Ending the Myth of 'Market Fundamentalism'
Baker, Dean
ARTICLES Ending the Myth of ‘Market Fundamentalism’ DEAN BAKER Progressives have wailed against “market fundamentalism for the last quartercentury. They complain that conservatives want to...
...We must be as aggressive and creative as the Right in designing new rules that redistribute income downward rather than upward...
...The country spent $250 billion last year on prescription drugs...
...However, we can design “free trade” policies that produce different outcomes...
...By reducing demand for health care in the United States, it would also lead to downward pressure on domestic medical costs more generally...
...And, we must bury the concept of “free market fundamentalism...
...citizens and use the profits to provide better care for their own populations...
...Should the government be willing to pay this expense...
...A similar story can be told about copyrights...
...In principle, we could replace the industryfunded research through direct, publicly funded research...
...This is not the only problem with the patent system...
...This is not due to legal restrictions on pay, it is due to the fact that they have governance structures that don’t allow the top executives to pilfer the corporations that they ostensibly work for...
...As a result, we will have created a system that we know will be unaffordable over the long run (if it does SPRING 2010 DISSENT 59 MARKET FUNDAMENTALISM end up getting passed...
...Consider the situation of an eightyyearold woman, in generally good health, who develops a form of cancer...
...There are no free market fundamentalists in this debate, just conservatives who want to pretend that their rules are the natural working of the market...
...An international Medicare voucher system could allow retirees to enjoy a much higher standard of living than would otherwise be the case, while at the same time saving the U.S...
...It leads the industry to buy politicians to ensure that Medicare, Medicaid, and other government programs pay for the drugs...
...There are many different ways to structure markets...
...No one can mass market unauthorized versions of Pfizer’s latest drugs or Microsoft’s new software...
...Over the course of the next decade, expenditures are projected to exceed $3.5 trillion, implying excess payments to the drug industry of more than $3 trillion, more than three times as much as will be spent on the health care reform proposed in Congress at this writing in early winter...
...As a result of the enormous profits on its drugs, the pharmaceutical industry spends a fortune marketing them...
...This is more than onethird of the tax revenue collected by the federal government...
...Progressives should have been pushing these “free market” arguments in discussing prescription drugs...
...Firms like Goldman Sachs even insisted that the government make good on the debts of bankrupt business partners, such as AIG...
...This is not just a question of framing, although the framing is important...
...The current system leads to enormous inefficiencies from any perspective and leaves us with absurd choices that would disappear with a more rational system of financing prescription drug research...
...In 2019 the country is projected to spend almost $500 billion on prescription drugs...
...I would be surprised if there were any other outcome...
...After the forces of market competition have worked their magic, we will be much better able to discuss reform with the domestic health care industry...
...This corporate governance structure was created by the government, it did not develop through the free market...
...They provide an incentive for creative and innovative work, like developing new and better software or producing good movies and music, but we already have alternative mechanisms for supporting this work and can develop new ones...
...We recently did calculations showing that a few decades out the projected savings would be tens of thousands per beneficiary each year...
...That would be the marginal cost of manufacturing and distributing the drug...
...It also doesn’t want the insurance to come with any restrictions...
...In fact, since these countries would be 60 DISSENT SPRING 2010 MARKET FUNDAMENTALISM getting a premium above their cost of care, this could be a major source of growth for these countries...
...it is simply repairing a dysfunctional system...
...Progressives have no reason to look to government to reverse market outcomes...
...Similarly, we could use a little free trade in health care...
...Changing the rules in ways that return control to shareholders is not government interfering with the market...
...In other words, the financial industry wants the government to provide “insurance” through the Federal Reserve Board, the Federal Deposit Insurance Corporation, and various ad hoc channels, but it doesn’t want to pay for it...
...It does a good job of meeting the important goal of extending coverage to most of the uninsured...
...Suppose that the only treatment likely to be successfully is a new, bioengineered drug that would cost $250,000 a year...
...A serious longterm progressive agenda must move away from a focus on taxandtransfer policy and instead concentrate on changing the rules that lead to undesirable market outcomes...
...MARKET FUNDAMENTALISM Patent monopolies do serve an important economic function—they provide an incentive for researching new drugs—but they clearly are not the only way to finance research...
...The difference is that conservatives want the government to intervene in ways that redistribute income upward...
...But, if we lack the political power to reform the domestic system, as is obviously the case now, it is absurd to hold patients here as hostages of a broken system...
...That’s not the free market...
...Progressives should not help them in this effort...
...It leads to expensive directtoconsumer marketing campaigns...
...CEOs in the United States get paid tens of millions of dollars a year because we have created a corporate governance structure that allows top managers to plunder the corporation for their own ends...
...We can also apply some good free market principles to highly paid professionals, such as doctors, lawyers, and economists...
...We will eventually either have to ratchet back the extent of coverage and/or the quality of care or impose substantial taxes on the middle class...
