Historically, societal transitions, such as the shift from feudal economies to capitalist economies or from agricultural societies to industrial societies, have been led by pioneers who exploit the transition to accumulate massive wealth by consolidating resources. We are currently in transition to a post-industrial society where technology enables innovation at an ever increasing rate, and unsurprisingly, trendsetters are accumulating massive wealth by suppressing competition.
The last time this happened in earnest was around the turn of the 20th century, when industry tycoons created monopolies like Standard Oil, Carnegie Steel, and various railroads including the Southern Pacific, called the octopus because its tentacles controlled California.
The response was a breach of trust on the part of people like Theodore Roosevelt and his supporters who leveled the playing field by controlling monopolies through laws and regulations such as the Sherman Antitrust Act. Today, technology has brought about a paradigm shift, which makes existing antitrust rules obsolete.
For example, a recent study from the University of Zurich concluded that the price of cancer drugs increased dramatically after receiving government approval. The study identified 65 anti-cancer drugs approved by the FDA between January 1, 2009 and December 31, 2019, and analyzed the price of these drugs in the United States, United Kingdom, Germany and Switzerland. According to the study, once the drugs were approved, they were significantly more expensive in the United States than in other countries. In addition, annual price increases have far exceeded inflation. The following table shows the average monthly cost of purchasing these drugs in 2019, compared to the average monthly cost at approval.
United States: $ 14,580 (2019 cost) versus $ 5,790 (launch cost).
UK: $ 6,867 (2019 cost) versus $ 3,939 (launch cost).
Switzerland: $ 6,593 (2019 cost) versus $ 5,784 (launch cost).
Germany: $ 5,888 (2019 cost) versus $ 4,289 (launch cost).
The comparative introductory prices and subsequent price increases are indicative of the relative ability of pharmaceutical companies to engage in monopoly practices in various jurisdictions. The inability of the United States to contain these costs stands out as a thumbs-down.
It is well known that the prices of pharmaceuticals in the United States are the highest in the world. Pharmaceutical companies attempt to justify this by saying that the United States has the most rigorous approval process and therefore costs more to bring new drugs to market in the United States. Rather than duplicating efforts, many other countries are simply delaying their approval until U.S. approval is obtained, so the reality is that the U.S. consumer is funding the global clearance.
After a drug’s patent expires, the manufacturers of the original drug often pay the generic manufacturers not to produce generic versions of the drug, or in some cases, they simply buy back the generic manufacturer. Because existing antitrust rules are powerless to address these issues, President Donald Trump considered capping US drug prices based on a multiple of the average world price paid, but his idea was never implemented. .
Consolidation of the industry into hospital chains and health insurers has not resulted in lower costs for consumers. Instead, health care costs have gone up and consumers have less choice as these businesses have become more profitable. These companies have in a way avoided the antitrust constraints. It is not clear whether regulators have been lax or whether the rules need to be tightened.
Health care is just one example. Tech companies generally don’t have to fear a new competitor. If one appears on the horizon, they simply acquire the competition. They keep control of the platforms, which allows them to maximize their profits.
One of the greatest dangers in the post-tech world is the capture and use of data to guide consumer behavior. Algorithms tell businesses how to get and maintain consumers’ attention. This allows them to maximize their profits. It also allows businesses to tell people what they want to hear rather than imparting information impartially. This is perhaps the greatest danger of a post-industrial, technology-driven society.
Change, especially societal change, is difficult to tackle, but it must be done. On July 9, President Joe Biden signed an executive order ostensibly designed to promote competition in the US economy. The order will undoubtedly be criticized by its political opposition and by those who profit from oligopolistic behavior.
Mr Biden probably didn’t get it all, but his executive order is a starting point for moving forward on the path to the challenges of a post-industrialized society. If its opponents engage in obscuring for a perceived political advantage, they will only kick the box to a point where it will become even more difficult to tackle the inequalities we currently face.
Whether it’s the unreasonably high cost of pharmaceuticals, the impact of big tech’s use of data, or other issues, Americans have a mutual interest in ensuring that our interests, rather than those of the oligarchs, be protected.
Jim de Bree is a semi-retired CPA who resides in Valencia.