Vice city
I still remember when we watched a rerun of a recent episode of Rick Mercer report
(American readers: basically a Canadian poor man's Jon Stewart) in
which Rick played an oil company executive who explained that he can
feel the pain of the consumers for the $50/bbl oil while he was
casually stacking away piles of money. Aww, that sketch is almost
quaint today. Now that the price of oil hovers well above $70/bbl and
shows no signs of coming down, it was not exactly difficult to guess
what Kunstler would write about in today's sermon "Desperation".
But I am sure that our Albertan brothers are cheering, their province
being debt-free and the economy booming. Don't piss away this boom like
you did that last one!
I can still vividly remember the few post-Katrina weeks when the price of oil and gas was similarly climbing. Back then our morning newscast played a short interview video from America. In this video, some morbidly obese woman was standing next to her SUV, almost crying because she couldn't afford to buy gas any more. I was truly filled with joy and laughed with an evil cackle as I watched this delightful spectacle, since it was her own choice to live in some backwoods a one-hour drive away from work and shopping and anything else. It was also her very own choice to buy a car that weighs about three times what a car really needs to weigh, and consumes fuel accordingly. Perhaps if this disgusting morbo learned to walk as a result of her poor choices, as a beneficial side effect she might even shed a few pounds of blubber and learn to save money, this way supporting the economy. Everybody wins!
Most people are stupid and choose to live hand to mouth and paycheck to paycheck, the concept of saving a certain percentage of your income for the rainy day being utterly alien to them. Kevin Drum reminds us in his post "Gasoline Alley" that the rising price of gas can make a pretty huge difference on somebody who lives on the edge, since it is not uncommon for some low-income American to spend 5-10 percent of his net income on gas, America being an automobile-addicted culture of lazy gaswasters, as The Danimal might put it. I read a few comments for this post, and one of them linked to the post "Welcome to Clueville. Population: Zero", which illustrates nicely that some forms of stupidity are truly universal. Crikey!
In other news, the last week's issue of the Canadian weekly newsmagazine Macleans had a cover story "Overeaters, smokers and drinkers: the doctor won't see you now" that said that doctors give patients who are fat or smokers a lower priority than they give to other patients. This would be absolutely excellent in so many levels at once. For starters, I can't see how the Canadian one-tier health care system in which buying health care on the free market instead of waiting in the government queue is a crime can stand much longer after this. Once the government system tells some patient that it will not treat him, how exactly can this patient be criminally prosecuted for buying his treatment elsewhere? I would love to see some Crown attorney try to do that and watch the whole socialist one-tier health care system collapse as the result.
I don't know if I'd want the American-style health care system here --- most likely not. But I would most certainly allow a free market alternative operating in parallel to the provincial system so that the provincial health insurance would pay for the free market treatments the same amount of dollars for each operation and treatment what it would have cost if the treatment had been done in the provincial system. The Americans currently pay about twice as much per capita for their health care compared to other Western nations, but they don't live twice as long on average, so perhaps the Americans would eventually like to start asking where their money is going. The American health care system is clearly superior in producing new cures and treatments and dramatic surgical operations which make great copy but whose total effect on the lifespan of an average person is miniscule at best, compared to invisible improvements that could be reached much more cheaply with the money saved with removing the administrative overhead (see Drum's post "Battling the insurance industry"). This whole issue seems to be an excellent example of the well-known phenomena of "seen and not seen" and "an ounce of prevention is worth a pound of cure".
I can still vividly remember the few post-Katrina weeks when the price of oil and gas was similarly climbing. Back then our morning newscast played a short interview video from America. In this video, some morbidly obese woman was standing next to her SUV, almost crying because she couldn't afford to buy gas any more. I was truly filled with joy and laughed with an evil cackle as I watched this delightful spectacle, since it was her own choice to live in some backwoods a one-hour drive away from work and shopping and anything else. It was also her very own choice to buy a car that weighs about three times what a car really needs to weigh, and consumes fuel accordingly. Perhaps if this disgusting morbo learned to walk as a result of her poor choices, as a beneficial side effect she might even shed a few pounds of blubber and learn to save money, this way supporting the economy. Everybody wins!
