Sunday, October 30, 2016

Nothing comes for free

There is an interesting interview with Martin Shkreli in today’s Financial Times. Shkreli who became famous (or notorious) when, after purchasing the patent, increased the price of a life-saving HIV/AIDS drug by 5000% clearly enjoys playing the role of a bad boy. He does not at all regret his decision and believes that whatever he did was absolutely correct since it maximized the value for the shareholders. He would, as he says, do it again.

And there is an iron logic in Shkreli’s argument. As I argued here and here,  if there is a capitalist economy, it does not make sense to believe or to argue that companies should pursue objectives other than maximization of profits. If society desires to make some adjustments to that, as it obviously should in this case, then it is incumbent upon the government to either impose market changes (say, to limit the price) or to create a better system of insurance, or to simply subsidize the users of the drug. But it is not Shkreli’s duty to incorporate social  concerns  in his pricing policy. He would behave the same regardless of the product he sells: it could be a life-saving drug, as here, or a pair of shoes: the rules are the same.

In fact, the only sin of which Shkreli seems to be guilty is to have been brutally  frank and not hypocritical. Many companies (especially big pharmaceuticals) do exactly the same thing that he did,  but they do it more discreetly: they may not jack up the price by 5000% and thus attract unwarranted attention, but they might jack up the price by 2000% and pass unnoticed, under the radar of the politicians and opinion makers. They are perhaps shrewder and more careful than Shkreli but not any different. They pay lip service to caring for the (vaguely defined) “stake-holders” but they know, as well as Shkreli, that if they do not focus, above everything else, on profits they would be either out of their jobs, or even out of business (as their companies might fail).

If you have a capitalist economy, you cannot have it both ways: asking for uncompromising efficiency, advocating competition and then, suddenly, in some cases, asking capitalists and entrepreneurs to follow a totally different logic. If you want  outcomes to be different, then the government cannot remain aloof but has to intervene and take an active role.

This reminds me of a similar story I read many years ago when an American basketball player (unfortunately, I cannot remember who it was) refused to be drawn into the position of a role model.  He answered the journalist who criticized him for not being an uplifting model for the kids by pointing out an obvious fact: his role is to hit the hoops, not to raise other people’s kids. And that’s clearly the key point: if you want better children and greater parental involvement, the way to get it is by introducing paid parental leave, or by allowing parents to come later to work (after they have dropped off their kids) or by giving child cash benefits,  not by keeping everything unchanged and then pretending that it is the duty of basketball players to make sure children are raised well.  

In other words, people follow a certain logic of behavior (which reflects dominant social mores and institutional set-up) and if one wants to change that logic in some instances, one needs an activist government. For nothing comes for free.

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