The Political Physicist

Several weeks ago, now, I read a news story on CBC about the problem of drug shortages. It appears that it is not uncommon for pharmaceutical companies (I’m going to avoid the term “Big Pharma” here, as to me it always sound like a juvenile attempt at fear-mongering) to suddenly stop, or at least drastically scale down, production of frequently used drugs. Unfortunately, no real solutions were being offered to this. At most, Health Canada was trying to make it mandatory for the manufacturers to report shortages.

This is by no means the only problem that exists with pharmaceutical companies. I vaguely remember hearing several years ago on an American news channel that many companies were no longer producing generics, as they are not very profitable. Of course, generics are a lot cheaper for consumers, as they are not subject to the legal monopoly of patent law. Patents themselves are problematic as they increase prices, but some form of patent protection seems to be needed in order to encourage innovation and the development of new drugs by the private sector.

But even patents aren’t always enough to encourage the research we need. This became clear in a recent report by CBC that pharmaceutical companies do not seem to be interested in developing new antibiotics. The reason for this is that this is quite a research-intensive process with relatively low returns, as antibiotics aren’t used that much compared to medication for chronic conditions. However, it is absolutely vital that new antibiotics are developed as old ones are becoming ineffective against antibiotic-resistant bacteria.

The problem is becoming so acute that even New Scientist, a liberal but hardly a socialist publication, published an editorial calling for all pharmaceutical companies to be converted non-profit bodies charged with pursuing the public interest.¹ Whether this meant nationalization or simply conversion to independent non-profit organizations (or some mixture of the two) I am not sure. In any case, I strongly support such a demand and think that it would be enormously beneficial. Those who know me well won’t be surprised by this, as it seems that my response to just about any problem that I see in the economy is to nationalize the relevant sector.²

However, in this case I am perfectly willing to call for a more pragmatic solution—at least for the time being. Given how important a steady supply of drugs is to the healthcare system, you don’t want to do anything that could seriously disrupt their production. Also, this is a problem which really does need to be fixed as soon as possible and, while the nationalization of a whole sector would never win broad support in the near future,³ a more moderate idea might. Not to say that this idea isn’t radical given the current political climate, but it is something which could be justified based on pragmatism and could still seem at least vaguely conceivable to the general public.

My proposal is fairly simple: the creation of a new Crown Corporation.⁴ Since most people my age won’t know what this is (it having been so long since any new ones have been created) I’ll explain: a Crown Corporation is a companies which, rather than being owned by private individuals or listed on the stock market, is owned by the government. The only significant example in Nova Scotia is NSLC (the liquor stores). In most of Canada (although not Nova Scotia) the power companies are owned by the provincial government. Federal Crown Corporations include Canada Post, CBC, and Via Rail. We used to own a lot more too: NS Power, Air Canada, the Uranium mines, Canadian National Railway, and Petro-Canada, among others. However, these were sold off in the ‘80s and ‘90s, purportedly to improve the efficiency of these companies although I’m inclined to think that it was primarily for ideological reasons.

Anyway, back to my point. I think that the government should create a new Crown Corporation which, for the sake of argument, I shall call Pharmacy Canada. Pharmacy Canada would be charged with the development of new drugs which would tend to have a low rate of return on investment (such as antibiotics) as well as producing generic drugs. These would be sold at cost to the provincial health authorities. They could also be sold slightly above cost to other developed countries and, perhaps, at a subsidized rate to developing countries. An additional role that could be played by Pharmacy Canada would be to act as a bulk-purchaser of those drugs which still needed to be obtained from the private sector. These would then be sold on, at cost, to the provinces as well. The advantage of such centralized purchasing that it would place Pharmacy Canada in a position to negotiate lower prices. This is a system which has been used successfully by charities to deliver cheaper drugs to developing countries and is, in fact, called for by the Green Party (although no doubt they would balk at the idea of actually producing drugs in the public sector). All of these policies would help to reduce the price of drugs, stabilizing the fastest growing component of healthcare costs and making our public healthcare system more sustainable.

This is all eminently achievable even within the current political situation. While it would, no doubt, be heavily lobbied against by the pharmaceutical companies, I don’t see what they could actually do to prevent it. I suppose they could retaliate through capital flight, although I don’t see how this would be in their interest. If they were to try then their old factories could be bought up by Pharmacy Canada, thus protecting jobs. While setting up a new Crown Corporation would require some capital, interest rates remain low and the federal government has a high credit rating, allowing it to borrow cheaply. The federal deficit is almost gone and we could be running a substantial surplus if we were to return taxes to their 2000 levels. Thus I don’t think that there is any real financial argument against establishing Pharmacy Canada.

The primary objection to this would be ideological: the belief that the government is not capable of running a successful, productive, company. Such attitudes are wide-spread, even among liberals and social democrats (e.g. the NDP). While there have been some issues with Crown Corporations in the past, I still think that they were much better run than people give them credit for. They may not have had the profit margins of private enterprise, but this is because they were meant to be meeting social, not just purely economic objectives. Objecting to this (as is done by my father) is to miss the entire purpose of a Crown Corporation; if you wanted it to be run just like a private company then you’d have left it in the private sector in the first place. Although Pharmacy Canada wouldn’t deliver the same profit margins as the existing private pharmaceutical companies, it would be able to perform functions which they are failing to do. This sort of value can not be reflected in simple calculations of efficiency.

While I suspect that the traditional means of running Crown Corporations⁵ would be able to achieve much of what I describe, I believe that even greater accomplishments could be made if Pharmacy Canada were to be run along socialist lines. This would mean that the board would consist of representatives of researchers, doctors, employees, patients, and government. The advantages to this are twofold. First, and more abstractly, it would ensure that the company was run democratically, something which I think has value in its own right. But second, the representation of researchers and doctors would ensure that fruitful avenues of research were being pursued. My strong suspicion is that this would prove a mores successful (as measured in health outcomes, rather than profit) way of directing research than what is currently provided by the private sector.

Now, being the realist/cynic that I am, I realize that the creation of Pharmacy Canada stands absolutely no chance of happening even if the NDP were elected in 2015. The idea of public enterprise has simply crept too far outside of the political mainstream. But this is no reason to stop talking about it; if it is ever to get back into the political mainstream then it is something which must become broadly popular and also seriously discussed in progressive political circles. We need organizations like The Broadbent Institute, the Council of Canadians, and the Canadian Centre for Policy Alternatives not only to call for such a policy but to perform studies detailing how to do it. Nor should we be afraid to suggest it as individuals. Because, at least in this case, the radical is becoming the pragmatic.