TCS Daily

Importing Socialism

By James K. Glassman - July 23, 2003 12:00 AM

Legislation that would allow the re-importation of drugs from Canada to the United States heads to the House floor Wednesday and has a chance to pass. Sadly, the bill is the work of members of Congress who should know better -- sponsored by such conservatives as Reps. Gil Gutknecht (R-Minn.) and Dan Burton (R-Ind.).

It is not too dramatic to say that, if it becomes law, this bill will make Americans sicker and shorten their lives.

The reason is simple. The bill would introduce Canadian price controls to the United States. The results are eminently predictable. If U.S. drug companies are forced to sell at prices that prevail in Canada and Europe, they will sharply curtail, or in many cases abandon, the development of new pharmaceuticals.

According to a recent study, new drugs add roughly three weeks of longevity per year to the lives of people around the world. This is an average that includes those who don't even take drugs, so the effect of recently developed medicines that lower cholesterol, fight depression, combat HIV/AIDS and Alzheimer's is even greater in a country like the United States.

The Gutknecht bill would end progress in the development of new drugs, each of which currently costs an average of $800 million and seven years to bring to market. This is no threat. It is simple economics. People will die.

Some of the proponents of re-importation are simply demagogues or advocates of socialized medicine, like Sens. Byron Dorgan (D-N.D.) or Ted Kennedy (D-Mass.). Others are earnest in trying to correct what they see as unfairness.

Canada and Europe, they say, are "free-riding" on the American consumer. The U.S., with only 5 percent of the world's population, provides 50 percent of the revenues from the sales of drugs. As Burton said in a recent colloquy on the House floor, "The pharmaceutical industry makes the biggest share, the lion's share of their profits right here on the backs of the American consumer. That is not right.... Research and development should be shared around the world."

The drug sector does indeed suffer from what economists call a free-rider problem -- one group bears more of the costs than another, but the other group gets the same benefits.

The best solution is for all nations to do what the U.S. does: establish a relatively free market in drugs. If that happened, drug companies would be able to afford to invest even more than the $30 billion a year they currently put into research and development. The world would have more new medicines, and people would be healthier and live longer.

That is the ideal, and public officials like Burton and Gutknecht -- not to mention HHS Secretary Tommy Thompson and even the President of the United States -- should use the bully pulpit to advocate it at every turn. Tell the Canadians that, through their short-sighted price controls, Canadians, Nigerians, and Pakistanis are less healthy than they could be under a market system. Say it loud and say it often.

My own guess, however, is that achieving this ideal, in an age in which socialism still maintains a hold on politicians in developed nations, will be difficult, if not impossible.

The second-best solution is the one we have now, where the U.S spends more on drugs, per capita, than other nations because we believe that supply and demand, rather than government fiat should determine prices. Another reason we spend more is that we are richer. Poorer countries, including Canada, where GDP per-capita is one-third less than in the U.S., generate less demand for drugs, as for everything else. Thus, prices for drugs would be lower in Canada than they are in the United States -- perhaps considerably lower -- even if Canada did not have price controls.

Yes, many nations get a free -- or, really, one-third to one-half off -- ride. It may be unfair, but it is a burden that the United States carries as a result of its economic success -- just as we have to have to bear the burden of providing most of the defense spending for the free world.

But the way to reduce free riding is not through re-importation. To the contrary. Such an approach threatens to bring the entire edifice -- the system that has made Americans healthier and helped them live longer -- crashing down around us.

If Gutknecht and Burton and other conservatives think they can use their bill to pressure Canada to stop its free riding and adopt free-market health care, they are living out a dangerous fantasy. In fact, the opposite is the case. If the bill passes, it will be in the best interest of Canada and Europe to forbid exportation of drugs -- that is, to keep the current system alive. That, I expect, is what they will do.

Worst of all, if the proponents of this legislation succeed, they will speed the day when the U.S. health care system looks like Canada's. Our system is far from perfect, but most Americans like it, and it is improving. By contrast, a study by the Lewin Group found that 78 percent of Canadians "believe their health care system is in crisis." Canada withholds innovative pharmaceuticals from its citizens to reduce costs. As a result, "Canadians wait 12 to 20 months for access to and reimbursement for new drugs." Canadians wait, on average 23.3 weeks for cardiovascular survey. They wait 150 days for an MRI, as compared to three days in the U.S. It is not a pretty picture.

Sometimes, we have to accept our responsibilities as the world's most powerful economy -- an economy that is bigger than those of the next five countries combined.

Sometimes, we have to stand up for free-market principles. We have to oppose those who spread the gospel of price controls and socialism. Never, never should we join them.

For that reason, members of the House should vote "no" to attempt to Gutknecht's H.R. 2427. Reject Canada's system of government price-setting and health management. As Americans, it's not for us.

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