...Trade policy has been quite explicitly designed to place our manufacturing workers in direct competition with lowpaid workers in the developing world...
...The idea that we can somehow pay for this system in future decades with progressive taxes is absurd on its face...
...Given the enormous gap in costs for health care services between the United States and Europe, not to mention high quality facilities in places like India and Thailand, there would likely be a huge flow of patients for treatment outside the country, if we created the proper institutional structure...
...When the government intervenes to artificially inflate prices, it creates unexpected perverse incentives...
...As a result of patent protection, many drugs sell for hundreds or even thousands of dollars per prescription...
...As our moral philosophers labor over this problem, consider that the drug would probably cost $200 a year in the absence of patent protection...
...government and the beneficiaries...
...Bill Gates is an incredibly rich man because the U.S...
...I could list more mechanisms and beneficiaries, but the point should be clear...
...In this context, it is important to remember that we pay more than twice as much per person for care as people in other wealthy countries...
...The distribution of income is determined by government policies that favor some groups and work against others...
...Let’s return to prescription drugs...
...The alternative route is to directly attack the structure of the health care system that leads to such bloated costs...
...Although the drug company may have spent a huge amount of money developing the drug, this is money out the door...
...Progressives often point to the loss of manufacturing jobs in the United States and the depression of wages for noncollege educated workers as evidence that free trade doesn’t work...
...Copyright monopolies lead to an enormous transfer of income to software and entertainment companies...
...By contrast, if all drugs were sold as generics in a competitive market, the overwhelming majority could be bought for $4 or $5 per prescription...
...Under this system, a committee would assess the value of new patents and pay this amount to patent holders...
...58 DISSENT SPRING 2010 The most obvious recent government intervention to redistribute income upward has been the bailout of the financial industry...
...In a competitive market, the cost likely would have been closer to $25 billion...
...For example, we should insist that the Fed allow the unemployment rate to fall to low levels, rather than raise interest rates to choke off any possibility of inflation...
...For example, it can license facilities in other countries to ensure high standards and also standardize rules on legal liability to ensure that people who go overseas for treatment can be assured of reasonable legal redress in the case of malpractice...
...Easing professional and immigration restrictions that largely protect the most highly educated workers from international competition will reduce pay for those in the top 1 percent to 2 percent of the wage distribution and help to lower the cost of SPRING 2010 DISSENT 61 MARKET FUNDAMENTALISM everything from health care to a college education...
...There is real money at stake...
...In effect, the financial industry wants to run an explosives factory out of its home and pay only the standard residential insurance premium...
...To take another example, the government grants pharmaceutical companies patent monopolies that allow them to mark up the price of prescription drugs by several hundred percent or even several thousand percent above what the same drugs would sell for in a competitive market...
...The other difference is that the Right is smart enough to hide its interventions, implying that the structures that redistribute income upward are just the natural working of the market...
...Former Federal Reserve chief Alan Greenspan made this choice in the nineties (over the protest of Bill Clinton’s appointees to the Fed), allowing the first sustained period of real wage growth for workers at the middle and bottom of the wage distribution since the sixties...
...This was even after allowing for a substantial premium above costs to the receiving country of treating elderly patients, to ensure that they also benefited from the deal...
...The current rules were not given to us by a deity or by nature, they were written by the wealthy and powerful interest groups who benefit from them...
...This would allow the drugs based on new patents to be sold as generics in a competitive market...
...No other country allows for the same sort of plundering...
...There are other ways in which the government can promote trade in medical services...
...Furthermore, the drain from this patent monopoly is projected to grow rapidly through time...
...The proponents of drug patents cannot claim to support a free market...
...Or, as Nobel Prizewinning economist Joe Stiglitz has suggested, research could be carried on in its current manner, but new patents could be bought out through a prize system...
...Our health care industry only survives because of the extraordinary protectionist measures that restrict foreign competition...
...They complain that conservatives want to eliminate the government and leave everything to the market...
...It will almost certainly not be possible politically to raise taxes high enough to cover publicsector health care costs...
...These people are absolutely not free market fundamentalists, nor are they opposed to a wellworking government...
...62 DISSENT SPRING 2010...
...Without the monopoly created by copyright protection anyone would be able to instantly download Microsoft software anywhere in the world at no cost...
...This is nonsense...
...They don’t care about government social programs, but that is because they don’t depend on these programs...
...Deregulation also increases profitability and has nothing to do with the free market...
...In the world where the year’s dosage costs $200 we won’t have to spend too much time debating the treatment...
...We must be as opportunistic and creative as the Right in finding rules that both produce efficient outcomes and lead to better distributions of income...
...Europe and Japan both have dynamic capitalist economies, but they do not have the huge executive compensation packages of the United States...
...The fact is that everyone has a huge comparative advantage in health care relative to the United States...
...There is an endless list of policies that alter economic rules to lead to more egalitarian outcomes...
