Earlier tonight I ended up talking with my mom about creative capitalism.
She was talking about how she heard that drug companies stopped researching a HIV treatment because it wasn’t profitable. And she directed this complaint somewhat antagonistically towards the abstract, corporate capitalistic establishment. She lamented the fact that Viagra is extremely profitable yet provides little social benefit, while a drug to treat HIV for people in sub-Saharan Africa would have enormous social benefit, but the research was ditched because it wasn’t profitable due to the fact that Africa has no money and thus no market. I tried to tell my mom that capitalism is not to blame here. Based on my limited knowledge of drug development, developing a drug is an incredibly risky venture. Millions of dollars can be spent developing a drug only to find out it is a failure. And this happens frequently. When drug companies do find an effective drug they need to market the hell out of it to make up for the millions of dollars spent on failed drugs.
If this HIV treatment my mom heard about was even just a little bit profitable then there would be a market for developing it. But there isn’t a market because the drug doesn’t have enough upside to even render it an investment that could be even slightly profitable much less have the potential for extreme profitability that the drug companies desire. There’s no market for something with negative profitability. But, I don’t think the conversation should end there.
If the market doesn’t allow research on a drug that is highly beneficial to society like HIV treatment then what that indicates is the the rule sets of the market need to be changed. For a free market to work, value needs to be lined up with profitability. And don’t give me any crap about how the market will not be free anymore. Earlier today I read a paragraph where Thomas Friedman impressively rebuts this point:
Is it a good idea to meddle so extensively with the free market for energy?
[Laughing.] Oh, yeah, a totally free market dominated globally by the world’s biggest cartel, dominated domestically by fossil-fuel companies who have written all the rules in Congress—pages’ worth of depletion allowances and tax shenanigans that these guys have written in to give themselves advantages. We wouldn’t want to upset that free market, would we? There is no such thing as a free market, no more than there is a farm or a garden that grows without fertilizer, without proper plowing, without intelligence brought into it. Markets are shaped by rules, incentives and disincentives, and right now our market is shaped by the dirty fuel system.
One way to change the rule sets in order to make the research of HIV treatments a more profitable venture is to offer government subsidies. My knowledge of economics is limited so I don’t know of many other ways to make this research economically viable but I’m sure solutions are out there. The main concept I want to point out in this post and reiterate again is that if a system doesn’t allow for something that makes complete sense, such as putting money towards finding HIV treatments, there’s a good chance then that the system’s rule sets are out of whack.
The concept of rule sets is very powerful and one I’ve recently added to my conceptual vocabulary. This concept has been covered extensively by Thomas Barnett in the Pentagon’s New Map, the book I’m currently reading. Which by the way is an amazing book. I’ll be writing more about this great book at some point in the future.