Most people are stupid and choose to live hand to mouth and paycheck to paycheck, the concept of saving a certain percentage of your income for the rainy day being utterly alien to them. Kevin Drum reminds us in his post "Gasoline Alley" that the rising price of gas can make a pretty huge difference on somebody who lives on the edge, since it is not uncommon for some low-income American to spend 5-10 percent of his net income on gas, America being an automobile-addicted culture of lazy gaswasters, as The Danimal might put it. I read a few comments for this post, and one of them linked to the post "Welcome to Clueville. Population: Zero", which illustrates nicely that some forms of stupidity are truly universal. Crikey!
In other news, the last week's issue of the Canadian weekly newsmagazine Macleans had a cover story "Overeaters, smokers and drinkers: the doctor won't see you now" that said that doctors give patients who are fat or smokers a lower priority than they give to other patients. This would be absolutely excellent in so many levels at once. For starters, I can't see how the Canadian one-tier health care system in which buying health care on the free market instead of waiting in the government queue is a crime can stand much longer after this. Once the government system tells some patient that it will not treat him, how exactly can this patient be criminally prosecuted for buying his treatment elsewhere? I would love to see some Crown attorney try to do that and watch the whole socialist one-tier health care system collapse as the result.
I don't know if I'd want the American-style health care system here --- most likely not. But I would most certainly allow a free market alternative operating in parallel to the provincial system so that the provincial health insurance would pay for the free market treatments the same amount of dollars for each operation and treatment what it would have cost if the treatment had been done in the provincial system. The Americans currently pay about twice as much per capita for their health care compared to other Western nations, but they don't live twice as long on average, so perhaps the Americans would eventually like to start asking where their money is going. The American health care system is clearly superior in producing new cures and treatments and dramatic surgical operations which make great copy but whose total effect on the lifespan of an average person is miniscule at best, compared to invisible improvements that could be reached much more cheaply with the money saved with removing the administrative overhead (see Drum's post "Battling the insurance industry"). This whole issue seems to be an excellent example of the well-known phenomena of "seen and not seen" and "an ounce of prevention is worth a pound of cure".
One reason why American health care costs are higher is because we are carrying the costs for innovation for countries like Canada.
Take Pharmaceuticals. Canada essentially has price controls (the board that decides the prices for drugs uses the average of other industrialized countries, some of which have price controls). Drugs cost a lot to develop, but once you figure out the formula, the per unit costs are usually very low (there are exceptions, of course, such as with the flu vaccine which has to be incubated in chicken eggs).
US drug companies, and even foreign drug companies like Novartis and Roche, make huge margins on drugs (sales minus cost of goods sold where COGS does not include R&D). Then, when Canada says that drug companies can charge only some amount, but that amount is well above the per-unit cost, the drug companies go along with it. If they don't, then some local firm will probably just go to the uspto.gov website, the US Patent & Trademark office, and download the patent and replicate the drug.
The problem happens when US citizens start massive importation of drugs for the Canadian market, which eats into the American profits. The American market is the engine which pays for the research of the next drugs. Of course, since the human physiology doesn't change by nationality, Canadian consumers can also benefit. But Americans are paying for it.
There are other reasons why drug companies may choose to price drugs differently in different countries than just regulation. Drug companies charge less in some countries simply because the people are poorer. The same way an airline charges less if you stay over a Saturday night: the airline figures you are a tourist, and not willing to pay what the business traveler is.
The drug industry is trying to prevent reimportation, making the case that it's safety, but it's not really about safety. It's their economic livelihood.
There are several industries that have a similar economic model to the pharmaceutical industry: huge initial costs to get the product out, but then each additional copy costs very little, so there are big gross margins (which excludes R&D). Computer software is an obvious example. DVDs and movies are another. So are books. It is interesting to see what these industries have done to sell their products at different prices in different countries.
All of these, however, have a big advantage over drugs. Language. Microsoft windows may be a lot cheaper in Indonesia, but unless you speak Indonesian, importing a copy will be useless. Same with books and DVDs. The Da Vinci code in Tagolog won't do you a lot of good if you don't speak Tagalog.
DVDs usually have several audio tracks with several languages. To prevent reimporting, DVD manufacturers and movie makers encode disks with a region code, so a disk bought in Mexico won't work in the US or vice versa.
