Parade Magazine had a two page spread this weekend warning their tens of millions of readers of the evils of drug counterfeiting. While the article correctly pointed out the risks, the article never discussed the obvious solution -- a free market. Government patent monopolies allow the pharmaceutical industry to charge prices that can be ten or even a hundred times the actual cost of production. This provides enormous incentives for people to manufacture unauthorized copies of patented drugs. Given these incentives, the United States government will be no more able to stamp out unauthorized copies of patented drugs than the Soviet Union was in banning black market sales of blue jeans. Any believer in free markets should recognize this fact. If you get rid of the patent monopoly, Wal-Mart will sell all drugs for $4 a prescription, and the incentive for counterfeiting disappears overnight. Of course, we do need to finance drug research, but the patent system is an incredibly corrupt and inefficient mechanism for accomplishing this goal. If the pharmaceutical industry were not so powerful, more economists would be researching alternative mechanisms and the media and the politicians would be looking for ways to move beyond this relic of the feudal system. [Just to fill in some numbers here, according to the Centers for Medicare and Medicaid Services, the country is projected to spend almost $240 billion on prescription drugs this year. If these drugs were sold as generics, the savings would be around $170 billion. Pharma claims that it does about $40 billion in research. According to the FDA and Pharma's own data, about two-thirds of this research goes to developing copycat drugs. This means that we pay an extra $170 billion for our drugs, in order to finance about $14 billion in research into breakthrough drugs.]
--Dean Baker
