Freedom from the Market

by Henry on January 26, 2021

Mike Konczal has a new book, Freedom from the Market (Bookshop.org locator, Amazon). I’ve been wanting to write about this book for a while, but first had to wait for it to come out, and then had my working life banjaxed by the madness of the last few weeks. But it is a great book that looks to remake the American debate about freedom and largely succeeds. Full disclosure: Mike is a friend of the ‘see very occasionally but like very strongly’ variety; I also read an early version of the mss and commented on it.

When I say that this book is about the American debate, I mean it. Non-Americans will learn from the book, but they aren’t the target audience. The examples that Konczal draws on to inform modern Americans are drawn from their own, largely forgotten history. This could be seen as a reflection of the American parochialism that Konczal mentions in passing, but it is, I think, a deliberate political move. It also is in some ways refreshing – rather than weaving fairytales about the wonders of Fantasy Sweden or Fantasy Germany, it tells stories where the ambiguities are necessarily more visible to its readers.

Still, it provides measured hope. By drawing on what has happened in American history, Konczal makes it easier for Americans to understand that things they might not believe are possible in America must be, because they have been. He rescues moments such as the WWII government run daycare centers that allowed women to work, or the use of the power of the federal state to force through the integration of Southern hospitals, from the enormous condescension of posterity. Notably, although he doesn’t dwell on this point, many of these changes began at moments that seem shittier and more despairing than our own.

Konczal neither provides a standard linear history, nor a policy textbook. Instead, he is claiming an alternative American tradition, which has not looked to the market as its apotheosis, but instead has sought to free Americans from its random vagaries. His history explains how America has responded collectively to the real and expressed needs of publics, who have organized to fight for them. And it does so in the plain language that he mentions in passing was necessary to allow ordinary people to organize and understand who was trying to stop them.

Konczal’s fundamental claim is that people who attribute freedom to markets miss out on much of the story. Equally important is a notion of freedom from markets, “rooted in public programs that genuinely serve people and checking market dependency.” This notion goes back much further in time than the New Deal. The nineteenth century is sometimes depicted as a reign of laissez-faire, both by those who admired it and deplored it. Konczal argues instead that there was an emerging sense of public needs – and imperfect ways in which the government provided for them. This helps us understand, for example, the provision of public land through the Homestead Act and the land grant universities.

The nineteenth century notion of the public was clearly horribly flawed and contradictory – it did not include slaves or Native Americans. Some, like Horace Greeley ended up fleeing these contradictions into the welcoming arms of free market absolutism. But within these contradictions lay possibilities that opened up in the twentieth century. Konczal builds, for example on Eric Schickler’s work to argue that as the New Deal began to provide concrete benefits to African Americans, it created a new relationship between them and the Democratic Party, breaking up the old coalition that had held Jim Crow together.

The organizing ideas in this book are Polanyian – the stresses of the market lead to social rupture, which may in turn create the conditions for political mobilization. But Konczal doesn’t depict this as necessary or inevitable – people’s choices have consequences. He is also more precise than Polanyi in his understanding of how change happens – through social movements and the state:

While the Supreme Court can be effective at holding back change and enforcing already existing power structures, it is actually very weak at creating new reform itself. It controls no funding and is dependent on elite power structures to carry out its decisions. What really creates change is popular mobilization and legislative changes.

Finally, Konczal not only employs Polanyi’s ideas, but the ideas of Polanyi’s friendly critics like Quinn Slobodian, to describe how modern Hayekians have sought to “encase” the market order in institutions and practices that are hard to overturn. Property rights aren’t the foundation of liberty, as both nineteenth century jurists and twentieth century economists would have it. They are a product of the choices of the state, and as such intensely political.

This allows Konczal to turn pragmatism against the Hayekians. Hayek’s notion of spontaneous order is supposed to be evolutionary, to provide a more supple response to what people (thought of as individuals want). But if there is a need to provide collective goods for people that cannot be fulfilled through voluntarism, the Hayekian logic becomes a brutal constraint on adaptation.

The efforts of Hayekians to enforce binding legal constraints, to cripple the gathering of the collective knowledge that can guide collective action, to wink at legal doctrines intended to subvert social protections against the market; all these prevent the kinds of evolutionary change that are necessary to respond to changing circumstances. Konczal makes it clear that Oliver Wendell Holmes was no left-winger – but his pragmatist criticisms of the rigid and doctrinaire laissez-faire precepts of his colleagues rings true. Their “willingness to use a very specific understanding of economics to override law writes a preferential understanding of economics into the constitution itself.” Although Konczal wrote this book before the current crisis, he describes Holmes as mentioning compulsory vaccination laws as one of the ways in which government interference in private decisions can have general social benefits. The wretched contortions of libertarians and market conservatives over anti-pandemic measures during the last several months, and the consequences of their intellectual rigidity for human welfare in states such as North Dakota illustrate the point, quite brutally.

What Konczal presses for is a very different notion of freedom. This doesn’t deny the benefits of markets, but it qualifies them. In Konczal’s words, “markets are great at distributing things based on people’s willingness to pay. But there are some goods that should be distributed by need.” Accepting this point entails the necessity of keeping some important areas of life outside the determining scope of markets. Furthermore, people’s needs change over time, as societies and markets change. Konczal’s framework suggests the need for collective choice to figure out the best responses to these changes, and a vibrant democratic politics, in which the state responds to the expressed needs of mobilized publics as the best way to carry out these choices.

