The aim of this paper is to analyze both sides of arguments whether the government should intervene in the production and pricing of products within the pharmaceutical industry or whether this sector should remain privatized. First, the paper will cover the argument of the proponents who argue that government involvement is necessary due to informational imbalance, the monopolistic nature of the market, thus leading to high prices of commodities, and lack of equity. Secondly, the paper will analyze the argument by the opposing side. They state that government intervention is not recommendable since it will hinder innovations, lead to inferior products, and increase the issues of corruption. The paper will conclude with a statement of personal position regarding the argument.
Keywords: government intervention, pharmaceutical industry, privatization
Government Intervention in the Pharmaceutical Industry
Pharmaceutical manufacturing is an important sector of the economy of any country since it directly deals with the health of the public. Moreover, this industry is the leading source of healthcare innovation (Boldrin & Levine, 2010). In the USA, the research-based sector invests up to 17% of the sales in research and development, which drives the performance of the industry structure and individual firms (Boldrin & Levine, 2010). The pharmaceutical industry is highly regulated. Thus, drugs need to undergo evaluation for safety purposes, efficacy, and the quality of manufacturing as a market access condition, while promotional messages must meet the recommended product characters. The pharmaceutical market is more of a monopoly, with few firms having total control of markets as well as prices. The patents, which rule the pharmaceutical industry, give the owners of an invention the full rights to a product and the power to set the market price. Consequently, product prices are usually set higher. Those with financial capabilities can afford the product, while the destitute families are left suffering. Thus, there is an argument that the increased prices of drugs and the nature of this market require governmental interventions into the production and pricing of drugs while opponents feel that the sector should remain privatized.
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Reasons as to why the Government Should Have More Control of the Pharmaceutical Industry
The idea of government intervention in the pharmaceutical industry has become a debatable issue. Those in support of this notion state that one of the reasons for the government to intervene in the pharmaceutical sector lies in the information imbalance in the industry due to the nature of patents. Specifically, there is an imbalance of information between the industry and the buyers, who are the patients (Williams, 2014). For example, consumers, sellers, and producers of vegetables usually have all information regarding the quality of whatever they buy as well as its monetary value. However, in the pharmaceutical industry, this information regarding the safety, value, and quality of individual drugs vary between parties. Such an imbalance between the patient and the dispenser/prescriber allows the distributor to provide misleading advice in order to increase profits. A wrong prescription by a dispenser is a clear reflection of a lack of knowledge concerning a particular drug. Therefore, some manufacturers may opt to manipulate information imbalance by providing wrong information to increase their sales (Williams, 2014). Such actions are bad since giving the wrong prescription puts the life of the patient at a greater risk. Thus, it is essential for the government to intervene in this sector by developing the ways, through which the necessary information about pharmaceutical products becomes availed to not only the dispensers but also the patients.
Secondly, the proponents of the idea feel that government intervention is needed for the pharmaceutical industry to control or eliminate the monopoly of this market. The patent system of the pharmaceutical industry encourages manufacturers to invest in research and development. Consequently, companies receive a license for up to 20 years for their products, and within this period, the company that invents a particular drug assumes an essential monopoly over the market (Boldrin & Levine, 2010). Usually, the purpose of a patent is to prevent a monopoly from persisting too long. Upon the expiry of a patent's term, other companies acquire the permit to develop their versions of the same medication. This leads to the greater availability of drugs; hence, prices go down. However, this is not the case with the pharmaceutical industry. The high cost of entering the market prevents other companies from entering them, and therefore, the industry suffers from a significant issue such as lack of competition. The manufacturers of pharmaceutical products are few on the market, and therefore, they have total control over the pricing of their commodities (Boldrin & Levine, 2010). Therefore, it is essential that the government intervenes in the production and sale of these products so that they could become cheaper with increased competition.
The other issue that requires government intervention in this industry is the lack of equity regarding the accessibility of pharmaceutical products. The driving force behind these privatized pharmaceutical manufacturers is profit maximization. Thus, access to their products is built on the basis of the willing buyer and willing seller. Hence, drugs become unavailable to those who cannot afford to pay (Rich, 2009). Consequently, this plays a significant role in choosing the geographic location of these providers as they locate their facilities where more people are willing to buy their products. Mainly, these are urban areas, while poor rural ones remain underserved. Despite this, many poor people in most nations still rely on these sellers. The reason for this is that these providers make the drug seem less expensive. They are usually willing to sell an expensive medication in small and affordable quantities for most people even though the patient may not recover without taking the full dose of this drug. This practice is wrong since the patient might develop a resistance to drugs or even suffer from adverse effects. Thus, lack of access to public-sector drugs due to the privatized nature of this industry limits the choices of people, which causes their suffering at the hands of these private providers (Rich, 2009). Consequently, promoting equal access to medications to all individuals through government intervention is essential.
