Historically, societal transitions, such as moving from feudal to capitalistic economies or from agricultural to industrial societies, have been led by pacesetters who exploit the transition to accumulate massive wealth by consolidating resources. We are currently transitioning to a post-industrial society where technology allows for innovation at an ever-increasing pace, and not surprisingly, trendsetters are accumulating massive wealth by suppressing competition.
The last time this happened in earnest was at the turn of the twentieth century when industrial tycoons created monopolies like Standard Oil, Carnegie Steel and various railroads — most notably the Southern Pacific, which was called the octopus because its tentacles controlled California.
The response was trust-busting by people like Theodore Roosevelt and his supporters who leveled the playing field by reining in the monopolies through legislation and regulation such as the Sherman Antitrust Act. Today, technology has resulted in a paradigm shift, which renders existing anti-trust rules obsolete.
For example, a recent study by the University of Zurich concluded that the price of cancer drugs has climbed significantly after receiving government approval. The study identified 65 cancer drugs approved by the FDA between Jan. 1, 2009, and Dec. 31, 2019, and analyzed the pricing of those drugs in the U.S., U.K., Germany and Switzerland. According to the study, once the drugs were approved, they were significantly more expensive in the U.S. than in the other countries. Furthermore, the annual price increases far exceeded inflation. The following table shows the average monthly cost of purchasing those drugs in 2019, compared with the average monthly cost when approved.
U.S.: $14,580 (2019 cost) vs $5,790 (introductory cost).
United Kingdom: $6,867 (2019 cost) vs $3,939 (introductory cost).
Switzerland: $6,593 (2019 cost) vs $5,784 (introductory cost).
Germany: $5,888 (2019 cost) vs $4,289 (introductory cost).
The comparative introductory prices and the subsequent price increases are indicative of the pharmaceutical companies’ relative abilities to engage in monopolistic practices in various jurisdictions. The inability of the United States to contain these costs stands out like a sore thumb.
It is widely known that U.S. pharmaceutical prices are the highest in the world. Pharmaceutical companies attempt to justify this by claiming that the U.S. has the most rigorous approval process and therefore it costs more to bring new drugs to market in the US. Rather than duplicating efforts, many other countries merely delay their approval until U.S. approval is obtained, so the reality is that the U.S. consumer is funding global authorization.
Once a drug’s patent expires, manufacturers of the original drug frequently pay the generic manufacturers to not produce generic versions of the drug, or in some cases, they simply buy out the generic manufacturer. Because existing anti-trust rules are impotent in dealing with these issues, President Donald Trump discussed placing some sort of price cap on U.S. drugs based on a multiple of the average global price paid, but his idea was never implemented.
Industry consolidation in hospital chains and health insurers has not resulted in lower costs to consumers. Instead, health care costs have increased and consumers have fewer choices while those companies have become more profitable. These companies have somehow avoided anti-trust constraints. It is not clear whether the regulators have been lax or whether the rules need to be strengthened.
Health care is only one example. Technology companies generally do not need to fear a new competitor. If one appears on the horizon, they simply acquire the competition. They maintain control of platforms, enabling them to maximize profits.
One of the greatest dangers of the post-technological world is the capture and use of data to direct consumer behavior. Algorithms tell companies how to keep and maintain consumers’ attention. That allows them to maximize profits. It also allows companies to tell people what they want to hear rather than communicating information in an unbiased manner. That may be the biggest danger of a technologically driven post-industrial society.
Change — particularly societal change — is difficult to address, but it must be done. On July 9, President Joe Biden signed an executive order ostensibly designed to promote competition in the American economy. The order undoubtedly will receive criticism from his political opposition and from those who are profiting from oligopolistic behavior.
Mr. Biden probably has not gotten everything right, but his executive order is a starting point toward moving down the road that addresses the challenges of a post-industrialized society. If his opponents engage in obfuscation for perceived political benefit, they will merely kick the can down the road to a point where it will become even more difficult to deal with the inequities we currently face.
Whether it is addressing the unreasonably high cost of pharmaceuticals, the impact of big tech’s use of data or other issues, Americans have a mutual interest in seeing that our interests, rather than those of oligarchs, are protected.
Jim de Bree is a semi-retired CPA who resides in Valencia.