All this makes the book sound more like an exercise in political theory than it is. That’s because of my own professional deformities, and because I want you to read the book itself, if you really to get the good stuff – the stories, the examples, and the overall narrative that Konczal weaves together. Freedom from the Market has the potential to be a very important book, focusing attention on the contested, messy but crucially important intersection between social movements and the state. It provides a set of ideas that people on both sides of that divide can learn from, and a lively alternative foundation to the deracinated technocratic notions of politics, in which good policy would somehow, magically, be politically self supporting, that has prevailed up until quite recently. Strongly recommended.

{ 53 comments }

1

Brett 01.26.21 at 3:47 pm

I’ll second this recommendation – it was a great read. I would especially recommend reading it for the section on Medicare integration, since that’s a story that rarely gets told but is genuinely quite fascinating. It gives me greater respect for LBJ, given that he was giving them full-support despite a difficult, treacherous political battle to integrate hospitals in the South despite immense resistance.

He also made a very interesting point after the Homestead section when he got to the section on work-hour labor movements, about how they needed to specifically make it so that certain rights couldn’t be contracted away, because otherwise even laws establishing such-and-such rules would get end-runned by businesses requiring their employees to give them up in contracts.

2

Bob 01.26.21 at 9:23 pm

I have no fundamental dispute with the thrust of Konczal’s book as described here. But I was struck by two points in the post:

It is too sweeping to say that twentieth century economists would have it that property rights are the “foundation of liberty.” There is a difference between economics as it is taught, and the lessons that libertarians, and some libertarian economists, have drawn from economics. Libertarians begin with the sanctity of property and then point to the (indisputable) benefits that arise from property rights in a market economy. But if push comes to shove, and a choice has to be made, they will always choose property rights over social benefits–even when the market has patently failed to deliver the goods. In contrast, economics begins with markets, and hypotheses about how markets will, or will not, bring about socially beneficial outcomes under various conditions. From the perspective of economics, property rights are a tool, an instrumental means to an end only. There is nothing in economics that commits you to favouring any particular form of property rights. If a person has a scarce talent, or a business enjoys monopoly power, such that they earn income that is far above the amount required to get them to perform whatever function they are performing, then economics says you can tax that excess and redistribute it, without affecting the market outcome.
I am not sure that I agree with Konczal in your quote: “But there are some goods that should be distributed by need.” As Lear said, “O, reason not the need!” Economics is wisely silent on people’s preferences and needs. The point surely is not that there is something inherent in certain goods that means they should be distributed by need–who decides what those “good” goods are that everyone (ought to?) need?; the point is that income should be redistributed so that everyone can buy whatever they see fit to buy based on their own understanding of their needs. Let’s consider two examples of what most people would agree are essential needs: food and healthcare. In the case of the former, the solution to hunger is money, not government produced and provided food. In the case of the latter, markets fail, and some form of public provision is required to ensure access. So here we have to widely recognized essential needs, but in one case the solution to access is market based and in the other it is public. The question is really, between markets and public provision, what is the most effective for delivering a particular good, not what is the nature of the good.

3

Kurt Schuler 01.27.21 at 4:10 am

Henry, you write, “if there is a need to provide collective goods for people that cannot be fulfilled through voluntarism, the Hayekian logic becomes a brutal constraint on adaptation.” That seems like a big “if.” Other than the classic examples of national defense and perhaps police and courts, what goods cannot be provided through voluntarism? Not food, obviously: compare a privately owned grocery store in Miami with a state-owned grocery store in Havana. Not education: you yourself work at a private university. Not anything else that you can find somebody selling with a few secconds of searching online. If some people lack the means to buy essential goods, they can be given the money. The goods themselves are still produced through voluntarism and accordingly are not collective goods.

Certain goods are provided collectively that would not be produced voluntarily, but the examples I can think of are things that are more expensive than wanted by consumers. For example, many cities have money-losing bus systems but they prohibit competition from jitneys, which can provide the same service with cheaper equipment.

4

Bruce Baugh 01.27.21 at 4:52 am

Thank you for the recommendation, Henry, and for the back-up, Brett! Picked this up for my audiobook queue, and look forward to it.

5

Chris Bertram 01.27.21 at 8:29 am

There’s a nice line in Slobodian’s book about Americans not knowing much about the rest of the world but imagining that the US is a scale-model of it. Isn’t the worry about the general claim here that it is more plausible to see property rights as merely the creature of the state when you have a vast internal market with many needs catered for by domestic production than it is when you have small states with relatively specialized domestic production that need to trade across borders to satisfy their needs. In such a case, where the real economy transcends borders and where trade barriers at those borders just make everyone poorer, you need transnational guarantees (or at least a very strong degree of confidence) for property rights and investment against the potential interference of local governments. So even if Konczal is right for the US, the question of how to do social democracy transnationally remains for the rest of us. The EU is one possible answer to that, but the continuation of national political narratives, blaming other nations within the structure for their own problems (Germany > Greece, Italy) etc remains a big obstacle to anti-market pushback at that level.

6

reason 01.27.21 at 11:20 am

Just a short aside, this sentence struck me:

” Property rights aren’t the foundation of liberty, as both nineteenth century jurists and twentieth century economists would have it.”

Property rights are inherently a restriction of liberty. They restrict the rights of everybody but the designated owner. It may be that in some circumstances they are net a positive, that this is clearly not something one can expect from the nature of the thing. That this point isn’t made more often and more strongly puzzles me.

