The McGill Report

When it Comes to Drugs, Trust the Grannies

Rochester, MN -- Granny knows best.

That's the real lesson of Gov. Pawlenty's bold plan to have Minnesota help its citizens buy cheaper drugs in Canada than they can buy here in the United States.

Defying the giant drug companies spending millions to spin the governor's plan as anti-innovation and as a grave threat to Americans' health, the caravans of grannies have continued driving straight up into Canada.

And thank God for that. Too wise to fall for "big pharma" spin, our senior
citizens are insisting on their right as citizens to play the role of consumer to its logical end. That is to seek the best possible product at the lowest possible price. That's how our free market system works.

As a result, mass civil disobedience by our society's honored elders is pushing America toward a decision on the truly fundamental question underlying this and every free trade vs. protectionism debate.

That question is, do we want to be a society that erects ever-higher barriers to free trade in the world? Or do we want to become a more open society commercially, making it easier for products of foreign origin to be sold in the United States and for products made in this country to be sold in foreign lands?

Economic Competition

By putting the free trade question starkly before the country, the state of Minnesota, via the Pawlenty plan, is doing a great service.

Now that we Minnesotans have become the nation's de facto leaders in the free trade movement as regards prescription meds, it's worth a little time to think it through.

There are two levels to consider. First, whether we think free trade in general is a good idea. Second, whether we think this is a good instance of free trade or whether, due to its particularities, it merits exception, in which case the drug giants should be granted protection from global economic competition.

The classic case in favor of free trade is simple.

"The advantage of free trade is that you make more efficient use of the world's resources," says G. Edward Schuh, professor of international trade at the Hubert Humphrey Institute in Minneapolis. "You improve the income of everybody." Under free trade, nations will produce goods in which they have a "comparative advantage," and they will trade with other nations where they do not. Everybody wins.

Two Arguments

Few challenge this in theory, and arguments for protectionism, the opposite of free trade, usually plead for exceptions. Common ones are for national security, the need to apply sanctions against political enemies, the need to protect "infant industries" and so on. None of these exceptions substantially apply in the case of reimported drugs from Canada.

Many moral arguments are also made for free trade. Among them are that countries that trade with each other are less likely to make war against each other; that a door opened by trade allows ideas like democracy to pass through later; and that free trade, by broadly diffusing economic decision-making, puts a safety check against the power of the state.

Opponents of the Pawlenty plan offer two main arguments.

First, they say that drug prices are low in Canada because of state subsidies or price controls. By allowing reimportation of the drugs, the United States will therefore be "importing" price controls, which is bad economics.

But wait. The U.S. drug companies are smart. If cheaper drugs started pouring into this country en masse, they would probably tell the Canadians to either raise prices or they would stop selling to Canada. Fearing the latter, Canada would likely lift its price controls and thus prices, at least partially.

Big Boys

It wouldn't make our seniors happy, but the drugs would probably still be a bargain. Most important, the mechanism of the free market, extended across national borders, would have moved overall prices to a level where the efficient use of resources was maximized.

Second, Pawlenty's opponents say that if reimportation became widespread, American drug companies would, in retaliation, stop selling drugs to Canada. This in turn might cause Canada to "seize patents" and start making the patented drugs themselves, thus causing great loss to U.S. companies.

But are we in America really going to adjust our present pricing policies even one iota based on totally speculative projections of what would, in any case, be a matter of massive international patent theft? To do so would be like submitting to blackmail even before it happened.

Seeing no way to qualify this instance of free trade as deserving of special protectionist care, we revert to the positive case for free trade.

Freer drug reimportation would make it tough for the drug companies for a while. But they are big boys. They will survive and improve, too, for having to make adjustments to the realities of global competition.

Most important, why shouldn't the rigors of market capitalism -- which "big pharma" so strongly recommends the Canadians adopt -- apply to them?

Free trade is good medicine for everyone in the world.

Let's thank our steadfast grannies for the reminder.


Copyright @ 2003 The McGill Report