infirm and
lack a single shread of humanity. Steadfastly refusing
Africa much needed AIDs medication while stabbing Grandma
and Grandpa in the back, they are the embodiement of evil,
Wrong. Don't be fooled by the rhetoric: because the
drug companies have to care about the bottom line, we, as a
society are better off. Proft is an incentive for innovation
and the threat of losing it is an incentive for safety. My
favorite instance of the invisible hand smacking around some
irresponsible drug company broke last week: Merck pulled Vioxx.
Vioxx, a drug used to lessen the pain from arthritis, turns
out to double the risk of heart attack if taken too long.
While the company denied this was the case for years, after
an independent panel reached this conclusion, the company
pulled the product. Shortly thereafter, they lost $28
billion as their stock plummented.
Some people may point to this as proof of the need for
government to have a greater role in health care but that
level of faith in the state is sadly misplaced. Let's
suppose, for argument's sake, that the government, not
private companies, were responsible for new drugs. Thus we
would avoid the heartless refusal to acknowledge the drug
may have problems. Governments look out for the people.
At least in theory. I find it highly unlikely that a
government organization could create a drug as sophisicated
as Vioxx--they lack the incentive. Even if they did, they
would have to learn that the drug has flaws (considering how
subtle it is, that's unlikely also). THEN, they would have
to admit they were wrong. If the Bush Administration has
taught us anything, it's that accountability is a foreign
word in Washington.
Governments lack incentive to be good at their job. Sure,
there's re-election (which doesn't apply to some figures)
but considering how much governments do, it's easy to bury
one big thing under a pile of good-sounding stuff. This is
why the Administration doesn't have to fire anyone over the
intelligence failures; they just have to say "oops." What
are you going to do about it? Sell stock?
Firms, on the other hand, have to do well. They have to
balance public safety and medical progress as best they can.
Too much in one direction is not only bad for the company,
it's bad from society. The reward of profits is what makes
capitalism work. Give it to all those who do well, take it
away from all the failures. It may seem heartless, but it's
the best way; it's exactly what socialism lacked. Proper
motivation is how progress is made. Merck's value fell so
much, some investors say it's poised for a takeover,
something the higher-ups were vehemently trying to aviod
(and still are trying to avoid). Every employee at Merck,
especially these higher-ups, is now at risk of losing their
That's what I call incentive.