7

Jake Gibson 01.27.21 at 1:22 pm

I think it can be illuminating to think of “property rights” in the context that at some point all property was taken (stolen) from The Commons.
And that property laws are enshrinement of common law on possession (nine tenths).

8

MPAVictoria 01.27.21 at 1:22 pm

“what goods cannot be provided through voluntarism?”

Apparently insulin….
https://nymag.com/intelligencer/2019/07/another-person-has-died-from-rationing-insulin.html

9

Henry 01.27.21 at 2:16 pm

The “twentieth century economists” like the “nineteenth century jurists” refer just to those discussed in the book (basically Friedman, Chicago School, market for corporate control people etc etc). So they’re not claims about the general class of economists in the twentieth century, where there is tons of disagreement on lots of stuff obviously, but a particular strain of economic thought that Konczal writes about.

10

Rapier 01.27.21 at 3:27 pm

There is no “the” market. All markets are not the same.
The Hayekians first insistence is that in fact all markets are the same. They then have designed the ‘markets’ they want, and if you design a market you win.

11

Mike Huben 01.27.21 at 4:11 pm

Kurt Schuler @ 3 asks: “what goods cannot be provided through voluntarism?”

The glib answer is “none” because you can always find an exceptional case of private production.

But the problem is “provided” is underspecified: it could mean provision to only one person, or (better) provision of ENOUGH. And even enough is underspecified.

Look at something like water. Public provision of vast volumes of clean, safe, cheap drinking water is an alternative to voluntarism’s answer: expensive bottled water which must be used frugally by the poor, consumes much energy in transportation and waste in plastic: which is enough? Which is proper provision? Should there be only one type of provision?

And of course that question implies another; what goods should not be provided through voluntarism? Maybe pollution, addiction, crime, and a host of others.

“Voluntarism” is an example of framing, trying to focus the world through an ideological lens. If you accidentally accept this narrow peephole on the world, your thinking is greatly constrained because of the things is has misdirected you from. The same kind of framing as “markets are freedom”, which Konczal is apparently decrying. (I have not yet read the book.)

12

steven t johnson 01.27.21 at 4:59 pm

Given the tenor of most responses, it doesn’t seem likely Konczal’s book is going to change the narrative in any significant way.

Bob@2 seems a good example of the pro-market reasoning. For one thing, “economics” says that if a person with a scarce talent can earn more money than is necessary to induce them to exercise that talent, the income can be taxed away without affecting the market outcome. Considering the real life examples of professional athletes, movie stars and artists, the sage advice to tax the athletes, stars and artists, precisely because it won’t endanger the market outcomes of professional athletics, Hollywood and the art world presupposes the market outcomes of pro sports, Hollywood and the museum/art gallery circuit are just and wise.

Bob@2 wrote “Economics is wisely silent on people’s preferences and needs. The point surely is not that there is something inherent in certain goods that means they should be distributed by need–who decides what those “good” goods are that everyone (ought to?) need?; the point is that income should be redistributed so that everyone can buy whatever they see fit to buy based on their own understanding of their needs.”

Yes, I recall reading a short article by von Hayek explaining there was no scientific way to distinguish between wants and needs, thus there was no way ever, even in principle, to deny there was such a thing as scarcity. Like von Hayek, the assumption that, given the impossibility of pronouncing a difference between needs and wants (nor apparently even a way of merely satisficing any such distinction,) the only valid way of deciding what must be produced is by…consumer sovereignty. The “votes” by rational consumers are the only possible means of justice. Like distinguishing between productive and unproductive labor, anything less than the market is tyranny.

I have no idea why Bob says Konczal’s book as presented doesn’t pose a problem, given two market refutations of it are endorsed in the comment. It may be something like compatibilism, the philosophical position that people have free will in the religious sense despite the myriad of facts and millennia of experience showing that the religious notion of moral responsibility is, to say the least, flawed. In words, compatibilists will say they accept things like mental illness leave old notions of moral responsibility—which is to say, old notions about retribution and punishment—then in practice, they will do things like try adolescents as adult or arbitrarily limit the definition of mental illness or simply ignore such fiddling objections to honor time-honored customs. Similarly, market proponents will give lip service to the notion of market failure, then inexplicably (?) fail to see it.

Chris Bertram@5 writes “…the continuation of national political narratives, blaming other nations within the structure for their own problems (Germany > Greece, Italy) etc remains a big obstacle…” to social democracy. Is the illustrative example meant to condemn Germany blaming Greece and Italy for creating their own problems and leeching (or trying to) off of Germany? Or, is it Greece and Italy blaming of Germany for not curing their own failures for them? Is it somehow both? Also, the definition of the EU as a consortium of states premised on fiscal integrity may be more of an obstacle to social democracy than political narratives, however construed?

