The novel coronavirus, COVID-19, is moving around the world and inducing fear as well as economic turmoil. The pharmaceutical industry has taken notice and jumped into action, fast-tracking research and development to come up with a solution. This is the free market at its best. The industry did this on its own, and it isn’t just one company — they are all competing to come up with the solution.
Now comes what President Ronald Reagan called the “nine most terrifying words in the English language: I’m from the government, and I’m here to help.”
While late to the game, Congress is now considering an emergency budget supplement to address the new disease, but it’s already here and spreading, and the economy is already taking a hit. If Congress really wanted to help blunt a viral epidemic, they would have had this debate years ago, but government bureaucracy and politicians aren’t forward-looking when their efforts don’t have a large political payoff. And, now, as a part of their solution, they are considering caps to the profit that can be made from developing a solution.
A price cap doesn’t mean that a solution is developed quicker. It doesn’t provide an incentive for the best solution. It doesn’t encourage any other companies to join in the race for a solution, and it doesn’t provide any broader research into follow-up viruses.
In other words, Congress is considering adding a provision to its emergency supplement that might delay a solution. Stop helping!
What Congress is considering is the exact opposite of the solution that Congress should propose. If anything, Congress should put a prize out for the first company to develop a solution. They could decide the amount. Maybe it is $1 million, $10 million, or the $2 billion that is the average cost to develop a drug, and then, maybe they should throw a parade for the company — the CEO, the lab technicians, and the investors.
Bernie Sanders could lead the parade as a part of making amends to an industry that he vilifies.
This would be a great example of capitalism in action if the companies are left alone to develop a solution and help stave off further turmoil. The economic benefits of capitalism are usually only found in long-run studies and can be hard to identify, but the way the free market jumped into developing a solution to this virus is a perfect example of the benefits. Pharmaceutical companies saw demand increase and no supply. That is the dream of a capitalist and the start of a research and development war. That stands to benefit everyone. Lives saved, businesses saved, and the anxiety of protecting our loved ones subdued.
At the end of the day, even if only one company out of the myriad of companies competing to develop a solution prevails, it still has to protect its brand — it can’t become another Martin Shkreli. But, if two or more develop a solution, then they will necessarily compete for market share, and prices will drop on their own. We are looking at much more than two companies solving the issue.
My wife and I don’t always agree on politics or capitalism, but, when she noticed an infographic on the news showing how many companies were competing to develop a treatment for coronavirus, she pointed out that this was a perfect example of capitalism in action. She was right, and, at the time, I told her so, but I also said that I would likely wait to write about it until a solution was found. However, with government now stepping in with a “solution” that might stop the competition in its tracks, now is the time.
Government should provide rewards to those saving lives, not shackles.
Charles Sauer (@CharlesSauer) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is president of the Market Institute and previously worked on Capitol Hill, for a governor, and for an academic think tank.
