Friday, May 4, 2012

For Socialism, A Path To Victory

In 2006 I was in Brazil, visiting the South American headquarters of Eli Lilly, with a group of graduate business students from BYU. The company was gracious enough to provide their Regional President to brief us on the state of affairs in the industry and give us a tour of the factory. During the information session following the tour, this executive lauded the Brazilian government's efforts to keep prescription drugs affordable for all Brazilians. He highlighted a recent law passed as part of their universal healthcare mandate that fixed a maximum price of $10 USD for any standard size prescription of any medicine. He remarked that none of the international pharma companies raised objections because "they are not in it for profits, but truly care about patient health". While the second half of this statement may or may not be true, I was smart enough to recognize that no company operates at a loss out of a sense of moral duty. They had to be making their profit somewhere. I raised my hand and asked how it is that big pharma can afford to stay in business when the sales price of their product is below their overhead. He vacillated a bit making reference to international adjustments, so I called him out and asked, "Isn't it true that by accepting so easily the imposition of price controls, Eli Lilly already has a plan for offsetting any opportunity cost of continuing to operate in Brazil? In other words, haven't you just shifted the costs to countries with free markets for healthcare, such as the United States?" He bluntly answered, "Yes, in fact, that's exactly what we've done." No one in the group I was with even seemed to care, so I followed up with a more revealing question: "Are you saying the United States is subsidizing the cost of prescription drugs for Brazil and other countries that have adopted socialist models for healthcare delivery?" Again he gave no argument, "That's correct." He then moved on to other unrelated questions without delay.

I was pretty shocked, at the time, by the casual acceptance of such a paradigm. Now...not so much. I understand now how international companies play the shell game to maximize profits, ironically at the expense of countries with free markets. Big banks do it through international currency swaps and derivatives, linking the fates of multiple countries and their populations' livelihoods to the strength of the last free market - America; then, holding America morally responsible to "do the right thing" for everybody and bailout companies and countries that become "too big to fail". They know that our commitment here to the free market is their golden goose and that it doesn't matter how many other markets adopt socialism, so long as the goose keeps laying her eggs. In doing so, these foreign sovereigns have put their sovereignty and any semblance of freedom on the altar of the almighty dollar.

However, there is a largely unrealized event on the horizon. Whether it is coordinated, or even intentional, is irrelevant; the entropic nature of achievement is taking hold and we're witnessing the devolution of higher economic orders to the lowest common denominators of unified force and selfishness. This is the path to victory for socialism. It is by this process that collective and personal desires are satisfied at the expense of other individuals or groups, with the sanction and enforcement of institutional power. Though many, myself included, long for a libertarian dynamic, it is one that is easily exploited when adopted piecemeal, along with socialist reforms. In other words if the United States is only the least socialist, centralized power, then we are the most vulnerable to plunder by economies which have adopted a fuller socialist vision because they can take advantage of our general attitudes towards defending free enterprise in dealing with international actors.

Here's an example in more general terms:

Company A is an international company which sells widgets. These widgets are inelastic, so they retain a fairly constant demand regardless of economic conditions. Access to widgets has been deemed by many leaders/activists as "a right" which should be enforced/protected. Company A sees this as a positive step. Any regulation that enshrines their product as a necessity of life essentially guarantees the company's survival if they can protect their patents and intellectual property. In order to continue selling widgets at a steady clip Company A simply decides to reallocate product, costs, and profits to maximize margins. In this way international business functions much like a hydraulic tube, where prices act as pressure on the tube, moving money from one chamber to another. The amount of fluid in the tube is constant but it is moved around in different proportions. Those countries with price controls get their widgets discounted while those with free markets pay more. In a healthy market, price controls would drive out products as the company is seeking a predetermined profit. However, if the company can simply get their profit elsewhere, then it pays to continue selling in spite of price controls. It is important that Company A's lobbyists are active protecting the uniqueness of their widgets while at the same time fighting to cast them as indispensable. They run the risk of having the recipe for their widgets simply co-opted or confiscated if they don't have government to protect it, so they enlist the strongest country in the world to do it for them under the guise of property rights.

These widgets could represent cars, education, cell phones, healthcare, foods, or any number of consumer goods & services. Are you starting to see the great irony here? Essentially our commitment in the United States to being "mostly free" increases our susceptability to economic exploitation by countries which have chosen the path of plunder. Taken to its logical end, this can only end badly; as the free market, producer nations discover that it's easier to plunder others than to expend energy supporting others. Eventually, there are no producers to carry the load and worldwide consolidation and coercion begins.

The only way to fend off this attack is to treat companies and countries the same. This begins with a proper understanding of property rights and their role in preserving liberty. This is not as simple as one might think; just google Hohfeldian Analysis. Nevertheless, a property right, by the classical definition, is laying claim to previously untitled land or materials; thus "homesteading". Right can also be established through exchange, purchase, or conveyance of titled property, as in an inheritance/bequest. Patents do not fit this definition, partly because they deny others the right to use their mind and body to produce similar goods independently utilizing natural scientific laws. This is nothing short of government granted monopoly privilege. There is no way to establish homesteaded property rights to ideas and products as history is replete with examples of independent invention. Regardless, even if prior art can be proven, there can be no tort where there is no physical invasion. Simply saying someone used their brain the wrong way does not constitute a harm to someone else. Two people on opposite sides of the globe can arrive at the same conclusions about how to mix their labor with materials to arrive at some optimal outcome. Just like Isaac Newton and Gottfried Leibniz discovering calculus in isolation, there should be no restriction on thought, it is an inherent aspect of all natural rights. If then we strip companies of monopoly privilege in the form of patents, we remove their ability to redistribute their profits independent of consequential new competition for higher market prices in the free market economies. They would have to compete toe-to-toe with other similarly formulated or constructed products no longer locked out of the market by the patent office. This would lead to a more market driven price sheet globally and force socialist countries to choose between pushing innovative products away from their market or removing price controls. This would rebalance the global market, create disincentives for central economic planning, and put innovation back at the forefront of the global market. At that point which ever country can do it better, faster, cheaper (in any combination) will win the day and the consumer is the greatest beneficiary.

For those who fall back on the tired argument of research being stifled by a lack of patent protection, couldn't you reverse the argument and say that research by other companies or individuals to improve upon products which never move past concept into development is equally stifled? Is it fair that someone could be granted a 12 year patent for a life-saving drug that never moves past concept and into product development or introduction to the market? What about a new technology that eliminates greenhouse gasses but is squatted on by an oil company because it would put them out of business? How much better would the world be today if everyone (individual or company) were allowed to pursue marginal profits through the introduction to the market of new technologies. More entrepreneurs means lower prices, quicker technological turnover, better quality, and optimally functioning markets. It very well may be that the elimination of patents could revolutionize the world, and prove, once and for all, the superiority of the capitalist system to socialist experiments. As it stands, socialism's path to victory is clear.

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