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The US Pharmaceutical industry has been making headlines since the Democrats won back both houses of Congress in the November 7 election. Big Pharma, which has closer ties with Republicans, is now scrambling to reorganize its massive lobbying enterprise to maintain its immense influence in Washington so it can protect its legislatively-engineered superprofits.
The lobbying power of Pharmaceutical Researchers and Manufacturers of America (PhRMA), the main industry association, is awesome. A recent Reuters article noted estimates that for every member of Congress there are three drug industry lobbyists in Washington.
The New York Times recently reported that the industry’s lobbying efforts in Washington amount to some $100 million per year.
According to the Center for Public Integrity, of the nearly $150 million spent on direct campaign contributions over the last four election cycles, sixty-five percent went to Republicans. Although the industry has thus given over $50 million to Democrats in the last decade, this has been insufficient to assure the fealty shown by Republicans.
Many Democrats remain committed to allowing cheaper imports from Canada and to allowing the government to negotiate lower drug prices for Medicare recipients, a practice outlawed in the 2003 Medicare law.
The superprofits and excessive power of Big Pharma in Washington are so extreme as to compel many Democrats to take principled positions against the industry. Typically, however, such positions are taken not against the system but only in relation to particular individuals and companies (e.g., Ken Lay and Enron). In the present case, somewhat unusual, outrage is directed against an entire industry (other than need for a little tweaking here and there, the larger capitalist economy works just fine).
But the Big Pharma case is not of a different kind. Rather, it is a matter of degree in this case an extreme example of nothing other than capitalists being successful at being capitalists and, as such, of the economy functioning according to its systemic tendencies in the absence of countervailing power (e.g., powerful unions or a strong political party that actually represents the interests of workers).
From the great classical political economists, beginning with Adam Smith who famously theorized the invisible hand of the market, to their intellectual and political successors, neoclassical economists such as the late Milton Friedman and neoliberals such as the banal Thomas Friedman, defenders of the faith have emphasized the benefits of competitive markets and minimized or dismissed the significance and extent of monopolistic markets.
Academically, teaching in economics generally fails to note the basic fact that the “profit maximizing” goal of capitalist businesses means that nearly all such organizations aspire to become giant corporate monopolies (think GM, GE, Wal-Mart, Microsoft, etc.) and, as such, a strong tendency toward monopoly is intrinsic to capitalism. (Technically, mainstream economists refer to the situation in question, where a small group of powerful firms dominates a market, as oligopoly.)
And politically, the plain, undeniable fact that large sectors of the economy are dominated by a small group of massive corporate conglomerates is simply ignored by mainstream economists and neoliberal journalists shilling for the captains of industry and the governmental apparatuses whether under Republican or Democratic control that champion and watch out for the business class as a whole.
These issues, minimized or ignored by mainstream economics are, of course, central to the Marxist analysis of capitalism. In particular, Karl Marx made two related arguments about the nature of capitalism that provide a better understanding of the current problems with the pharmaceutical industry than market-centered theories.
First, a defining characteristic of capitalism is that capitalists do not produce for use-value that is, make things in order to satisfy needs as such but for exchange-value that is, to satisfy markets where they can make the most profit. Of course, whatever is produced for exchange-value must also have use-value or else nobody would buy the product. The subtle yet profound point is that, because the first and foremost goal of capitalist firms is to make profit, capitalists generally do not have any stake in the markets they serve nor any particular interest in the well-being of their customers.
An example of the perverse effects of the drive for exchange-value in the pharmaceutical industry is that these companies typically do not invest much in finding vaccines or cures, but instead focus on treatments for diseases where there are large existing or potential markets and, ideally, for incurable chronic diseases so that consumers must take drugs for life. Pharmaceutical companies sell drugs to make money, not to help people. Witness their intense lobbying to keep cheap imports out of the hands of the US market and cheap generics out of Africa.
According to Alex Hittle, an analyst for AG Edwards, “We sometimes joke that when you’re doing a clinical trial, there are two possible disasters. The first disaster is if you kill people. The second disaster is if you cure them. The truly good drugs are the ones you can use chronically for a long, long time.”
Where pharmaceutical companies do focus on cures, it is often for invented diseases of rich Westerners, such as pre-hypertension, compulsive shopping and gambling addiction, while crippling diseases such as malaria, tuberculosis and sleeping sickness remain unprofitable and hence with few or no effective treatments or research dedicated to finding cures.
Sleeping sickness, for example, which is at epidemic levels in Africa, only has two treatments its late stage. One, melarsoprol, which corrodes human veins and must be delivered in glass syringes, fails for a third of patients and kills one in ten. The more effective treatment is eflornithine, which was discontinued as a treatment for sleeping sickness by Aventis because it was unprofitable. Yet the company continued to manufacture it as an ingredient in Vaniqa, a cosmetic drug that removes facial hair. Only after the independent medical aid agency Médecins Sans Frontières threatened to sue was a deal worked out to continue producing eflornithine as a treatment for sleeping sickness.
A second core argument that Marx made is that capital will become increasingly concentrated and centralized. The argument about concentration refers to the increasing accumulation of wealth and means of production into fewer hands, while the argument about centralization is about growing mergers, acquisitions and monopolistic firms. These predictions have been generally correct, as evidenced by oligopolistic markets from cereals to computers and the giant corporate conglomerates that today dominate that US economy across industries, as well as the waves of mergers and acquisitions that have been a common characteristic of the US economy since the Great Merger Movement from 1895-1905.
Such concentrated economic power translates directly into political power.