Reasons as to Why the Pharmaceutical Industry Should Remain Privatized
At the same time, the opponents of the government intervention into the production and sale of pharmaceuticals have their reasons. Thus, they argue that such an intervention will contribute to decreased research in this sector. Specifically, research and development in the pharmaceutical industry highly depend on the profits made from the sales of these products (Dias, 2012). Therefore, the costly nature of inventions is what contributes to the increased prices of drugs. Consequently, the introduction of price controls will cause the shrinking of research and development (R&D) and contribute to the minimal production of new medications that reach the markets on a yearly basis. Since manufacturing firms require a minimum of 800 million dollars for the production of pharmaceuticals, which causes such high prices of drugs, this provides the incentives for these enterprises to continue spending on research (Torjesen, 2016). Opponents of the government regulation consider that the increased prices of commodities are not the means of pharmaceutical companies to recover the costs incurred in the research; instead, the growing demand for products determines market prices. Therefore, the government's intervention and control of pharmaceutical prices will massively dampen innovation.
Secondly, opponents argue that the private nature of the pharmaceutical industry is essential in maintaining the high quality of products and preventing the introduction of counterfeit to the markets. Property rights, such as patents, are the foundation of this industry since this sector solely depends on the innovations that they can later monetize (Boldrin & Levine, 2010). Thus, patents give exclusive rights for the invention to an entity, skilled in the art relating to the invention, which helps in the safeguarding of these inventions and contributes to the manufacturing of medications that meet the needs of patients. Additionally, patents are essential in recouping investments from R&D as well as the marketing of products. Therefore, a robust patent can protect an invention from potential infringers. Consequently, the industry can safeguard and maintain the quality of medications and other products they produce for public consumption (Williams, 2014). At the same time, removing patents and opening the markets for a free entrance of other manufacturers will lead to an increase in competition, which will contribute to the flooding of these markets with counterfeit medications. This is why it is essential to have these patents and maintain the monopolistic nature of this market to prevent interferences with the product quality due to increased market competition.
Lastly, opponents argue that involving the government in the pharmaceutical industry will only result in an increase of issues relating to corruption. In most cases, the government representatives delegated with the power to negotiate prices with monopoly manufacturers usually abuse their power for their gain and misuse the resources of the public eventually (Graycar & Prenler, 2013). Therefore, lack of transparency and accountability during negotiation and tender allocations might create a favorable environment for dishonesty, thus leading to the emergence of various concerns and misunderstandings (Graycar & Prenzler, 2013). The nature of the government and its inability to effectively manage its representatives are among the leading causes of concern regarding how it will be able to administer such an industry effectively. Moreover, the nature and extent of corruption in the sphere of product procurement might lead to the formation of uneven playing fields, which affects the kind of competition. With the pharmaceutical industry being a sensitive one in the sense that it deals with the healthcare of the population, unfair competition can severely affect the overall health status of a nation. Therefore, since this is a sensitive and highly technical sector, having the government participate in the production and pricing of medical products is not recommendable.
Summing up, those in favor of the government intervention in the pharmaceutical industry make a sensible argument. Pharmaceutics is critical, complex, and different from other markets and industries. Hence, privatizing this sector does not benefit a country in the long run since it only promotes efficiency in a narrow technical sense. However, regulating these markets will lead to improved efficiency in the provision of healthcare in a nation. The government has an obligation to its citizens; consequently, it is the government's responsibility to arbitrate in this sector and ensure that all communities can have access to high-quality medications and at a reasonable price. Most consumers are not financially capable of affording the majority of essential drugs due to their high costs. Pharmaceutical companies collect massive profits from the markets by controlling their patents and preventing other firms from entering the markets. Thus, they increase the prices of their products while pursuing higher profits at the same time. Therefore, those with money can afford medications, while the poor suffer from the inability to buy them. Thus, the government can develop the means to ensure that drugs are available and they come at a reasonable price through influencing their market pricing. Since the direct provision of medication by the government is easier than the regulation of the private sector, it is possible to establish government-owned production facilities to help with equitable access to essential medications. Therefore, government intervention is necessary as it will help streamline the pharmaceutical industry.