Central Planning Hubris and the Medication Crisis in Europe
I’ve written countless articles on the topic of central planning and its failures, practical, economic, political and moral. In some cases, the arrogance of the central planners results in real devastation, often in actual loss of life and property, and the price for their mistakes is paid by not just the people they directly hurt but even by the generations to come.
This article was provided courtesy of Mr. Claudio Grass, Precious Metals Advisor in Switzerland and Ambassador of the Mises Institute in Auburn (AL), USA. Claudio has been advising HNWIs for more than 10 years on the best strategies to preserve wealth. For much of his life, he has travelled and studied around the world, first as an airline executive, then as a Swiss Peace Corp Officer on the Israeli Syrian border. For the past decade, he’s served as an investment manager specialized in precious metals and now as a partner referring precious metals investors to BFI Bullion. Visit his website here.
In other cases, their blind ego and their unshakable belief that they can do no wrong, for they know better than anyone else, alive or dead, just results in comical blunders. Stupid policies to rectify stupid non-problems that nobody really cares about frequently backfire and make the original non-problem worse. Nobody gets hurt in the process. Sure, taxpayers get to pay for all these blunders, and they keep paying the individuals responsible for them, since accountability really isn’t a top priority in the public sector. But that’s the least of our concerns when it comes to mismanagement of public finances, given the billions and trillions that are wasted globally, or even worse, being used to fund programs and policies that directly against our own interests.
The recent example we’ll look at this time is far from a harmless blunder. It is a great example of how the ignorance and the arrogance of the few can impact the many and it is also an excellent case study on how pointless and dangerous it is to try and control something as complex and as untameable as the market.
The story starts where all cautionary tales start when it comes to failed state interventions (not that there is any other kind): with the short-sightedness and the vanity of politicians who only care about what happens to those they govern until they get re-elected. Left and Right are indistinguishable in this regard, as both camps like to make big promises and to push for people-pleasing legislative initiatives that are only beneficial in the short term and always deleterious in the long term. Bringing down the cost of stuff is a popular campaign talking point and it usually involves some type of coercion against the private entities who are producing said stuff or some type of wealth redistribution scheme so that some citizens pay for other citizens’ stuff. We’ve seen promises like that being linked to the cost of education, food, gas and anything else you can think of over the years, but a reliably popular target has been the Pharma industry.
Now, before I continue, I should make it clear that I am no fan of this sector and I consider it by and large one of the key cogs of the current crony capitalist system we live in. Most big pharmaceutical companies got where they are by using the State as a shield against competition and against transparency and accountability. There are endless examples of fraudulent drug trials, of companies outright lying about the efficacy of their drugs and most criminally of all, about their side effects. Without diminishing the role of the many honest, brilliant scientists that are working in this field and who through their tireless research and innovations, are responsible for countless lives saved or improved, it still remains true that as a whole, the Pharma industry provides a very comfortable roof for people that have the most reprehensible traits of our species.
That being said, let us move on with our case study. Public fury over expensive medication has been growing for years in the US and in Europe, although the systems and the dynamics behind these prices are very different. Let us focus on Europe, however, where there is presently an acute crisis, as shortages of basic drugs and essential antibiotics are spreading and escalating to very dangerous levels. The reason behind the shortages is fairly simple: supply and demand.
The way national governments and Eurocrats tried to bring down medication prices was by embracing generics and by determining and dictating what they should cost. As Reuters explains: “Before launching tenders, many European governments compare the price of a generic medicine to other markets in the region, or to similar drugs at home, to set a reference price which then serves as the benchmark in negotiations with suppliers. They typically award contracts to manufacturers offering the lowest price, which then results in further downward pressure on prices in subsequent tenders, drugmakers say. Generic medicines now account for about 70% of all dispensed medicines in Europe, but only 29% of the money spent on drugs by national health agencies, according to Medicines for Europe.”
The predetermined prices at which generics makers are allowed to sell their products has barely changed over the years, and the only reason the whole edifice remained standing all this time is that production costs had remained relative stable, even though profitability was nosediving. For example, in Spain, in 2003, the mandated price of 60ml of paediatric amoxicillin was set at 98 cents. Ten years later, that became the price for 40 ml, but it did not change a single cent since then. As is painfully obvious, without the ability to adjust the price to reflect changes in production costs or shifts in demand trends, now that inflation returned with a vengeance, it is simply not worth it for drugmakers to keep producing at these prices. And so many of them, just stopped.
This problem was reported months ago and industry representatives even met with Brussels officials last October but no action was taken. Instead, EMA chief medical officer Steffen Thirstrup suggested that alternative medicines could be used when essential antibiotics like amoxicillin were not available. This very scientific and forward-thinking suggestion didn’t take too long to backfire, of course, as it only took a couple of months for patient groups to start reporting that those substitutions were now depleting supplies of other drugs.
The response so far by the European Commission was to propose measures that further burden the producers, like requiring them to hold larger reserve supplies, which is essentially adding insult to injury. Not only did the central planners cripple an entire subsector and forced many small companies out of business, but they’re also now demanding that they “fix” the problem by adding even higher cost burdens.
Naturally, this approach is doomed to fail. Using new regulations to ameliorate the damages caused by old regulations isn’t really the most inspired solution, at least not when there’s an obvious and simple one, namely just revoking the original, clearly misguided regulations. Of course, that would require basic decency, humility and the courage to acknowledge one’s own mistakes, all of which being traits that would immediately disqualify anyone from getting a job in politics in the first place.
Claudio Grass, Hünenberg See, Switzerland Precious Metals Advisor in Switzerland
This article has been published in the Newsroom of pro aurum, the leading precious metals company in Europe with an independent subsidiary in Switzerland. This work is licensed under a Creative Commons Attribution 4.0 International License. Therefore, please feel free to share. You can subscribe for his articles by clicking here.