And so we see the enormous influence of the pharmaceutical industry allowing it, for instance, to more-or-less write the 2003 Medicare law to its benefit and to the detriment of tens of millions of elderly Americans.
More generally, Big Pharma spends more money on marketing, suppressing competition, and shaping laws, trade agreements, the regulatory regime and the scientific review process than it does researching and developing drugs. Pfizer, for instance, spent over $11 billion on marketing in 2001, over twice what it spent on R&D.
According to PhRMA, 39% of industry staff are in marketing while only 22% are in research and development; since 1995 the marketing staff has increased by 59% while the R&D staff has decreased by two percent.
And the industry’s claims that the extensive monopoly patent protection it receives in the US are necessary for innovation do not hold much water. In the first case, as discussed above, the industry has been characterized by lack of innovation in terms of curing deadly diseases, with most of its innovation being in inventing and marketing new less serious but more profitable “diseases.”
Perhaps more importantly, although precise statistics are not available, much of the basic research takes place in universities or foundations and is not funded by the industry.
Without having to spend all the money on marketing, lobbying and suppressing competition, independent scientists in universities and foundations could, with public funding, conduct R&D at fraction of the cost.
A direct implication of Marx’s arguments about the drive for exchange value and the tendency toward monopoly are that in seeking profit, capitalist organizations do not necessarily maximize efficiency or innovation. While competition does generate innovation, a primary goal of monopoly-seeking pharmaceutical companies is the elimination of competition.
And although it is clearly true that capitalism is a dynamic economic system that does radically increase efficiency, productivity and innovation, it remains equally true that under capitalism efficiency is a means and not an end.
As we have seen, industry spending on marketing far outstrips that on R&D. A primary goal of pharmaceutical industry marketing, and management more generally, is to find so-called blockbusters that have potential sales of over a billion dollars. Profit in the pharmaceutical industry often comes not from innovative products but from innovative marketing in ways that are often pure waste from the point of view of consumers.
Much of the investment of pharmaceutical companies in research goes not toward finding new drugs for diseases without cures that is, generating new and sorely-needed use-values but into producing “copycat” drugs: slightly different versions of existing blockbuster drugs that are functionally similar but different enough to bypass an existing patent. Indeed, a study by the National Institute for Health Care Management found in 2002 that two-thirds of the new drugs approved by the FDA between 1989 and 2000 were identical to drugs already on the market or modified versions of existing drugs, with only about 15% judged to be significant improvements over existing medicines.
Typically pharmaceutical industry marketing does not provide consumers with any new or useful information about products. Enormous amounts of money are spent to influence medical experts with gifts and “consulting fees.”
What is covert but routine in the US is explicit in countries without regulations: Western pharmaceutical companies commonly exchange refrigerators, TVs and money for prescriptions in countries like India and Turkey.
Financial industry ties to the scientific establishment are so prevalent that in 2002 the New England Journal of Medicine eliminated their policy barring those with financial ties to companies whose medicines are being studied from authoring reviews of medical studies. Enough independent experts could no longer be found to write the reviews.
The contemptible extent of Big Pharma’s influence in the scientific process is summarized neatly by Drummond Rennie, a deputy editor of the Journal of the American Medical Association:
I’m the advertising guy for the drug. I tell a journal I will give them $100,000 to have a special issue on that drug. Plus I’ll give the journal so much per reprint and I’ll order a lot of reprints. I’ll select the editor and all the authors. I phone everyone who has written good things about that drug. I say, “I’ll fly you and your wife first class to New Orleans for a symposium. I’ll put your paper in the special issue of the journal and you’ll have an extra publication for your CV.” Then I’ll put a reprint of that symposium on some doctor’s desk and say, “Look at this marvellous drug.”
Big Pharma employs a lot of rhetoric about innovation and the provision of new medicines and useful products for consumers. But these companies are ordinary capitalists trying their best to capture the market and make profit; they are extraordinary only in their success, in large part due to the monopoly patent protection they enjoy. And they chose profit over the public good or need as a rule.
MATT VIDAL is pursuing his doctorate at the University of Wisconsin in Madison. He can be reached at: email@example.com
1. Susan Heavey, “Drug industry braces for Democrat-led Congress,” Reuters November 24, 2006.
2. Rober Pear, “Drug Industry Is on Defensive As Power Shifts,” New York Times November 24, 2006.
3. Victoria Kreha, “Checkbook Politics,” Center for Public Integrity, July 7, 2005.
4. Alan Cassels, “Peddling Paranoia,” New Internationalist 362, November 2003.
5. Cassels, “Peddling Paranoia.”
6. Spring Gombe, “Epidemic, what Epidemic?” New Internationalist 362, November 2003.
7. Karl Marx, Capital Vol. 1, esp. Chapter 25, “The General Law of Capitalist Accumulation,”
8. “Big Pharma The Facts,” New Internationalist, November 2003.
9. Cassels, “Peddling Paranoia.”
10. Russell Mokhiber and Robert Weissman, “Stripping Away Big Pharma’s Figleaf,”CommonDreams.org, Thursday, June 13, 2002; “New US study underscores lack of industry innovation,” HAI-Lights, October 2002.
11. Tamar Wilner, “Freemarket freebies,” New Internationalist 362, November 2003.
12. Nathan Newman, “Big Pharma, Bad Science,” The Nation, July 25, 2002.
13. Sheldon Rampton and John Stauber, Trust us we’re experts!(Tarcher/Putnam 2001), quoted in Dinyar Godrej, “The Great Health Grab,” New Internationalist 362, November 2003.