13

Francis Spufford 01.27.21 at 7:50 pm

Kurt Schuler @ 3 —

Well, insulin clearly (see above). But also: schools that make everybody literate and promote basic social solidarity. Colleges that are cheap enough to educate all of the talents. Hospitals that treat illnesses irrespective of ability to pay. Universal vaccinations. Flood defences. Disaster relief. Food inspectors. Drug safety testers. Buildings inspectors. Fire inspectors. Transport safety inspectors. Highways. Mending potholes in highways. Keeping bridges safe. Last-mile rural electrification. Universal mail coverage at a single price. Legal advice to even access to justice by rich and poor. Excellent daycare at prices poor people can afford. Basic research in particle physics and astronomy. R & D in far-from-market areas society needs. Drug discovery for diseases poor people get. Training of specialists in non-profitable yet essential professions. Landscape conservation. Pollution control. Tech regulation. Setting a carbon price/tax. Railways that move people fast enough and cheaply enough to take custom away from ecocidal airlines. Mass transit in cities. Space programmes. A welfare safety net permitting risky careers in the arts. A welfare safety net to equalise the chances of children. A welfare safety net allowing every member of a society to go to sleep every night in a state of delicious moral luxury, knowing that no-one is hungry. Lighthouses. Earthquake detection. Censuses. Diplomacy. Peacemaking. Peacekeeping. Public broadcasters with editorial independence. Et cetera et cetera et cetera, in every flavour from civilisational basic to utopian flight of fancy. Collective action! Getting the job done everywhere on the planet where libertarians aren’t.

14

John Quiggin 01.28.21 at 6:52 am

” In such a case, where the real economy transcends borders and where trade barriers at those borders just make everyone poorer, you need transnational guarantees (or at least a very strong degree of confidence) for property rights and investment against the potential interference of local governments.”

Much of the world did social democracy pretty well last century, without transnational guarantees. Conversely, the creation of investor guarantees like ISDS has been a gift to predatory corporations like Philip Morris.

15

Chris Bertram 01.28.21 at 9:08 am

@John, isn’t it the case, though, that in those places where social democracy did do well, transnational investors had a high degree of confidence that their property rights would be respected?

16

Tm 01.28.21 at 11:54 am

14, 15: I think the difference is that social democracy tends to respect private property, but not give it priority over everything else as neoliberalism does. Also, the importance of transnational/globalized investment and interdependence, and the mobility of capital in general, was far lower in the postwar period, which explains in part why “much of the world did social democracy pretty well”.

17

William Meyer 01.28.21 at 3:01 pm

Bob @ 2:

Economics as a science has a major problem with the “is-ought” problem. Economics may claim–and even offer a few–truly general insights into the world, but the science grew up after the establishment of most elements of capitalism–private property, a monetized economy, extensive development of contract law, etc., etc.–and clearly takes these and many others social arrangements as givens. Some aspects of these givens are occasionally challenged by the science, but I think very large amounts of “what is” are unconsciously imported into economic science, or unthinkingly used by economic science, on a daily basis. Economics as right-wing propaganda (something that has probably had a far greater impact on the world than economics as a science) is moreover a deliberate intensification of this, a feedback loop re-enforcing the dominance and legitimacy of capitalist social arrangements. The consequence of all this is that a great deal of economics in the real world largely functions as a highly mathematicized justification of current day power relationships in society–“see, all these blatant, and in most cases quite arbitrary, power relationships–who is born rich, and who is born poor, who gets the highly rewarded opportunities and who gets the backbreaking but poorly paying work–are all for everyone’s good! Now go back to sleep, and don’t ask questions.” There is a reason why in today’s world we have an easier time being able to conceive of the end of the world than we can conceive of the end of capitalism, and economics (both science and right-wing propaganda) share a good deal of the blame for that.

18

RobinM 01.28.21 at 4:48 pm

A not very original response to John @ 14 and Chris @ 15 and maybe an addendum to Tm @ 16:

“Much of the world did social democracy pretty well last century…”

“isn’t it the case, though, that . . . transnational investors had a high degree of confidence that their property rights would be respected?”

Isn’t what needs to be added here is a bit of international context? Property rights would be respected so long as property rights weren’t pushed too far? A space would be preserved for the rights of non-property holders—i.e., a space for some degree of social democracy—because looming over the horizon was an alternative that encouraged both these things? Come 1989 that alternative was gone. [China doesn’t seem the sort of alternative that would suggest limits on property rights or the advancing of social democracy.]

19

mw 01.28.21 at 6:04 pm

“Apparently insulin….”

Insulin (and Epi pens) become unaffordable in the U.S. because the government massively screwed up the regulations. These are off-patent drugs, so in theory anybody can make them. BUT, getting production facilities FDA-approved is a long, expensive process. So when there’s an effective monopoly on a drug, no other company will enter the market to compete — even after huge price hikes. Why not? Because after the new company had invested the time and money to get its production line built and approved, the original monopolist would drop its prices back down, and the new entrant would make no money. And everybody knows this, so potential new entrants don’t bother. An obvious solution is reciprocity to allow importation of drugs already approved in the EU. But there’s no way the FDA is going to allow that to happen and lose its regulatory monopoly.

The bottom line is that these are not failures of unregulated markets, they are cases of government failure in the most heavily regulated market in the U.S. (and where, in fact, the strict regulation is the key enabler of the bad outcome and where the obvious fix is blocked by the regulatory agency defending its turf).

20

CHETAN R MURTHY 01.28.21 at 6:17 pm

Chris @ 15: I don’t know much of the history of {transnational commerce, social democracy, ISDS and other recent property-rights-preserving agreements}, but a little data-point:

Australia had to go to great lengths to be able to properly put warnings on cigarette packets, and Philip Morris worked really hard to stop them. And …. well, I’m sure you agree that Australia is a democracy, and you might even agree that it’s a social democracy grin.

Oh, and also, at least some multinational corps have been at the … vanguard … of destruction of property and other rights across the globe, y’know, since time immemorial. I mean, right away I think of the namesake for the Sandinistas, and United Fruit.

