TCS Daily

So Much For American Sovereignty

By Benjamin Zycher - October 7, 2005 12:00 AM

The greater the power to redistribute wealth wielded by government, the stronger the private-sector incentive to circumvent it, and so ever-expanding is the power that government must grasp. Nowhere is that eternal truth clearer than in the ongoing debate over the importation of pharmaceuticals subject to price controls overseas. Such legalized importation would be one way for those favoring such price controls -- a blatant wealth transfer from the future to the present -- to have that cake without actually having to vote for it, and thus having to bear responsibility for the ensuing adverse effects on current and future human suffering.

Under a system of reimportation of price-controlled medicines, the pharmaceutical producers, understandably seeking to protect the economic value of their investments and thus their ability to develop new medicines for the future, would have incentives to limit sales into the various foreign markets, so that foreign governments in effect would not determine pharmaceutical prices in the U.S. And the foreign governments, interested in preserving adequate supplies of medicines for their own populations, have made it clear that they cannot serve as pharmacies for Americans.

And so having shunted aside both the serious counterfeiting/safety issues attendant upon the drug importation system now contemplated, as well as the implicit, but huge, erosion of intellectual property rights inherent in the price controls, the Congressional proponents of such importation now must confront the unwillingness of the foreigners to serve as the price control middlemen for the U.S. market.

And confront it they have. The current proposals to allow the importation of pharmaceuticals subject to foreign price controls include provisions forcing the producers to sell to the foreign governments all the drugs demanded at the controlled prices.

Where to begin? This means that foreign governments -- or more specifically, the foreign governments imposing the tightest price constraints -- will be given the power to set prices in the U.S. Do we want the future of U.S. medical technology to be determined by political pressures overseas and/or by bureaucrats in Ottawa or Brussels or Brasilia? Apparently, some in the U.S. Congress do indeed. And precisely what is the economic value of any given pharmaceutical patent when that economic value in the U.S. can be confiscated by foreign politicians, whether elected democratically or not? So much for the future of pharmaceutical investment and innovation -- the research and development process takes over a decade, and what investor wants to bet on political outcomes not only in the U.S., but anywhere in the world? -- and thus for the future development of cures.

And let us have no nonsense about the importation of pharmaceuticals subject to price controls as a manifestation of "free trade." Forced sales at controlled prices are no more consistent with the principles of free trade than the purchase of stolen merchandise from the back of a truck would be consistent with the principles of free enterprise. Thus is the forced sales approach a blatant violation of the Takings Clause of the 5th Amendment, as the price controls would transfer the property rights inherent in patents from pharmaceutical producers and future patients to current interest groups (a blatantly private use) without any compensation whatever, whether just or not.

The last time I read the 13th Amendment to the Constitution, it said something rather sharply unfavorable about involuntary servitude. The forced sales proposals would mandate that pharmaceutical producers sell all that is demanded at the prices dictated overseas, without recourse to the ordinary processes of negotiation, let alone legal institutions. Thus would American firms be forced to serve foreign masters -- literally -- on terms dictated by foreigners. And let us not forget the "nondiscrimination" dimension of the forced sales gambit: If, say, the German Sickness Funds buy 30 million doses of a drug at a given price, would the pharmaceutical firm be forced to sell an identical quantity at the same price to anyone else in Germany? That the answer is not clear -- it might very well be "Yes" -- reveals a good deal more about the forced sales idea than its proponents would like us to know.

And is there any reason to believe that such forced sales would be limited to drugs? If U.S. politicians can transfer wealth to their constituencies in the form of "cheap" pharmaceuticals, why not do the same for a myriad of other goods that require massive up-front investments?

So there we have it. Fewer medicines. U.S. markets held hostage to foreign political pressures. A wholesale destruction of the Bill of Rights. Government of, by, and for the People -- Sovereignty -- cast to the winds. Such are the inexorable outcomes yielded by politicians and bureaucrats in hot pursuit of wealth redistribution, the larger adverse implications be damned.

Benjamin Zycher is a senior fellow in economics at the Pacific Research Institute.


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