More than seven in 10 economists believe that the United States has already slid into recession, according to a recent forecasting survey conducted by the Wall Street Journal.
Imagine if, in the face of such a downturn, federal lawmakers were on the verge of forcing an entire industry to sell an unlimited amount of product at a loss.
Sound too Orwellian to be true? Well, that’s exactly what some congressmen are trying to do.
They’re pushing for a bill that would institute a “forced sale” law for American drug manufacturers, requiring them to sell their meds not only to a pre-selected group of foreign governments but also to any drug reseller who puts in an order.
This law would require pharmaceutical companies to sell at a price and a quantity determined by — get this — those same foreign governments. Drug resellers in these foreign countries would then be able to turn around and export their price controls to the United States by selling the meds they purchased at controlled prices back to American customers for slightly more, far less than the market-clearing price in the United States.
Advocates argue that forced sale will give patients access to cheaper prescription drugs. But the low drug prices found abroad come through morally questionable and economically dubious means. It’s really a form of extortion.
A loophole in a World Trade Organization treaty allows countries to rescind patents in cases of “national emergency,” “circumstances of extreme urgency,” or for “public non-commercial use.” Governments in Europe and Canada often times exploit the vagueness of those terms to get huge discounts on drug purchases, threatening to revoke the patents of American drug companies unless they sell their meds at artificially low prices.
The discounts these countries squeeze out of drug makers amount to price controls. That’s bad enough but forced sale would leverage this government extortion on behalf of private-sector resellers with the effect of importing these price controls into America through the backdoor, with bureaucrats setting the price and quantity — not the market.
This is profoundly un-American. The U.S. government has never required that a privately-owned domestic company sell an unlimited quantity of goods to a privately-owned foreign company — at prices dictated by foreign governments, no less!
To be sure, Washington has dictated the price of goods before. Across-the-board price controls were imposed during both world wars as well as in the Korean and Vietnam wars.
Yet these interventions were enacted to deal with a genuine emergency — rampant inflation during wartime. And they were temporary-not to mention harmful and counterproductive.
Forced sale, on the other hand, is a response to a problem that’s mostly imaginary.
Yes, brand-name drugs generally cost more in the U.S. But over 60 percent of drugs dispensed in 2006 were generics, which actually cost less in the U.S. than abroad.
What’s more, a 2003 London School of Economics study found that most of the savings from forced sale laws go into the pockets of middlemen — not toward lowering prices for patients.
That’s just what happened when price controls were imposed on the steel industry during the Korean War. Many customers ended up paying nearly three times the government-imposed ceiling because a “daisy chain” of middlemen inflated the price.
Forced sale will also stifle medical innovation. Drug companies spend, on average, around $800 million to create a new medicine. Forced sale would significantly reduce their profit margins — and thus, they’re incentive to develop miracle drugs.
A study from the University of Connecticut calculates that government meddling in drug pricing since 1960 has cost $188 billion in lost research and development spending. Researchers estimate that the money would’ve saved 140 million years of life.
Forced sale will cost us countless more. It undermines the principles of free markets and the limited role of government. And it probably won’t save us a dime on brand-name drugs.
With the economy nose-diving, the last thing Americans need is more foolhardy financial tinkering from the federal government. Making pharmaceutical companies sell at a loss would exacerbate the country’s hardships, and effectively choke off the steady stream of medical advancements that could improve the lives of millions.
Lawrence A. Hunter, Ph.D., is Senior Fellow at the Institute for Policy Innovation.