21

RobinM 01.28.21 at 6:38 pm

And then there’s this: Adam Przeworski, “From revolution to reformism: Leaders of the left abandoned the language of transformation in the 1980s—at a cost. Can it be regained?”

http://bostonreview.net/politics/adam-przeworski-revolution-reformism

22

Chris Bertram 01.28.21 at 6:52 pm

Coincidentally, I read the following sentence in Adam Tooze’s crashed today:

“By 1983 even France’s Socialist administration under Francois Mitterrand was forced to give in. After a series of messy devaluations between 1981 and 1983, Paris abandoned its efforts at social democracy in one country and adopted instead a hard-currency policy of ‘franc fort’.” (92)

So that’s just under 40 year since social democracy in Europe was put into retreat. In the post-war years it did well, but we aren’t going to see a viable national social democracy come back, so if it is going to be built it is going to have to be transnationally. And that’s hard to do, given that the democratic pressures are still expressed in nationally-limited terms but the market “discipline” is external.

23

MPAVictoria 01.29.21 at 1:39 am

“Insulin (and Epi pens) become unaffordable in the U.S. because the government massively screwed up the regulations.”

Just need to point out that this is completely false. Insulin prices are high in the US because of a lack of price controls. Canada has very similar patent rules and our insulin is made by the same companies but guess what? We set a maximum price for pharmaceuticals. The US should do the same.

24

LFC 01.29.21 at 2:19 am

from the OP quoting the book:

While the Supreme Court can be effective at holding back change and enforcing already existing power structures, it is actually very weak at creating new reform itself… What really creates change is popular mobilization and legislative changes.

I think that’s generally right, but one might add a small qualification. Occasionally — not often — what the Supreme Court has been good at is creating a symbolic impetus for change that isn’t fully (or even partly) implemented on the ground until many years after the symbolic decision. Of course the classic instance of this is Brown v. Bd. of Education. Putting aside the second Brown decision, with its somewhat ambiguous and unhelpful standard of “all deliberate speed,” what the first Brown decision did was give symbolic (and legal/constitutional) legitimation and impetus to an effort to end “dual” school systems, an effort that didn’t fully succeed until, I think, the early ’70s. And then a Court whose composition had changed, in Milliken v. Bradley, undercut the implications of Brown and ensured that, while de jure school segregation had ended, de facto school segregation, esp in urban areas and esp (though not only) in the North, would continue and even worsen. But that’s another story…

25

LFC 01.29.21 at 2:26 am

P.s. The other kind of exception would be a case like Obergefell v. Hodges, which was implemented on the ground fairly quickly and, it appeared, with only fairly isolated pockets of resistance — probably because the underlying social changes and changes in attitudes had already occurred.

26

John Quiggin 01.29.21 at 4:29 am

“John, isn’t it the case, though, that in those places where social democracy did do well, transnational investors had a high degree of confidence that their property rights would be respected?”

The property rights of capitalists in general were more circumscribed in the social democratic moment than they are today, and preference for domestic investors over transnationals was commonplace. That didn’t stop investment or growing prosperity.

Once global capital got the whip hand in the 1970s, that was all swept away, and capital flows became massively larger. But it’s hard to see much benefit for workers from that (before anyone pops up to mention workers in East Asia, I’ll point out that they didn’t rely on foreign capital to any significant extent)

If the point is that a small state can’t easily fight global capital, as the Mitterand example showed, I agree entirely. But that doesn’t mean deference to the property rights of capital is a good thing. Rather, as you imply, the lesson is that it will be easier for big states or confederations like the EU to stand up to capital.

27

notGoodenough 01.29.21 at 8:01 am

mw @ 19, MPAVictoria @ 23

Not to side-track the thread, but I think there was an attempt to explore this on a previous thread (particularly with respect to Daraprim, though I believe many of the points are applicable in a general sense) [1]. While I´ll freely admit I am not an economist, I didn´t find the responses to my queries and concerns from those advocating “regulations are the issue” sufficiently satisfactory [2, 3] to warrant changing my position – in short, I see little evidence to support the notion that it is US regulations responsible for the high price of pharmaceuticals (particularly as it appears that R&D spending is frequently less than that of marketing and administration). I hope the discussion at the links provided is of interest.

Apologies to everyone for the interjection, but Pharma is a topic of keen interest and concern to me.

[1] https://crookedtimber.org/2019/10/09/the-third-lesson/
[2] https://crookedtimber.org/2019/10/09/the-third-lesson/#comment-766046
[3] https://crookedtimber.org/2019/10/09/the-third-lesson/#comment-766434

28

Chris Bertram 01.29.21 at 8:47 am

@John “Rather, as you imply, the lesson is that it will be easier for big states or confederations like the EU to stand up to capital.”

But if France is a “small state”, there aren’t that many big states around, hence my point about the US being a bad example to generalise from, even as Americans kid themselves that their experience holds universal lessors. Confederations, sure, so long as they can maintain a sense of collective common purpose and aren’t composed of multiple demoi whose first reaction is to blame the shortcomings of the others (hence, Greeks and Germans). Don’t get me wrong, transnational confederations are the way to go, which is why I support an organization like Another Europe is Possible, but it isn’t going to be easy.

29

Chris Bertram 01.29.21 at 11:47 am

France is, btw, the 22nd largest country by population and the 10th by some measures of GDP. So, a large state by reasonable international comparison.

30

mw 01.29.21 at 1:23 pm

MPAVictoria @ 23 Just need to point out that this is completely false. Insulin prices are high in the US because of a lack of price controls. Canada has very similar patent rules and our insulin is made by the same companies but guess what? We set a maximum price for pharmaceuticals. The US should do the same.