...We can and should push for progressive taxation, but it is even better to change the institutional structures that lead to gross inequality...
...government gives him a monopoly on Windows, threatening to arrest anyone who sells it or even gives it away without Gates’s permission...
...This causes them to court and even bribe doctors to get them to prescribe drugs...
...This is completely wrong...
...It is far more productive to talk about ways to use market mechanisms to fundamentally restructure the health care system than to try to scrape together nickels and dimes in tax revenue to pay to maintain a broken health care system for a few more years...
...If progressives accept the structures put in place by conservatives as the free market and then look to use tax and transfer policy to redress the inequities, we have given ourselves a hopeless task...
...Progressives help the Right’s cause when we accuse them of being “market fundamentalists,” effectively implying that the conservatives’ structuring of the economy is its natural state...
...It is easy to devise mechanisms through which foreign countries could provide care for U.S...
...The wealthy want and expect a government that enforces the rules that protect their wealth and power...
...The government spends more than $30 billion a year financing biomedical research through the National Institutes of Health, an amount comparable to what the industry spends on research...
...The demands of the financial industry on government are not qualitatively different from what other sectors get as a result of government interventions in structuring the market...
...In the same vein, although minimum wages and other direct income supports for lesseducated workers are desirable, it is better to restructure markets in ways that increase the relative demand for their services...
...In the case of health care, we can start by allowing Medicare beneficiaries to buy into the health care systems of other wealthy countries...
...The relevant question is, what does it cost to produce the next dose...
...But the confusion that this misguided war against market fundamentalism creates in designing policy is even more serious than the political damage...
...These outcomes are exactly what the trade models predicted would be the result of the trade policies that the United States has pursued...
...The amount of money at stake dwarfs the sums at issue with either the “Cadillac” plan tax or the millionaires’ surtax in the health care plans approved by the Senate and the House...
...Because health care costs are so much lower in Germany, Canada, and everywhere else, if beneficiaries opted to move to another country to receive their care, there would be enormous savings that could be split between the U.S...
...DB is an economist and codirector of the Center for Economic and Policy Research...
...No, these financial behemoths insisted that the government lend them money at belowmarket interest rates and guarantee their assets...
...This can be addressed by changing the markets for these services...
...We have already paid the research cost (ideally through one of the mechanisms discussed above...
...We must instead focus on altering the rules that redistribute income upward...
...As with drug patents, copyrights serve an important economic function...
...We can debate whether these alternative mechanisms are better for supporting prescriptiondrug research than the patent system, but the patent system is clearly not the free market, and it is not essential for financing prescription drug research...
...Economic outcomes that appear to be the result of the natural workings of the market will always sound more appealing than the machinations of government bureaucrats, especially in the political culture of the United States...
...The health care bill illustrates the need for a fundamentally different approach...
...Of course, it would be much better to reform the system in the United States so that people did not have to leave the country to get decent affordable care...
...Faced with complete collapse in the fall of 2008, Goldman Sachs, Citigroup, Morgan Stanley, and the rest did not yell that they wanted the government to leave them alone...
...Even under Republican administrations the government would quickly arrest a largescale violator of patent or copyright law...
...The industry association claims that, taken together, copyright industries accounted for 6.6 percent of GDP...
...Rather, like our conservative opponents, we should look for ways in which we can structure market rules so that markets have better outcomes from a progressive perspective...
...government tens of trillions of dollars in Medicare costs over the long term...
...More unionfriendly laws, such as serious civil or even criminal penalties for employers who violate workers’ right to organize, would also help equalize the distribution of income...
...And, it gives the industry an enormous incentive to conceal research results that call into question the effectiveness and safety of its drugs...
...The Right has every bit as much interest in government involvement in the economy as progressives...
...The idea that a “free market” is allowing some people to get incredibly rich and causing other people to be poor or financially insecure is nonsense...
...ARTICLES Ending the Myth of ‘Market Fundamentalism’ DEAN BAKER Progressives have wailed against “market fundamentalism for the last quartercentury...
...Microsoft alone pockets more than $60 billion a year in revenue, almost all of which would not be possible without copyright protection...
...No rich person died in Hurricane Katrina...
...The same approach can be applied to almost any social problems...
...If we label the Right’s interventions as nothing more than the free market left to itself, then we place progressive policies at an enormous political disadvantage...
...As any number of studies have shown, the reason for higher costs in the United States is not the better quality or greater volume of services but rather the higher cost of the services that we get...
...However, it does very little to address the problem of exploding cost growth...
...Prescription drug spending is the most rapidly rising component of health care costs...
...His most recent book is False Profits: Recovering from the Bubble Economy (Polipoint Press, 2010...
...The difference of more than $200 billion swamps the size of the payments to such programs as Food Stamps, the State Children’s Health Insurance Program (SCHIP), or Head Start...
Vol. 57 • March 2010 • No. 2