Hillary Clinton was a big advocate of price controls on the pharma industry, and often cited the fact that prices were lower elsewhere. At the time, she had one of her books out, and I looked up how much that book cost in India. It was selling for about a third of the price as it was in the US. Yet I'm sure that if Barnes & Noble or borders imported Indian versions, Hillary's publisher would have gone nuts.
And all these Hollywood types talk about how it's unfair that drug companies have higher prices in the US then go and make movies that sell at radically different prices in different countries, and have mechanisms to prevent reimportation. Do as I say, not as I do.
I don't work for the pharmaceutical industry, either. I was in the software industry until about a month ago.
George
Posted by Anonymous | 5:27 PM
So what do you think of Flashbacks?
Do they exist or are they just an evil feminist liberal ploy to screw us all?
Posted by Anonymous | 7:47 PM
The good old "Export of innovation and Canadian drugs"-excuse...
The problem is this:
Then, when Canada says that drug companies can charge only some amount, but that amount is well above the per-unit cost, the drug companies go along with it. If they don't, then some local firm will probably just go to the uspto.gov website, the US Patent & Trademark office, and download the patent and replicate the drug.
Bollocks. (Sorry to be so blunt.)
Technically it could be possible to just replicate drug but that would mean breaking the international laws as the patent would still be owned by US company.
Canadians would basically be manufacturing counterfeit drugs, and while those might be a hot thing in 3rd world countries (despite often substandard quality)they are certainly not popular in OECD countries such as Canada.
Pharmacies would not carry it, doctors would hardly prescribe a drug that is not legally availlable, and the company could be sued.
If Canadian politicians would declare that Canada has a right to steal intellectual property from USA, Canada could be challenged in WTO. Perhaps USA would not even need WTO in order to make their neighbours behave.
Nobody can make the US companies to export pharmaceuticals or even patents, unless they choose to.
Could the fact that they do so mean that it is profitable, and because the world economy is no zero-sum game it does not follow that US health care would became more expensive as a result?
I'll admit that developing for example new surgical methods is only likely to be profitable on limited invidual level (the prestige), but it is not that costly either.
Also I'm sceptical of the fact that USA is leading developer of medical technology just because of the nature of the heath care system, as it is also the most advanced country in practically all other fields of science.
Posted by Misopogon | 10:53 PM
If you state that Canadians would never counterfeit drugs if the US company didn't like the prescribed price control, then why don't US (or any other drug companies for that matter) simply insist that Canada charge the same amount as US companies. Why would the drug pricing board in Canada have any authority at all?
I think what actually happens is that Canada declares what the price should be, and if the drug companies don't like it and refuse to do business, then Canada assigns the drug to a local company and then pays the US company a royalty automatically, so they aren't running afoul of WTO. But US companies have little influence over what prices are going to be charged in Canada.
Posted by Anonymous | 12:16 AM
Yes, I state that there are no large scale drug counterfeiting in Canada.
There is certainly some, at internet pharmacies in particular.
Answer to your question: free market. Both the seller (company) and the buyer are free to refuse the deal.
Canadian drug pricing board is powerful not because it can confiscate products but because it haggles prices for 33 million consumers. It is not loved by companies but negotiating prices is no communism.
Canada assigns the drug to a local company and then pays the US company a royalty automatically, so they aren't running afoul of WTO
No. The key point is this:
Pharmaceutical companies own their patents.
Like Windows is owned by Microsoft. I mostly did agree about the latter part of initial post, by the way.
(Including the explanation why there is no reason for the prices to be the same anyway.)
Paying royalties does not make it legal unless the company that owns the patent agrees. If they do, I see no problem.
WTO
Document about the issue. There are plenty of exceptions for patent protection rules, but these mainly concern "health emergiencies".
But US companies have little influence over what prices are going to be charged in Canada.
-For their own products? Come on.
I absolutely agree that pharmaceutical companies need and deserve to make profits in order to develop new medicines. They sell drugs outside US because it is profitable (if slightly less), not because other countries make them.
In case of American company, money flows from other countries to USA, no?
Number of innovations and national weath seems to correlate pretty well.
Posted by Misopogon | 10:10 AM