Yes, you could layer on additional price-control regulations to fix the problems caused by the existing regulations. Of course it’s one thing for Canada to adopt such rules where the U.S. has not (and remains a source of profits and R&D incentives) and another when the U.S. is also controlling prices. Incidentally, if price controls were to be adopted in the U.S., my suggested approach is that the U.S. should require all pharma companies within, say, two years to sell drugs here for the lowest price they have negotiated in any industrialized country with a comparable per-Capita GDP. Then we can all be in it together.

But that’s all a discussion for another thread — the point remains that insulin and epi pens are not examples of a free, unregulated market failing, they’re an example of a very heavily (but badly) regulated market failing. Yes bad U.S. regulations are responsible — they create barriers to entry (specifically high costs of setting up a production facility combined with an FDA regulatory monopoly and a ban on imports) that enable monopoly pricing.

31

kinnikinick 01.29.21 at 4:47 pm

Those who have the most to say about the burdens of government regulation tend to be silent about the enormous infrastructure supporting a very specific conception of corporate personhood, limited liability, and intellectual property.
It’s like an industrialist looking out upon a vast landscape of canals, dams, and levees, and complaining at the “unnatural” construction of a bridge putting a ferryman out of a job.

32

CHETAN R MURTHY 01.29.21 at 7:03 pm

mw @ 30: “Yes bad U.S. regulations are responsible — they create barriers to entry (specifically high costs of setting up a production facility combined with an FDA regulatory monopoly and a ban on imports) that enable monopoly pricing.”

What, no opportunities to stab little old diabetic ladies with your ricin-tipped umbrella, in your town? And those people allergic to peanuts — do they really deserve to live? I think not! Really.

Maybe it’s worth remembering why these regulations exist: because otherwise every individual would be left to their own resources to test whether the pharmaceuticals they buy are safe and effective. I mean, as we speak, we have examples of this in the illicit markets for opioids and even “synthetic marijuana”. People die all the time b/c they bought what they thought was heroin, but it turned out to be elephant tranquilizer, inadequately cut down.

I mean, c’mon, man. At least try to not give off the whiff of being a mass-murderer-wannabee.

33

CHETAN R MURTHY 01.29.21 at 8:32 pm

mw @ 30: I forgot to respond to your by-the-by argument that the pharmas’ US profits fund their R&D. This is, as with the rest of your arguments, untrue.

(1) the US taxpayer funds most pharma research
(2) Last I checked, pharmas spend more on advertising and lobbying than they do on R&D.

’nuff said.

34

MPAVictoria 01.30.21 at 1:29 am

@ NotGoodenough – Interesting links thank you! And I completely agree that I am unconvinced that over regulation in it the reason the US has uniquely high drug prices.

@ me – Drug approval and manufacturing requirements in the US are not that different from any other developed country. Neither is it’s Drug IP regime. So the argument that these features are what cause these outrageous pharmaceutical prices doesn’t make much sense. In fact the US had a bit of a reputation of being too ready to approve drugs with limited effectiveness. The reason that Americans pay more than anyone else in the world is simple – no price controls.

35

carl 01.30.21 at 11:05 am

Clearly, I think only the US, the EU and China are big enough to stand up to big business. That is why I have come to the conclusion that we on the left in Europe should support the EU. The famous saying that all EU states are small (its just that some don’t realize they are small) is quite true. The interesting thing is that people have so many different conceptions of the EU: some see it as the protector of human rights, equality, the values of social democracy etc., and some see it as an organization that promotes capitalistic interests. Since nations have limited power in the current systems, we have to try and ensure it is the former.

36

Tm 01.30.21 at 2:31 pm

Carl 35 pretty much sums it up. The EU is not a matter of political taste any more – it’s the only game in town that is even hypothetically capable of successfully standing up to multinational corporations.

37

mw 01.30.21 at 2:37 pm

CHETAN R MURTHY @ 33

“Maybe it’s worth remembering why these regulations exist: because otherwise every individual would be left to their own resources to test whether the pharmaceuticals they buy are safe and effective.”

The simple expedient I’m suggesting is that the U.S. adopt regulatory reciprocity so that any drug approved by the European or Japanese regulators could also be imported and sold in the U.S. This would immediately eliminate the kinds of artificial, regulation-created monopolies that have spiked the prices of insulin and epi pens in the U.S. Surely you don’t the European and Japanese agencies are approving unsafe drugs that would kill little old diabetic ladies, do you?

But again, we’ve drifted off — regardless of the best solution, the fact remains that high-prices of certain off-patent drugs in the U.S. is a failure of the most highly-regulated market in the U.S., not of an unregulated one and that the regulations themselves are what have created the opportunities for monopolistic price-gouging.

38

Wonks Anonymous 01.30.21 at 8:41 pm

@11 Mike Huben: Bottled water is one particular way of distributing it, which people (particularly in richer countries) find some convenience in. But I don’t see it being that tied into public vs private. Oil can be privately transported over pipelines, then into tanker trucks, and then into gas stations where people go to fill up their car’s tank of gas rather than buying hand-held bottles of oil at the store (cooking oil is another story). Buying in bulk (even a watercooler compared to little disposable bottles) is typically cheaper per unit than buying in smaller quantities. The more relevant difference between water and oil is that oil sits underground until someone taps it, whereas water falls from the sky and flows from lakes to rivers to the sea. There are underground aquifers, but typically they are so large that there isn’t one “owner” accessing it, thus giving rise to a collective action problem in managing it that Elinor Ostrom has written about.

39

mw 01.30.21 at 9:09 pm

CHETAN R MURTHY @ 33 And one more thing I should have pointed out. The FDA’s regulatory monopoly is very clearly killing people in large numbers right now. The U.S. has a factory all set up to produce the Astra Zeneca vaccine in Baltimore. The AZ vaccine is approved in the UK and EU. But not here. Tens of thousands more are getting infected every day. There is nowhere nearly enough supply of the other vaccine types to go around. But the Baltimore factory sits there. In its entire history has the FDA prevented as many deaths as they’ve caused (and are still causing) with their lengthy vaccine approval delays?. I think that’s a serious (not actually hyperbolic) question.

40

notGoodenough 01.30.21 at 9:33 pm

Interestingly, unlike many other countries (particularly those with noticeably cheaper drugs), the US does not employ centralized price negotiations, national formularies, and comparative and cost-effectiveness research for determining price ceilings. Moreover, health care and payment is fragmented, with numerous, separate negotiations between drug manufacturers and payers – and rather complicated arrangements for various federal and state health programs.

Given these obvious differences in approaches, it seems odd to me that someone would ignore these as possible causation factors and instead claim it is regulations themselves which must have caused the issue. This is particularly the case when the recent mutual recognition agreement (MRA) between the EU and US would seem to indicate the frameworks are quite similar.

Perhaps, rather than merely repeating their assertions, those who wish to make the case that regulations are the issue would be more convincing were they to provide logically sound and valid arguments supported by data.

41

CHETAN R MURTHY 01.30.21 at 10:34 pm

mw @ 37: you stick to your libertarian position that the problem here is with regulation, as opposed to -capture-.

Dean Baker, on the other hand, has made a cottage industry of giving examples that demonstrate that the problem is one of capture. Patents & copyrights, for example. Licensing regulations for all manner of skilled occupations (doctors, lawyers, etc). Lots of examples where monied interests capture the regulatory apparatus and use it to extract rents. Some of these things even predate the modern regulatory state!

It’s almost as if the problem is with monied interests, and not with regulation per se. But that would destroy the primary conceit of libertarianism, which is that concentration of power and money is no biggie: what matters is when it’s orchestrated by people acting collectively, viz. unions and government.

The only way that individually powerless people have, of standing up to concentrated wealth & power, is via government. That government sometimes doesn’t work, and often because of capture by the wealthy, doesn’t vitiate this recourse, b/c (again) it’s the only tool available.

The wealthy always prefer “free markets” in all the things they want to buy, b/c they already have unfree markets in all the things they want to sell.

42

Peter T 01.31.21 at 12:28 am

mw

Since pretty much all markets are regulated, saying ‘regulation is the problem’ is unhelpful. The US and Japanese drug regulations cover safety, but couple availability to price controls. The US does not do this. So what you are arguing for is not less regulation, but the extension of greater (EU and Japanese) regulation to the US market.

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hix 01.31.21 at 1:26 am

The one needs to be big to resist factor seems to me a bit oversold here. Typically, when the neoliberal/high inequality/property rights above all solution is chosen, the strongest factors are forces internal to the nation. In public discourse those tend to refer to external TINA reasoning up to a point.

Another issue is that it is not particular rational for the big bullies, the US in particular to be such big bullies anytime some nation might dare to contain the monopoly/taxes are for looser and poor people power of some entity more or less closely attached to the US economy.

In short also throw in at least a bit capitalist world system theory stuff, but not just that as those theories also tend to assume some kind of perfect rational self-interested plan by rich people. It seems to me to go far beyond rich people self-interest, a certain self reinforcing ideological bubble or whatever.

44

mw 01.31.21 at 12:40 pm

Since pretty much all markets are regulated, saying ‘regulation is the problem’ is unhelpful.

No, it’s not. In the U.S. the pharma and medical device industries are very highly regulated to a level that’s almost unimaginable to anyone who’s never worked in them. This applies not only to the ingredients going into the drugs/devices and the factories and production methods but also extends to the way any adverse issues are collected and reported, to the contents of all packaging and written materials about the drugs (very much including sales and marketing literature) and even to the way any internal software is developed and tested. Most industries in the U.S. are simply nothing like this.

So what you are arguing for is not less regulation, but the extension of greater (EU and Japanese) regulation to the US market.

I think you may have it backwards — under reciprocity a drug wouldn’t be required to gain EU or Japanese approvals to be sold in the U.S., but EU or Japanese approval would be sufficient. Do you see the difference? If EU or Japanese regulations are stricter, so much the better — the drugs approved there (but not yet by the FDA) should be even more trustworthy, no?

45

Mike 01.31.21 at 1:49 pm

mw @ 39: “The FDA’s regulatory monopoly is very clearly killing people in large numbers right now.”

No. Libertarians and other drug industry shills have long accused the FDA of causing deaths through slow approval and overregulation. That’s an illusion due to a trolley problem, 20-20 hindsight, and ignoring the deaths that would be due to ineffective drugs. Imagine if the FDA was allowed to regulate The Tobacco Industry, with 300,000 or more US deaths per year.

I suggest reading: “The Elasticity of Demand With Respect to Product Failures; or Why the Market for Quack Medicines Flourished for More Than 150 Years“.

46

steven t johnson 01.31.21 at 3:06 pm

Regulatory capture is a concept devised to put the blame on regulation per se. Capture is like sunrise, inevitable, necessarily so, in systems where democracy is defined as minority rule that defends “us” against the rabble. The view that true democracy means a minority can exercise a veto against a mere numerical majority seems to me to be the prevalent opinion, in the academy as well as the population at large. Capture is baked into regulation. Thus critiquing capture is critiquing regulation. And defending regulation is like defending the ability of a mere numerical majority to determine policy.

John C. Calhoun’s “concurrent majority” may not be remembered under that name, but it seems to me the substance of the idea is alive and very well indeed. That this implicit critique of socialism/communism is also an implicit critique of democracy (as opposed to a “republic,”) is nothing new. The case against democracy for millennia has been that it threatens property.

Similarly Constant’s notion of the freedom of the moderns (revisited recently here at CT,) forbids the notion freedom requires collective action under constitutional order…which is implied in the phrase “freedom from the markets,” as meaning, “power over the markets.” Isaiah Berlin was very careful to limit such outrageous claims via the distinction of positive and negative liberty.

The instinctive propensity to barter and truck, discovered so long ago, means the exercise of the vital powers of humanity. The equality of money means that the freedom to buy what you can afford and the power to do with your property what you will is, the essence of freedom. This is not just the ground of a Bob or a mw but a common ground for most. (Not me, but then, that sort of thing is why my comments are so irrelevant to the conversation.) Other visions of freedom are the visions of the anointed, as Thomas Sowell teaches, a totalitarian imposition or something, rather the reverse of freedom.

I do not think mw is alone in believing without question that it simply is not an accepted principle of economic science as practiced that it is sound policy to regulate all monopolies, including such as patents. After all, “land” is a kind of natural monopoly, and the sacredness of property as the defining human right is still unquestionable in a very large part of the academy and the population at large, if not the overwhelming majority. Schemes to regulate property in land were loathed long before the modern age.

It is true I think that large states, or federal/confederal equivalents like the EU, are less apt to be commandeered by cliques of plutocrats. That’s why the Republicans couldn’t fix the national election for president, for a very recent example. But it is not at all clear that the bigness makes it easier for the majority to exercise a democratic control over property.

47

Gorgonzola Petrovna 01.31.21 at 6:07 pm

“The one needs to be big to resist factor seems to me a bit oversold here. Typically, when the neoliberal/high inequality/property rights above all solution is chosen, the strongest factors are forces internal to the nation.”

I would suggest that what matters most is the prevailing mode of internal politics: populist vs technocratic.

It’s an empirical observation, but also intuitively persuasive: a technocratic government recognizes the (abstract) efficiency of neoliberal economics, and intends to mitigate the unfortunate side-effects by redistributing the wealth. Which never happens, of course, for obvious reasons. A populist government, on the other hand, doesn’t have the luxury of making complicated plays based on vague promises of future prosperity. Everything it does has to be obviously beneficial to the general population, here and now.

48

Wonks Anonymous 02.01.21 at 3:44 am

A populist “mode” of politics doesn’t actually guarantee being beneficial to anyone.

49

hix 02.01.21 at 5:28 am

Just reading Qualityland 2.0. a dystopian comedy. Absolutely hilarious how one can predict what mw says simply by reciting the neoliberal gospel in the book. Neoliberalism is literally a religion in the book (the transformation to religious status naturally took place to save taxes) .

50

Tm 02.01.21 at 7:54 am

Gorgo: Just curious, what is the difference in terms of political calculus between a “technocratic” government that needs to compete in elections and a “populist” government that needs to compete in elections, and how does a layperson recognize the difference?

51

Peter T 02.01.21 at 11:15 am

mw – to be clear, my point is that the EU and Japan and Asutralia have all the US regulations and, as well, de facto price controls (normally in the form of a maximum price the central authority will pay). Free entry to the US would allow US consumers to buy at the EU/Japan/Aus regulated price.

52

mw 02.01.21 at 2:14 pm

Mike @45
No. Libertarians and other drug industry shills have long accused the FDA of causing deaths through slow approval and overregulation.

Peter T @51
Like right effing now when the AZ vaccine cannot be distributed in the U.S. (nor can the Johnson & Johnson vaccine that’s ready to go) when people are dying by the thousands every day. That delays are killing people is simply not a figment of libertarian imagination.

mw – to be clear, my point is that the EU and Japan and Asutralia have all the US regulations and, as well, de facto price controls (normally in the form of a maximum price the central authority will pay). Free entry to the US would allow US consumers to buy at the EU/Japan/Aus regulated price.

In this case, reciprocity has nothing to do with price. If EU pharma companies were able to sell in the U.S. market on the basis of their EU approvals, they would not be required to sell in the U.S. at fixed EU prices.

53

Cranky Observer 02.01.21 at 3:44 pm

Perhaps mw could point us to the link to AstraZeneca’s Emergency Use Authorization filing with the US FDA? Hmmmmm…

Oxford/AZ totally screwed up the conduct and data from their Phase 3 trial. The UK government was facing an extinction level event of their health care system (followed by their population) and chose to proceed with what they had. The US FDA staff and Vaccine Advisory Committee have proceeded with incredible speed when presented with solid scientific evidence. As a Citizen in a somewhat higher risk group probably looking at an April vaccination date I am fully supportive of each vaccine application being thoroughly scrutinized – the human race is taking some risk even as it stands.

Score: Reality 1,001 : Libertarianism 0

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